B2B payment fraud is a serious issue that affects businesses of all sizes. From forged invoices to wire transfer fraud, malicious actors are finding new ways to exploit outdated systems and processes to steal money and sensitive data. Checks remain the most targeted payment method, with 65% of companies reporting fraudulent checks-related attacks. However, ACH payment fraud has risen significantly, surpassing wire fraud and becoming a primary target for business email compromise (BEC) attacks, with 42% of businesses reporting an increase in BEC incidents over the past year according to the latest State of AP Report. Understanding these risks and taking the right steps to protect your business is crucial. In this post, we’ll dive into the tactics commonly used in B2B payment fraud and show you how automation can help you minimize risk and streamline your accounts payable processes.
Key takeaways
- B2B payments fraud is rising with fraudsters exploiting weaknesses in paper-based and manual processes
- Common fraud tactics include fake invoices, phishing scams, wire transfer fraud, and vendor impersonation
- AP automation can reduce fraud risk by integrating secure payment methods, improving internal controls, and automating approval workflows
What is B2B payments fraud?
B2B payments fraud is any fraudulent activity that occurs in business-to-business transactions. This can range from forged checks and fake invoices to phishing scams and unauthorized access to payment systems. Fraudsters take advantage of outdated processes, weak oversight, or gaps in security to steal money or sensitive financial information. The consequences could lead to financial losses, damaged vendor relationships, and even legal or reputational issues.
But it’s not just about the money. Fraud can also disrupt daily operations, put unnecessary stress on your accounts payable team, and leave your business more vulnerable to future attacks. Knowing how these scams work is the first step to keeping your business safe and your payments secure.
Common tactics used in B2B payment fraud
B2B payment fraud is on the rise and poses a significant risk to businesses of all sizes. Here are several key warning signs and methods to keep an eye on:
1. Fake invoices
Invoice scams are prevalent in the business world. Fake invoices are when fraudsters send invoices that look real but are completely fake and they hope your accounts payable team processes the payment without questioning it.
2. Business email compromise (BEC)
A business email compromise is when hackers pretend to be executives or vendors and send emails asking for urgent payments. The goal is to trick employees into transferring money to the wrong account.
3. Phishing scams
Phishing scams are the most common form of cybercrime, fraudsters send messages that look like they are from trusted sources, asking for sensitive information like account details or payment information, and then use it to steal money. The State of AP Report found that 96% of buyers cited phishing as one of the most common types of fraud
related to AP in their organization.
4. Duplicate payment schemes
Duplicate payment schemes can happen accidentally if processes are not carefully managed, but fraudsters use this tactic by submitting the same invoice more than once, hoping it gets paid twice.
5. Account takeover
Account takeover is a type of identity fraud when hackers gain access to your social, financial, credit, email, or payment accounts by stealing login details. Once they are in, they can initiate unauthorized transactions.
5. Wire transfer fraud
Wire transfer fraud occurs when someone poses as a trusted vendor or partner and asks for an immediate wire transfer under false pretenses. This often includes a sense of urgency and negative consequences if the transfer isn’t done quickly.
6. Vendor impersonation
Vendor impersonation is a form of business email compromise (BEC) where fraudsters or malicious actors pretend to be one of your real vendors and scam you into making payments into a fraudulent account.
Being aware of these scams can help you protect your business. Focus on improving internal controls, using secure payment systems, and training your team to catch signs of fraudulent activity or attempts. These steps can go a long way in keeping your business and payments safe.
B2B payments fraud is growing: AP teams should consider themselves on notice
According to the AFP, 80% of businesses experienced attempted or actual B2B payments fraud last year. This number has risen steadily since 2013, and one of the primary causes is the continued use of paper-based and manual processes to capture, approve, and pay invoices.
The persistent use of paper checks in B2B payments is becoming confounding as more secure and convenient options for businesses continue to present themselves. Compared to the variety of electronic payment options available, paper checks are much more susceptible to both internal and external B2B payments fraud.
B2B payments fraud is also getting attention from IT teams, which have taken note of this trend too. In fact, 85% of security professionals are not confident their companies have deployed sufficient technology to protect against payments fraud. The bottom line: If your accounts payable team is still using paper-based, manual processes, your entire company is exposed to an unnecessary level of risk every time it receives, processes, and pays an invoice. What can you do about this?
Transition to Electronic Payment Methods
Electronic payments, in contrast to paper checks, offer layers of security by encrypting payment data in transit. Virtual card technology goes a step further by employing the use of tokenization and restricting each payment to a one-time-use credit card number for a fixed transactions amount. But in addition to improved security, electronic payment methods across the board also expedite the payment process providing you with extended working capital benefits and improved command over your cash flow.
