Fraud is a financial crime where you’re tricked into giving away information or doing something that leads to you loosing money.
An example of fraud is if someone reaches out pretending to be your bank so that they can get your login credentials and drain your bank account. Another word for fraud is deception or scam.
What is invoice fraud?
Invoice fraud is one type of scam that your business can experience. There are several types of invoice fraud, and these are just some examples:
- A fraudulent company sends out thousands of invoices for services or products that were not delivered or performed, hoping that someone will pay.
- A fraudulent company sends you a purchase contract or products that you haven’t ordered and demands payment.
- A fraudulent company signs you up for a subscription without you having requested it.
A particularly sneaky form of invoice fraud is related to consumption tax, also called VAT or GST, where a fraudulent company sends out fictitious invoices, often across borders to complicate tracking. Their goal is to exploit consumption tax deductions for transactions that never took place, in practice they’re deceiving the tax authorities and illegally extracting money from them.
How to protect your business
You should be careful when dealing with unfamiliar invoices, emails or messages, or unexpected phone calls. And you should never disclose sensitive information, like bank information, even if you think you are talking to a legitimate company, like your bank.
It can be especially difficult to detect fraud if you run a large business, if you have a lot of employees, or you purchase a lot of supplies. Make sure to have a fraud prevention checklist that you share with everyone in your company.
If you’re vigilant you can easily avoid these types of scams.
You can also implement these protective measures:
- Verify invoices. Only pay invoices from known and trusted sources.
- Question unexpected communications, such as emails, messages, and phone calls.
- Make sure to use a unique password for each service—for extra safety, you can consider investing in a password manager.