According to new research by Tungsten Network, UK small and medium sized businesses (SMEs) are losing more than £9bn through invoice fraud every year. This amounts to £1,658 per SME. Of those affected, one in six firms believe the fraud has cost them more than £5,000 in the last year alone.
What’s more, the rate of invoice fraud is accelerating. Over half of businesses (54 per cent) view it as their single biggest threat – more so than losing a major contract, a member of staff, or competitor activities.
A big contributory factor is the format in which invoices arrive to a business. Nowadays, an invoice might be a paper document, a PDF scan of a hard copy or totally electronic. It could arrive via post, email, web portal or uploaded directly to an accounting system. It could even be a confusing combination of options. As a result, there are multiple ways for criminals to corrupt an invoice or the invoice process and employees must be vigilant to thwart all the potential scams. Also, where invoices are arriving via email, they don’t always get sent to a member of the finance department. This means everyone in a business needs to be alert to the potential for fraud and understand their part in identifying something suspicious before sending it on.
Of the 1,000 companies surveyed, 47 per cent have received a fraudulent or suspicious invoice in the last year. Tactics have included: viruses embedded in email attachments; unknown invoices sent via post or email; modified bank details; and duplicate invoices. Often criminals take information that is readily available on the internet to ensure the bogus invoice looks identical to the invoice of a legitimate supplier.
Firms are vulnerable to invoice fraud for different reasons, depending on their size. Small and medium sized businesses might find it hard to combat invoice fraud because of limited resources. A sole trader may spend long hours running their business, not having time to inspect each invoice and cross-check prices against original quotes or indeed actual goods or services delivered. Firms are losing hard-earned money simply through missing a change in a digit here or there.
For a larger business, the issue is the sheer volume of invoices and suppliers. Invoices can also get sent to many different members of staff, regardless of job title or finance training, so this increases the number of people involved in the process and subject to targeting. Larger businesses are more likely to be affected because they offer the richest rewards for criminals. It is critical that tools and processes are in place to safeguard the invoice process.
For companies that operate globally there is even more risk. The more countries you operate in and the more complicated your payment process, then the more opportunity fraudsters have to target your business. For example, cross border transactions could have VAT and other forms of tax applied across different locations. In addition, there are certain higher risk parts of the world where you need to be particularly alert and agile to understand the complexities of operating in that market and how to protect your business.
One of the ways that a business can help prevent invoice fraud is by moving to electronic invoicing. The real strength of adopting a technical solution is that it shifts some of the responsibility for checking an invoice from your finance team to a highly sophisticated, automated-service provider that is expert in building business-specific rules which invoices are validated against. To an extent, therefore, an e-invoicing service provider does some of the checks and balances in relation to invoice fraud for you.
For example, the service provider can check duplicate invoices against the system to avoid criminals invoicing twice for the same thing. In addition to automated rules, the move to electronic also makes the invoicing process more efficient and therefore easier for your business to react to fraudulent activity once it is detected. Tungsten Network is an example of a service provider that can transform your supply chain and invoice process. It currently handles more than 15 million invoices a year, with firms in 192 countries transacting across the secure network.
UK SMEs face all manner of challenges. With the correct protective measures in place, there is no need for invoice fraud to cripple companies. But in the current financial landscape where companies receive a mix of paper and electronic invoices, it is also critical that businesses educate their staff about the scale and financial impact of invoice fraud, and train them to detect it.
 Research conducted by 3GEM amongst 1,000 business decision makers across the UK. Average of £1,658 per SME per year multiplied by 5.4million SMEs (the number of UK SMEs according to Department for Business, Innovation & Skills, Oct 2015)