Best Electronic Payment Options Available
The best electronic payment methods include the following:
- ACH transfers
- Credit cards
- Virtual cards
ACH transfers
ACH transfers are electronic payments facilitated by NACHA, and deliver three crucial benefits to businesses in comparison to paper check payments. First and foremost, they are more secure as payment information is encrypted throughout the transfer process. Second, ACH transfers are faster. The duration of an ACH transfer is at most three days, and some businesses can work with their banks to set up same-day ACH transfers as well. Finally, the third major benefit of ACH transfers is cost savings. While paper checks cost $5 per payment on average, ACH transfers can be executed for under a buck.
Credit cards
Credit cards have been under-utilized as a B2B payment method so far. The leading reasons for this have been the hassle of determining which vendors accept credit cards, and the cumbersome process of building out a new payment procedure that differs from the status quo of paper checks that has held fast for decades. However, making the switch is worthwhile. Credit card payment information is also encrypted in transit. In addition to enjoying the benefits of same-day payments, they are also accompanied by cash-back rebates that can run as high as 2% of all payments made. This represents low-hanging fruit that drops to your bottom line.
Virtual cards
B2B virtual cards provide all of the same benefits as credit cards, and go a step further to protect your payment info by eliminating the need to ever expose corporate payment information. How does it do this? Tokenization. By generating a single-use credit card number for each vendor payment, there is no way for overarching company payment information to fall into the wrong hands.
4 ways to avoid B2B payment fraud
If you’re like most businesses, you have taken some measures to establish controls that mitigate B2B payments fraud risk, but are you’re having a tough time enforcing them. Especially if your business (and list of vendors) is growing fast.
Most businesses check the validity of invoice amounts with the department heads working with the vendor. They do this by either forwarding invoices via email or handing them off directly. Businesses that use Purchase Orders (POs) check each invoice against their corresponding PO. Then, once an invoice is approved, most businesses write checks and deliver them to the CFO to sign before sending them.
These practices are excellent ideas to keep the process secure in theory, but challenging to follow through on. If you’re juggling dozens of email threads to get invoices approved, it’s really easy for invoices to fall through the cracks and never get paid. Additionally, it’s easy to forge invoice approvals and very difficult to organize documentation of all approvals for quick access during audits. It doesn’t take long for matching up POs to corresponding invoices to become incredibly tedious as well. When the final approval for a payment depends on the signature of a CFO, every batch of payments hinges entirely on the availability of the CFO.
Adopting an automated accounts payable process makes it easy to follow through on implementing payment controls. Here’s how:
- Segregation of duties
- Dual factor authentication
- Auto PO match
- AP automation
1. Segregation of duties
AP Automation solutions designate separate roles in the accounts payable process by creating separate login credentials and dashboards. This makes it incredibly challenging to forge approvals and preserves receipt of all approvals in one central location for easy access at any point in the future.
2. Dual factor authentication
AP Automation solutions also require dual-factor authentication to decrease the feasibility of account takeovers. Every time someone logs in, they are required to not only enter their password, but also a verification code delivered via email or text message.
3. Auto PO match
For businesses leveraging POs, AP Automation can eliminate the pain of matching them to corresponding invoices by automatically matching them and flagging any mismatched ones.
4. AP automation
In today’s fast-paced business environment, protecting against B2B payment fraud requires a robust system. AP automation is not just about improving efficiency—it’s a crucial step toward safeguarding your business. By integrating secure payment methods like ACH transfers, credit cards, and virtual cards, AP automation minimizes the risk of fraud at multiple points in the process.
Final thoughts
With these controls in place, you can effortlessly maintain control over your AP process—even as you continue adding vendors monthly. MineralTree provides the most complete accounts payable automation solution available to middle market companies and incorporates all of these payment methods and payment controls into its solution.
Are you curious to see what your AP process looks like with automation? Contact MineralTree to schedule a demo.
Frequently asked questions about B2B payment fraud
Tl;dr? If you’re short on time, the frequently asked questions below provide a quick snapshot of what you need to know about B2B payment fraud.
What is the most targeted payment method for fraud?
The most targeted payment method for fraud is paper checks. Despite the rise of digital payments,, paper checks remain a popular target for fraudsters due to their susceptibility to being altered, forged, or intercepted during transit.
Who is most likely to experience BEC fraud?
Businesses of all sizes can fall victim to business email compromise (BEC) fraud, but companies with remote workforces or those that rely heavily on email communication for payment approvals are at higher risk.
What’s the difference between BEC fraud and phishing?
BEC fraud and phishing are both types of cyberattacks that use fake emails to trick users. However, there are important differences between them. BEC fraud is a targeted form of phishing and the goal is to deceive high-level executives into transferring large amounts of money. On the other hand, phishing attacks usually target a wider audience to collect personal information, such as login details.
