Scams targeting businesses are nothing new. But the cost of their impact is something to take note of. According to a 2024 survey, around 90% of U.S. firms lose up to 9% of revenue to various kinds of fraud each year.
Among the common types of threats plaguing the business community is payment fraud. This covers a broad range of shady activities aimed at exploiting a company’s payment processes.
A vendor billing your organization for items they haven’t delivered, customers requesting a chargeback based on false claims, and an employee pocketing a company check by altering its details are all classified as payment fraud.
It also includes criminals stealing bank or credit card details or using a BEC attack to siphon money in the guise of a business payment.
Now, the financial impact of such payment swindles can leave a serious dent in your bottom line. And as your employees get distracted by the aftermath of a scam, you can expect a significant disruption to your operations, too. There is also the reputational damage, loss of trust among stakeholders, and potential lawsuits you will need to deal with.
But is there a way to detect and prevent payment-related fraud before it escalates? Keep reading to learn more!
Signs of Payment Fraud You Shouldn’t Ignore
More often than not, payment scams have certain characteristics that allow you to spot them at the outset.
Warning signs to watch include:
- Inconsistent Information
Inconsistencies are a major red flag that can alert you to a payment-related crime if you pay close attention. Let’s say a scammer imitates one of your vendors and emails you a new bank account to make payments. If you carefully examine the email address or the signature, dissimilarities between the imposter’s mail and those from the vendor could give away the fraudulent attempt.
- Unexpected and/or Unusual Requests
If something doesn’t add up about a payment-related request, you shouldn’t dismiss the possibility of someone trying to dupe you. For example, a vendor providing an account with a name different from their company’s or a customer asking for a wire transfer refund when they have paid with a credit card should typically raise alarms.
- Pressure to Respond Fast
What if your finance team gets a sudden call from a senior executive asking them to make an urgent payment to an unfamiliar account? A sense of urgency can often force employees to comply with such a request without going through the regular verifications and protocols. This is why pressure tactics have become common in payment fraud.
- Discrepancies in Documentation
Has a vendor sent you a duplicate invoice? Is there a disparity between the purchase order (PO), the invoice, and the goods received note (GRN)? Are critical payment documents missing? If you answer yes, there is a high chance that someone is trying to manipulate your payment processes.
- Unusual Transactions
Payments that are unaccounted for, an unexpectedly high volume of transactions, or any other changes in the regular payment patterns usually hint at deceptive activities. While these would mean that a fraud has already occurred, they can act like warning signs if you detect them early, enabling you to prevent further damage.
Fraud Prevention Techniques Every Business Must Adopt
So, what specific steps can you take to identify and avoid payment scams? Here’s what you should know.
- Authenticate Communications
Every high-stakes communication that has to do with financial transactions or business-critical information needs to be verified, no matter how urgent.
For instance, if you get an unusual email from a vendor, reach out to them on their regular phone number to ensure the request originated from them.
- Have Role-Based Access Controls
By restricting access to confidential data and financial transactions, you can minimize the mishandling of payment-related activities to a large extent.
So, consider setting up authorization levels, installing physical access controls, and implementing digital restrictions via passwords.
- Strengthen Your Digital Infrastructure
This will allow you to protect your organization from cyberattacks, like hacking and phishing, that ultimately end up with payment fraud.
Password protection, multi-factor authentication, secure emails, data encryption, software updates, firewalls, and virus guards are all essential elements for your organization’s digital security.
- Track Your Business Activities
To identify and manage risks, you must monitor your operations consistently and continually.
For example, review your bank transactions, track vendor payments, compare invoices against GRNs, and conduct regular audits. An integrated management information system and AI tools can also help detect potential anomalies by providing real-time data analytics.
- Set Up Air-Tight Policies
Why is this important? Policies and standard operating protocols (for customer returns and refunds, vendor payment processing, information sharing, etc.) let you address those often-missed loopholes in your processes that pave the way for fraud.
In addition, they provide employees with the necessary guidance to mitigate fraud risks as they go about their daily activities.
- Screen Vendors and Employees
When dishonest suppliers and employees are involved in payment swindles, it could take longer for a business to figure out what’s going on. An important way to avoid this is by setting up screening mechanisms before onboarding vendors and hiring employees.
For example, run background checks, seek references, and visit new vendors’ premises.
- Train and Build Awareness
The importance of regular employee training on identifying and mitigating fraud cannot be stressed enough when talking about fraud risk management in businesses. While general awareness should be a key part of this, you must also focus on role-based aspects (say, identifying false invoices) during training.
Don’t forget to extend awareness programs to customers and suppliers, too.
Conclusion
Every business is prone to payment scams, but some (like those with large or high-volume transactions) are more vulnerable than others.
Whatever industry you are in, taking a proactive approach to combating fraud is the only way to prevent a potential threat. For this, you must gear up your teams, equip them with the right tools, and tighten controls with regular monitoring and stringent protocols.
In the event you encounter a payment-related scam, ensure you act quickly to curb the impact. You should also report it to the Federal Trade Commission on their website, ReportFraud.ftc.gov, and alert your local law enforcement agency.
When a cyberattack is involved, you must escalate it to the Internet Crime Complaint Center of the FBI as well.
