Vendor invoice fraud is a pervasive and costly threat that targets businesses of all sizes, from mid-market companies to large enterprises. These schemes, which range from falsified invoices to sophisticated impersonations, can lead to significant financial losses, operational chaos, and damaged supplier relationships. The most effective defense isn't catching fraud after it happens—it's building a proactive procurement process that prevents it from ever reaching your accounts payable team.

Protecting your business from vendor invoice fraud requires shifting from reactive, after-the-fact invoice approvals to proactive, before-the-purchase controls. By implementing a centralized system for all purchasing and payments, you gain the visibility and automation needed to secure your procure-to-pay lifecycle, eliminate vulnerabilities, and scale your operations with confidence.

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What is vendor invoice fraud?

Vendor invoice fraud is a type of payment fraud where a company is deceived into paying for fraudulent, inflated, or duplicate invoices. Attackers exploit weaknesses in manual accounts payable processes, relying on a lack of visibility and human error to divert funds. These schemes can be executed by external criminals or, in some cases, by internal employees colluding with a vendor.

Understanding the common tactics is the first step toward building a strong defense. The methods vary in complexity, but all target the point where money leaves your business: the payment process.

Fake or falsified invoices

In this common scheme, fraudsters submit invoices for goods or services that were never ordered or delivered. These invoices often look legitimate, mimicking the branding and format of a real vendor. They may use a company name that is just one letter off from a trusted supplier or bill for routine services like "consulting" or "maintenance" that are vague enough to avoid immediate scrutiny in a busy AP department.

Inflated invoices

Inflated invoice fraud occurs when a legitimate vendor deliberately overcharges for products or services. This can be done by altering the price per unit, adding phantom fees, or billing for more items than they actually delivered. Without a systematic way to match invoices against purchase orders and delivery receipts line by line, these incremental overcharges can go unnoticed and add up to substantial losses over time.

Duplicate payments

A simpler but surprisingly effective tactic involves submitting the same invoice multiple times. A fraudster might send the same invoice a few weeks apart, hoping a busy AP team won't catch the repeat payment. This is particularly common in organizations with manual, paper-based systems where tracking previous payments is cumbersome and relies on individual memory or disorganized spreadsheets.

Vendor impersonation (Business Email Compromise)

Business Email Compromise (BEC) is one of the most damaging forms of invoice fraud. A criminal will impersonate a trusted vendor — often by hacking their email account or creating a nearly identical one — and contact your AP team to request a change in payment information. The fraudster will claim the vendor has a "new" bank account and ask for all future payments to be redirected. Once the payment is sent to the fraudulent account, the funds are nearly impossible to recover.

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The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

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The hidden costs and risks of invoice fraud

The primary cost of vendor invoice fraud is, of course, the direct financial loss from illegitimate payments. However, the true impact extends far beyond the balance sheet. Fraudulent activities introduce operational disruptions, strain valuable partnerships, and create serious compliance vulnerabilities that can harm a business long-term.

The consequences ripple through the organization, affecting everything from team morale to audit readiness.

• Direct financial loss: Every dollar paid on a fraudulent invoice is a direct hit to your company's profitability. A single successful BEC attack can result in the loss of tens or even hundreds of thousands of dollars, money that could have been invested in growth, technology, or talent.
• Operational disruption: When fraud is detected, finance and procurement teams must drop their work to investigate. This involves hours spent tracing payments, communicating with banks, and attempting to recover funds. This reactive fire drill drains productivity and pulls focus from higher-value tasks that support the business.
• Damaged vendor relationships: If a fraudster impersonates a real supplier and diverts a payment, the legitimate vendor is left unpaid. This can lead to confusion, mistrust, and strained relationships with critical partners, potentially disrupting your supply chain and damaging your company's reputation.
• Audit and compliance issues: A successful fraud attempt is a clear signal that internal controls are weak. During an accounts payable audit, these vulnerabilities can result in failed audits, regulatory fines, and a loss of investor confidence. Demonstrating strong, preventative controls is essential for maintaining financial integrity.

Why traditional AP processes increase fraud risk

Manual and decentralized accounts payable processes are inherently vulnerable to fraud. Systems that rely on paper invoices, email approvals, and manual data entry lack the real-time visibility and automated checks needed to detect sophisticated scams. These outdated workflows create blind spots that criminals are quick to exploit.

The core issue is that these processes are reactive. By the time an invoice reaches the AP team, the purchase has already been made, making it difficult to do anything but process the payment.

