Most businesses have taken steps to mitigate the risk of B2B payment fraud in their organization. However, some instances of fraud are incredibly difficult to avoid. According to JP Morgan’s recent report, 65% of organizations were victims of attempted or actual fraud in 2022.
Many believe keeping credit cards, checks, and ACH payments outside of their vendor payment strategy will reduce their risk of fraud. While this made sense at one point in time, new virtual card technology is changing the way businesses think about credit card payments. Keep reading to learn how virtual cards can help improve the safety of B2B payments within your business.
What is B2B Payment Fraud?
B2B payment fraud is any fraudulent transaction completed by an unauthorized user between businesses. It can take many forms, but some of the most common include fake invoices, business email compromise (BEC), or supply chain fraud.
An Overview of B2B Payment Fraud Trends
B2B payment fraud continues to be a strain for companies with over half of businesses reporting they were victims in a fraud attempt. Bad actors are getting increasingly sophisticated, with payment fraud coming in various formats, including business email compromise or vendor fraud.
Checks are the most susceptible to fraud risk, with 63% of organizations noting that they faced fraud attacks via this payment method. By implementing strong internal controls and switching to digital payment methods, companies can better protect themselves from risk.
What Are the Challenges when Combatting B2B Fraud?
There are several challenges for companies when targeting B2B payments fraud. The most common challenges include:
Lack of Strong Internal Controls
Without strong internal controls in place, it can be difficult to catch fraud. Companies without robust internal controls often lack visibility into their financial processes, making it difficult to detect and prevent fraud. This can include inadequate segregation of duties, poor password hygiene, and insufficient access controls. Implementing strong internal control with the help of an AP software tool can also help flag suspicious activity automatically.
Sophisticated Bad Actors
Fraudsters use increasingly sophisticated tactics to target employees. They may impersonate the CEO or a vendor and often use social engineering techniques to convey a sense of urgency. As a result, it’s important to train and educate employees to recognize and avoid common fraud tactics, as well as implement tools to help catch fraudulent activities.
Use of Checks
Checks are highly susceptible to fraud since they can be easily forged or stolen from the mail. And despite being highly susceptible to fraud, many companies still rely on these to make most of their payments.
Limited Visibility
Often B2B companies have limited visibility across their entire payment workflow, especially with complex operations and diverse supplier relationships. Without a holistic view of your entire payment process, it can be difficult for businesses to identify and detect fraudulent activity.
How Can Virtual Cards Secure B2B Payments?
Here are four ways virtual cards make it safer for your business to make online payments with credit cards:
1. Tokenization Protects Credit Card Information From Getting Exposed
Virtual credit cards use a method called payment tokenization to protect your account information when making B2B payments. Tokenization creates tokens: randomly generated payment credentials that replace your static card number. The tokens can only be charged one time for a specific amount. Tokens are used in the payment process and do not expose your primary account number (PAN) or other details. Since your token is not your PAN (and there is no PAN with SilverPay), it cannot be used outside the context of a specific transaction.
Additionally, like encryption, tokenized data is not mathematically reversible unless you have the original key used to create the token. If a hacker breaches a system, the number stored can’t be extracted into any value. This makes virtual cards a much more secure method for preventing B2B payment fraud than traditional paper checks. Whereas paper checks are incredibly easy to forge, virtual cards conceal all private information during the payment process from beginning to end.
2. Charges Can Appear as Debits on Your Bank Account
Paying suppliers by check can take at least one week to be received and processed. Therefore it is extremely time-consuming and leaves room for ambiguity in your books. AP automation solutions make it easy for your business to pay individual invoices with virtual card technology and to continue utilizing invoices as a payment control for credit card payments.
Rather than all charges appearing in a monthly statement and covering them with one payment, individual virtual card transactions can appear as debits in your bank account. This increases your visibility into every credit card transaction and eliminates the risk of missing fraudulent charges until they show up at the end of the month on the monthly statement. This also enables you to dispute inaccurate charges more promptly and saves your employees time to continue focusing on forward-thinking work rather than making reconciliations in bulk at the end of the month.
