Business-to-business payment fraud is on the rise, and companies are looking to their chief financial officers to solve the problem. Not only does payments fraud cause financial losses, but it represents a large risk for reputational damage to companies.
Payments fraud reached an all-time high in 2017, besting the record set in 2016, according to the Association for Financial Professionals, which conducts an annual payments and control fraud survey. The AFP reports that the scammers are becoming more sophisticated and shifting their tactics in response to security measures, attempting fraud that appears more and more authentic. To combat B2B payment fraud effectively, CFOs need to view their accounts payable holistically, looking beyond just the payments piece of the process.
What CFOs Can Do
To tighten security against potential payments fraud, experts recommend that CFOs start by defining their accounts payable processes in detail from end to end, outlining potential pathways for fraud at each step. That includes breaking down invoice approvals, invoice coding, payment authorization and payment execution steps.
Once they’ve broken down all of their accounts payable processes, CFOs can implement payment controls within each process. Purchase order matching is a good practice for preventing fraudulent invoices from entering the accounts payable process in the first place. Companies can also segregate duties related to accounts payable, and create separate roles for the management and approval of invoices. This is a critical control that prevents fraudulent invoices from working their way through the AP pipeline. They can also implement dual-factor authentication—requiring payees to submit an additional measure of authentication. Tokenization creates one-time use card numbers that can be charged for each specific vendor payment, while preventing fraudsters from abusing access to your payment information.
A company can also set up a positive pay approach, where its bank takes the account number, check number and dollar amount of each of the company’s checks that are presented for payment and matches them against a statement from the company of the checks it has issued. Any check that doesn’t match the company’s statement is flagged, and must be approved by the company before the bank releases payment.
Best practices show that to effectively and consistently utilize payment controls for preventing B2B payment fraud, CFOs need to create separate roles within the AP process. They should also shift their spend activity to electronic payment methods, eliminating the potential for check fraud. And automating accounts payable builds the best practices and payment controls into the vendor payment process, including dual-factor authentication, tokenization, positive pay and purchase-order matching. By automatically checking every invoice against AP data, and with instant access to the entire life cycle of purchase orders and invoices, automated AP can prevent unknown vendors from slipping by. Automated AP takes only seconds to verify legitimate payments or flag potential fraud, so AP staffers spend time on higher-level tasks instead of manually matching and verifying.
To learn more about building these best practices and payment controls into your vendor payment process, read Three B2B Payment Controls Every Accounts Payable Team Needs.