Prevent Payment Fraud With These Tips to Protect Your Business
by Lenny DeFranco
If payment fraud hasn’t happened at your business, it’s only a matter of time.
Forgive us for sounding alarmist, but it’s a threat that all B2B businesses must have at the top of their mind in order to protect their assets: The 2020 Association for Financial Professionals Report found that over 80% of organizations reported falling victim to an attempted or successful payment fraud scheme.
When you consider that organizations worldwide lose about 5% of their revenue to fraud on average every year, you can surely understand our urgency. And after the U.S. hospitality sector lost an estimated $534 million in earnings during every day of mandated COVID-19 shutdowns, are you really ready to lose more money?
Stop throwing your profits away and start protecting your assets. In this blog, we’ll teach you about the most common types of B2B payment fraud—along with the ways you can avoid each of them. Let’s get started.
What is B2B payment fraud?
Payment fraud is the act of one entity posing as another to use financial information for an unauthorized transfer of funds. You will most likely experience B2B payment fraud, which means that businesses rather than individuals are getting scammed.
Hospitality businesses in particular are susceptible to B2B payment fraud due to the sheer number of incoming invoices that are received on a daily basis. The more vendors and invoices your business has to process, the higher the likelihood that you’ll get targeted.
Types of B2B payment fraud
Payment fraud doesn’t take just one shape: it can be internal or external, paper-based or digitized. To best protect your business, you’ll want to be familiar with its most common, unfriendly forms:
It’s estimated that between 25-40% of employees steal from their employer. And we’re not just talking petty cash—the Better Business Bureau reports that theft is responsible for 30% of business bankruptcies.
Employees in finance roles have the savvy to see flaws in your Accounts Payable (AP) processes and take advantage of the gaps—especially in a time when more folks than ever are working from home, free from oversight.
Paper creates a lot of those AP procedural flaws. It not only makes you susceptible to invoice fraud, but also check fraud. Checks can be stolen, putting your money in the wrong hands. But they’re also very easily duplicated, giving scammers free entry into your company coffers.
In short: if you’re using a lot of paper in your AP processes, you’re making yourself an easy target to get scammed.
Credit card fraud
Like checks, these thin pieces of plastic are easy to lose and get in the hands of unauthorized users. But one check represents just one transaction. If a corporate card is lost, many different fraudulent charges can be put on it.
Let’s not forget that credit card numbers can also be stolen thanks to skimmers or weak online protections. All a scammer needs is the credit card number and other basic information to make fraudulent purchases on the web or over the phone.
As you (should) know, we’re evangelists of ACH bill pay around here. But it can go horribly wrong. Since ACH is a direct exchange of an electronic file between two entities, all it takes is one incorrect number for the funds to be intercepted elsewhere.
The error could be due to human data entry, or it could be because an impostor has contacted your team with “new,” fraudulent ACH details. You need to protect your business against both.
Vendor email compromise (VEC)
VEC occurs when an impostor creates a fake account that appears to be associated with one of your regular partners. The scammer can then provide false payment information or even issue completely fake invoices for goods that your business never ordered—and that you’ll definitely never receive.
Preventing B2B payment fraud
Considering all of the different ways that businesses can fall victim to payments fraud, it’s no surprise that it occurs so frequently. So how can you avoid becoming a statistic and make sure your money is going only to the businesses that are owed payment? Use these 5 tips.
Set financial permissions
Put better controls in place to eliminate wide access to your internal finances. With financial management software, you can set permission for only specific people within your organization to have the authority to issue payments. They can still get visibility into what they need in order to do their financial management job, but you can deny them actual access to funds.
The fewer people on your team who have the permission to issue payment, the less likely you are to experience internal fraud. And if internal fraud does occur, it makes it much easier to find the culprit.
Reduce access to checks
There are a lot of better ways to send payments these days that don’t use paper. But we get it—sometimes vendors require them, and sometimes you just aren’t ready to adopt the latest tech. If sending paper checks is an absolute must, reduce your team’s access to the checkbook.
Some bill pay entities offer you the option to cut checks on your behalf and send them directly to vendors upon approval from an authorized user. It’s pretty tough for an employee to steal a blank check from your business if it’s never there in the first place, right?
Issue virtual cards
The root of the issue with credit card payment fraud is that the number on the card can easily be stolen. So what if you just used a different credit card for each payment? Virtual cards make this a reality with only one credit card account.
Virtual cards are randomly generated, digital card numbers that allow you to use card payment portals with single-use or multi-use credit card numbers. Once it’s used for that specific transaction, the card can never be used again—eliminating any chance credit card fraud can occur.
Verify ACH accuracy
Using a bill play platform eliminates the errors inherent in human-driven ACH payments. The software gives you the option to directly pay vendors through ACH. The automation inherent in this process removes human error from the equation, ensuring funds can’t be intercepted thanks to one tiny error.
Contact vendors on platform
Another way to verify that ACH payments are correctly routed is to insulate your business from false imposters. You can message your verified vendor contacts directly through software instead of trusting an unexpected phone call or email with new payment information.
If a vendor is already using the platform for bill pay, it’s much more logical for them to log in and update ACH or other payment details themselves rather than put the responsibility on your business. This makes it much more obvious if a scammer is posing as a vendor contact: any call that comes in with new routing information is likely false.
Use Bill Pay to prevent payment fraud
Set user permissions, cut checks, issue virtual cards, protect ACH payments, and connect with vendors all on Plate IQ. Our Bill Pay feature was built to protect businesses against payment fraud while providing a streamlined process for overburdened AP teams.
The quickest way to start shielding your assets from payment fraud is to join Plate IQ. Click “Request A Demo” at the top of this page to join the thousands of other businesses that we protect from scams every day.
Lenny DeFranco writes for Plate IQ about how businesses in hospitality, accounting, and more can gain efficiency and earn revenue through AP automation.
Stay up to date on the latest news in AP automation and finance