3. Virtual Cards Reduce Human Error
Typically, B2B payments require a manual process to facilitate transactions. With manual processes comes the possibility of human error. Even credit cards are susceptible to error and fraud. When different employees are using different corporate and personal cards for payment, it becomes difficult for a business to control every employee who collects a credit card number and the process that they follow to ensure the payment is completed. Virtual cards eliminate this problem.
Since virtual cards are only used once before disappearing forever, their one-time use function is a huge advantage when making B2B payments. With virtual cards, business owners don’t have to worry about the transferring of corporate credit card numbers or how many “hands” that number must pass through before payment is complete. With the virtual card’s one-time use feature, it can only be used for its intended purpose.
4. Virtual Cards Minimize Risk with Enhanced Visibility and Controls
Virtual cards enable your accounts payable team to achieve greater spending control with the ability to set unique parameters for each purchase, including limits for the payment amount, date range, and supplier type. Without an integrated form of payment like virtual cards for credit card-based transactions, a business’s visibility and control of spend is hampered. When visibility is limited, managing B2B payment fraud becomes much more complicated given the large number of payments that AP departments make daily.
Virtual cards offer a simple and effective tool to manage B2B payment fraud with special security, anti-fraud, and reconciliation features. For example, virtual cards are transaction-specific and can deliver strict controls at the point of purchase and automatic reconciliation on the back end. Controls can be set per transaction by account limits and supplier type.
How to Maximize B2B Payment Security
While virtual cards prevent B2B payment fraud and offer significant security advantages compared to traditional payment methods, they are not bulletproof for payment security. Take for instance the most recent case of a former employee from the Jacksonville Jaguars NFL team, who allegedly stole over $700,000 by intercepting virtual card payments intended for vendors and diverting them to his own accounts. This demonstrates that despite having virtual cards in place, fraudulent activity can occur if proper internal controls, such as segregation of duties, dual approvals, and automated safeguards are not implemented.
By combining virtual card payments with a robust AP automation solution, you can significantly enhance your B2B payment security, gain valuable insights into your spending patterns, and most importantly, minimize fraud risks.
Virtual Cards and AP Automation – A Winning Combination
Your business’s transition to virtual cards for B2B payments is simplified with AP automation technology. MineralTree streamlines the process of paying with virtual cards by centralizing the AP process into one cohesive workflow and offers the SilverPay virtual card as one of many available payment options at no additional cost. SilverPay utilizes the Visa Network and provides rewards in the form of cash-back rebates for purchases.
According to most middle-market businesses, one of the greatest barriers to adding virtual cards to their B2B payment repertoire is a lack of visibility into which vendors can accept card payments. With MineralTree, this is a non-issue. MineralTree reaches out on your behalf and will automatically enroll suppliers that agree to accept virtual card payments. This provides the flexibility to continue paying other vendors with ACH or checks. Pairing accounts payable automation with virtual card payments is a simple way to streamline your existing accounts payable process, and create the benefits of increased efficiency, optimize your cash flow, and mitigate the risk of B2B payment fraud.
Curious to learn more about how accounts payable automation can help your team leverage electronic payments? Contact MineralTree for a personalized demo.
Frequently Asked Questions
What’s the Difference Between B2B and B2C Payment Fraud?
While the goal of both B2B and B2C payment fraud aim to steal money through fraudulent transactions, they differ in several key aspects including transaction methods, payment terms, and the overall impact.
Why are Fraudsters Targeting B2B Companies?
Fraudsters are increasingly targeting B2B companies since there are higher financial rewards, compared to B2C payment fraud. In addition, B2B payment processes tend to involve multiple parties and typically have slower detection periods, which creates more opportunities for fraudsters to exploit vulnerabilities.
