AP Automation

Merchants often focus their defensive efforts on the threat of cybercriminals posing as customers, but it’s important to remember that fraud can have many different attack vectors. Some fraudsters find their angle by posing as vendors or supplies, engaging in invoice fraud to trick businesses into sending them money.

The tools and methodologies used to fight credit card fraud are ineffective against attacks that target vulnerabilities in your accounts payable processes, but automating these processes can provide you with new ways to strengthen your defenses against attacks like these. How can AP automation help merchants detect and avoid invoice fraud?

Invoice fraud doesn’t lead to chargebacks—instead, it focuses on stealing money directly from the merchant. While you don’t need to worry about invoice fraud increasing your chargeback rate and getting you in trouble with your acquirer, the fact that invoice fraud can be a high-stakes gambit that seeks to steal hundreds or even thousands of dollars from a merchant in a single attack makes it a threat equally worthy of consideration.

It’s not always easy to detect invoice fraud, which means that some companies have lost millions to dedicated scammers over time, and it can be difficult to put a finger on the exact scope of the problem. One study showed that UK businesses lose the equivalent of $120 million per year to invoice fraud, a problem exacerbated by the fact that 43% of businesses aren’t even aware of this type of scam.

Awareness is key, but awareness must be combined with careful manual review processes if the goal is to detect invoice fraud and stop payments from going out to fake vendors or compromised accounts. This takes time and can place a heavy burden on AP personnel.

With artificial intelligence, machine learning, and other sophisticated technologies making it more feasible than ever to automate complex business processes, many companies are choosing to automate their AP processes. One significant benefit of AP automation is that it can be an effective and affordable way to prevent invoice fraud. 

What Is AP Automation?

AP automation is an approach to the AP process that involves using software solutions to create an efficient, digitized workflow for receiving, reviewing, and paying invoices.

Instead of relying on individuals within your organization to route paper or emailed invoices to the appropriate AP desk, an automated solution would scan the invoice, review it for accuracy, and schedule an electronic payment. Manual approval would only be required after all of the necessary checks and preparations have been automatically taken care of.

One of the caveats about AP automation is that it works best when you have a high degree of buy-in from your suppliers, who must be willing to send electronic invoices and receive electronic payments.

Otherwise, you have to double-check scanned paper invoices for accuracy and cut paper checks, at which point the process starts to look markedly less automated. Even so, you can still benefit from one of the most important functions of AP automation—its ability to quickly, thoroughly, and accurately verify that invoices are valid and contain confirmed payee information. This is key to stopping invoice fraud.

What Is Invoice Fraud?

Invoice fraud is when a fraudster tricks a business into sending them an unearned payment. There are many ways this can be attempted. One way is to send a completely fabricated invoice for the delivery of nonexistent goods or services, but this is the easiest type to detect. It’s more common to see fraudsters sending an invoice that appears to be from a legitimate supplier, but with the payment details changed.

Invoice fraud is often the purpose of a Business Email Compromise (BEC) attack—emails that appear to be from a known and trusted party but are actually sent by a fraudster.

Invoice fraud sometimes piggybacks off of a legitimate invoice. If the fraudster knows that your company gets a monthly invoice from Acme Maintenance, they might send you a BEC email that appears to be from the CFO of Acme Maintenance, informing you that they have a new bank account and that all electronic payments must be sent there from now on. The scam might not get discovered until the real Acme Maintenance sends a past due notice months later.

Having access to confidential information makes it easier to get away with invoice fraud attacks. For this reason, many of the larger and more successful invoice fraudsters have been inside jobs—employees scamming their own companies.

How Can AP Automation Prevent Fraud?

One of the core functionalities of any automated AP solution is verifying that invoices are legitimate before paying them. Here are some of the ways it accomplishes this:

Centralization

Automated AP solutions will centralize all of your invoice and payment management into a single software hub. This can eliminate some of the errors that come with having multiple manually-run AP desks, such as invoice duplication.

It also ensures that one AP employee can’t enter false data or change banking information—intentionally or otherwise—without the rest of the department having immediate visibility into the changes.

Audit Trails

A centralized software hub can automatically create immediate, accurate logs of new and updated record entries, making it easy for approvers to see where changes are coming from.

Contract Management

Suppliers can engage in invoice fraud, too, and this can be very hard to detect. Automated AP solutions can review supplier contracts to ensure they’re up-to-date and cross-check invoices to make sure they match up to valid purchase orders and accurately reflect the pricing rates you’ve agreed to pay.

Consistent Internal Controls

Most businesses have a process for reviewing and approving invoice payments, but these controls don’t always get followed when departments are overwhelmed, disrupted by external events (like the pandemic), or experiencing high turnover. When all invoices have to go through an automated workflow, these controls can be applied consistently in every case.

Reduce Paper Checks

Fraudsters love getting their hands on paper checks, which can contain sensitive bank account information even if they can’t be fraudulently cashed. Digital automation and paperless operations go hand-in-hand, and an automated AP process should result in fewer paper checks and the risks they carry.

 Conclusion

For busy merchants, automation can simplify a lot of problems and give you more free time to deal with issues that need manual oversight—fighting chargebacks, for instance. While you can’t expect AP automation to be a set-it-and-forget-it solution that completely eliminates the threat of invoice fraud on its own, it can provide you with a strong baseline of defense that makes it much easier to catch it in progress, identify your vulnerabilities, and implement stronger controls to prevent future occurrences.

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