It is no secret that in today’s world of B2B payments, payment fraud can have severe implications for your business. From a tarnished professional reputation to costly process revisions, fraud-related events affect far more than just your bottom line.
With these risks in mind, fraud prevention has now become a top priority for many finance leaders across all industries. There are several ways businesses can minimize the potential of falling victim to these pitfalls—and the most effective and cost-efficient route is layering automation into existing business processes.
In this blog, we’ll take an in-depth look at the most common types of payment fraud, the impact they have on a business, and how automation can be leveraged to reduce their repercussions.
What Does Payment Fraud Look Like?
For businesses of all sizes, fraud comes in many forms, all with far-reaching implications and costly consequences.
The most common forms of payment fraud include:
- Account Fraud: This fraud often happens due to an external actor. A cybercriminal gains access to bank accounts through malware, fraudulent or phishing emails, or other means. They aim to make unauthorized purchases or transfers before the real owner or managing employee notices.
- Maverick Spending: Maverick spending occurs when purchases are made without following the established approvals and procedures. While sometimes driven by urgency or convenience, it can also be a cover for fraudulent activities.
- Credit Card Scams: Many companies distribute company credit cards so employees can use them on business-related incidentals. However, this increases the risk of that same card being used for personal expenses—a “one-time mistake” that can quickly transform into a malicious habit.
- Business Email Compromise (BEC): Phishing attacks are on the rise, with their most prevalent form being email phishing. This happens when a malicious entity hacks, spoofs, or impersonates a legitimate email address. Employees, especially in payroll and accounting, are targeted and instructed to provide the fake account with sensitive credentials or to send money to the person they believe is operating the email address.
- Skimming: This kind of fraud can involve just a handful of dollars at a time. It’s commonly found in businesses that handle customer payments in cash, like restaurants, food carts, and food trucks. In some cases, it’s the business owner doing the skimming to reduce the business’s profitability to drop its income tax liability.
Regardless of which form of fraud your business is more likely to experience, any one of these events can have a devastating ripple effect across every department.
The True Impact of Payment Fraud
While high-profile frauds and frauds involving large corporations are more likely to gain media attention, this doesn’t mean that small and mid-sized businesses are free from risk. In fact, these smaller businesses are more vulnerable, as it’s less likely that they’ll be able to recover from significant losses due to fraud. As we touched on earlier, payment fraud causes far more than just financial setbacks.
Supplier Frustration
If funds are being siphoned away from their intended purposes, your business may find itself facing late payment fees, data mismatches, data loss, purchasing problems, and other disruptions. All of these can lead to strained supplier relationships, causing friction between your team and the suppliers they rely on for vital business services.
In worst-case scenarios, this can also result in legal action by your suppliers against your business. Legal battles are not only costly financially but can torpedo your business’s good standing with suppliers and customers alike.
Operational Adjustments
When a business experiences a payment fraud-related incident, the best course of action is to review and overhaul all existing operational processes. This highlights the need for additional antifraud technology, which is a significant investment for an organization that may be currently financially unstable. Spearheading a reactionary technology project is every Finance and IT department’s worst nightmare.
However, researching, identifying, and implementing a payment automation solution into your business’s tech stack serves as an incredibly effective preventative measure against any future fraudulent incidents.
Financial Implications
Even the smallest of events, like an employee skimming cash or using their credit card to buy personal items, can have a long-reaching impact on your business’s finances. Larger frauds, of course, have a more direct impact on your bottom line. For example, after a business email compromise, your organization could have most of its funds vanish overnight or have sensitive information held for ransom by hackers. This can cause all operations to grind to a halt, leaving customers and suppliers frustrated, concerned about their own finances, and less likely to continue to do business with you.
Addressing any of these types of payment fraud costs money—and not just a small amount of it. For a mid-sized business, the median loss caused by fraud is around $117,000. That’s a pretty penny!
Pairing together the supplier, operational, and financial costs of fraud clearly illustrates how much harm these kinds of events can do to your business. The important question now is: what is your best option to mitigate the risk of payment fraud?
Automation: A Business’s Best Weapon Against Fraud
While there’s certainly no one fool-proof way for your business to avoid payment fraud entirely, there is one tool that can transform business practices and shrink the gaps where fraud can occur: automation.
Automation works to streamline operational processes to improve time and effort spent, while also reducing the amount of unnecessary human interactions with certain data throughout your business. This can take the form of:
- Streamlined and flexible payments: A particular bonus for the accounts payable department, streamlined payments make it more difficult for hackers and other scammers to access the important data they so badly want. Automating payments, the approval process, and even relying on digital payment methods like virtual credit cards for scheduled payments are just a few ways automation can help protect your payment procedures from fraud.
- More secure document management: With automation, sensitive customer and employee information can be stored securely based on criteria your business sets. Similarly, all access to this information can be managed with tiered permissions, ensuring that only the employees who truly need to be involved are.
- Comprehensive, adaptable forms: Forms, despite their simplicity, can cause business headaches. Without a universal, uniform form being used for data collection or data input, it’s easy for scammers to manipulate signatures, sensitive information, and more. The right automation system will ensure that data is secure, recorded accurately, and can easily be distributed to only the most relevant team members.
- Enhanced vendor management systems: A robust vendor management system works to organize vendor (supplier) information while directly integrating with your existing ERP(s). An automated solution works to identify supplier data like bank account and tax identification numbers, keeping your team aware of any unauthorized changes that may indicate a scam.
Given its significant impact on not just payment fraud prevention, but on every level of modern businesses, automation truly is a tool of the future, making companies more efficient, secure, and prepared for any challenge presented to them.
DocuPhase’s suite of automated solutions can handle the entirety of a business’s back-office needs—including managing those procedures that leave the most vulnerable to fraud.
Contact us for a demo today to learn how DocuPhase can strengthen the security of your workplace while saving you time and improving your team’s efficiency.
