BFSI businesses of any size are exposed to the risk of invoice fraud and it is increasing as they manage a high volume of invoices. The fact is that one in four (25%) finance professionals do not know or they can’t even estimate the cost of fraudulent invoices to their company which is even more shocking. This lack of visibility is likely due to disorderly paper traces that continue to disrupt the invoicing process. Hence automation is implemented to prevent invoice fraud thereby protecting the financial businesses with high level of security.
How Does Invoice Fraud Occur In The Financial Business
A properly executed invoice scam which brings the account payable department under attack. Businesses are vulnerable to fraudulent invoices for different reasons, according to their size. Finance teams detect billing fraud every month, not to mention the undetected fraud. Small and medium-sized financial firms may face challenges in dealing with invoice fraud due to limited resources. The larger firms face invoice fraud due to the large volumes of invoices and customers. Even though the finance businesses will ultimately detect invoice financing fraud, the earlier they can identify it, the easier it is to reduce the amount of exposure to it. The more time it takes, the less likely it is that they will recoup losses.
Internal Process Vulnerabilities That Drive Invoice Fraud
Process weaknesses that increase invoice fraud in an account payable that might not be in the hands of fraudsters are listed below,
- Lack of communication
- Failure in the control of processes
- Complicated procedures
- Poor tracking of invoices
These processes are usually paper-based, have multiple levels of approvals, and often long audit processes.
How Invoice Automation Accelerate The Detection Of Invoice Fraud
The entire account payable operations needs to be performed faster to identify the invoice fraud quickly. Employees need a streamlined workflow that makes it easier to work between loan systems, banking systems and accounting systems. These processes usually take a lot of time which are considered to be repetitive, time consuming and high in volume, hence invoice automation needs to be deployed. This allows bankers to process more invoices in a timely and accurate manner without adding staff overhead.
Automation speeds the detection of fraud in a variety of ways.
Simplified Review Process
Manual reviewing of every invoice can be painstaking and would end up with errors. This can be minimised using invoice automation where AI can be used to perform background checks to review large amounts of data and scans for errors. It is used to look for unusual patterns such as invoice sizes, number of invoices and credit notes that are assigned to invoices. Fake invoices and duplication of invoices can be detected quickly which bring to employee’s attention if there’s something suspicious thereby saving time and reducing errors.
Misdirected receipts, in which the customer collects the payment but does not give it back to the bank, are still one of the most common frauds in invoice factoring which is very difficult to find. Automation helps in finding these issues and inconsistencies very quickly with a two and three way matching process. When errors are reported, the invoice is retained and the payment is held. After the problem has been investigated and solved, the invoice can be processed for payment. Chances of diverted receipts or missing an invoice are very small with a three-way matching process in place.
Quick Ledger Reconciliation
Banks might take several days to reconcile a file after a customer submits a ledger. As a result, bankers identify mismatch and potential fraud between ledgers in the month ends, while it is more difficult to recover what has been lost. Using automation, financial institutions can set up new workflows where the customer’s ledger is automatically retrieved at the very beginning of the month and the entries are reviewed using auto content validation before being turned over to employees looking for anomalies. Automation helps to deliver reconciliation reports on the same day, matches cash receipts across the system and can collect data from various financial systems providing higher level of protection against invoice fraud.
Using automation to process certain steps and functions in financial institutions can make the business more effective in serving clients and protecting themselves from risk.
Bautomate’s Invoice Automation solution is a low code customizable platform which may contribute to the mitigation of fraud in your financial business providing an enhanced level of security, accuracy and transparency. Schedule a demo today for more information.