Lack of centralization

In many companies, invoices arrive through various channels, including physical mail, email inboxes, or directly to department heads. This decentralization makes it nearly impossible to get a complete picture of all incoming payment requests, so spotting duplicate invoices or unusual payment requests from a "new" vendor becomes a game of chance.

Manual verification is error-prone

Manually performing three-way matching — comparing the invoice to the purchase order and the delivery receipt — is a tedious and time-consuming task. AP teams are often under pressure to process a high volume of invoices quickly. This pressure increases the likelihood of human error, where a fraudulent invoice with a minor discrepancy slips through the cracks.

Reactive invoice approval

The biggest weakness of traditional AP workflows is that approval happens after the purchase has been made. An employee orders a product, the vendor ships it, and an invoice is generated. By the time a manager approves the invoice for payment, the transaction is already complete. This turns the approval step into a rubber-stamping exercise rather than a true control point. It confirms a payment should be made but does little to verify if the initial purchase was legitimate, necessary, or within budget.

Proactive strategies for preventing vendor invoice fraud

The most effective way to protect your business is to stop fraudulent invoices from ever being generated. This requires a fundamental shift from a reactive payment approval mindset to a proactive spend management strategy. By implementing controls at the beginning of the purchasing process, you can ensure every dollar of spend is legitimate, authorized, and directed to a verified vendor.

Shift from reactive invoice approval to proactive purchase approval

Instead of approving invoices after the fact, businesses must move to approving purchase requests before an order is ever placed. This proactive approach ensures every purchase is vetted against budgets, policies, and strategic goals at the point of request. When an employee needs to buy something, they submit a request through a centralized system. A manager then approves or denies it based on business need and budget availability. Only after approval is a purchase order generated and sent to a verified vendor. This single change closes the door on unauthorized purchases and the fraudulent invoices that follow.

Centralize and automate the procure-to-pay process

A unified platform for the entire procure-to-pay process provides complete spend visibility and control. When all purchase requests, approvals, orders, invoices, and payments are managed in one system, fraudulent activity has nowhere to hide. Automation can instantly flag duplicate invoices, identify mismatches between orders and invoices, and alert teams to unusual spending patterns, turning your procurement system into an active defense against fraud.

Implement a robust vendor onboarding and management system

Maintaining a clean and verified vendor list is critical. Your process for adding and managing suppliers should be standardized and secure. This includes vetting every new vendor to confirm they are a legitimate business and establishing a secure, multi-step verification process for any changes to their information, especially bank account details. A simple email request should never be enough to change where money is sent. This process helps prevent payments to shell companies or fraudsters impersonating real suppliers.

Ebook

The Procurement Strategy Playbook for Modern Businesses

Learn the key pillars of a strong strategy, valuable procurement metrics to track, and initiatives you can start implementing today.

Download now

How Order.co de-risks payments and eliminates invoice fraud

Order.co is designed to eliminate the risks of vendor invoice fraud by fundamentally changing how businesses purchase and pay. Instead of managing hundreds of individual vendor relationships and payments, you get a centralized platform that enforces proactive controls and consolidates all payments into a single, secure process.

Our platform automates the entire procurement lifecycle, from purchase request to payment, providing the visibility and control needed to protect your business.

Consolidate all vendor payments into one bill

With Order.co, you no longer pay hundreds of vendors directly. The system pays them on your behalf. You place orders with all your suppliers through the Order.co platform, and it handles the individual payments. At the end of your billing cycle, you receive one consolidated invoice from Order.co. Your vendor data is secured within Order.co, and the risk of paying a fraudulent entity is eliminated.

Enforce budgetary controls and approval workflows

Order.co makes proactive purchase approval a reality. The platform allows you to create custom, multi-level approval workflows that ensure every purchase is reviewed by the right person before it becomes an order. You can set budgets by user, location, department, or product category, and the system automatically enforces these limits. This prevents unauthorized or out-of-policy spending, such as maverick spending, which is a common source of fraudulent invoices.

As Stefanie Teintze, Facilities & Property Management Specialist at CorePower Yoga, explains, “By implementing controls and approval processes, Order.co has allowed us to essentially eliminate all unapproved spending, which had gotten as high as $50,000 per month.”

Gain 100% spend visibility

Because all purchasing and payment data flows through a single platform, finance leaders gain complete, real-time visibility into company spend. Dashboards and analytics make it easy to monitor spending trends, identify anomalies, and conduct audits without chasing down paperwork from different departments. This level of transparency acts as a powerful deterrent to both internal and external fraud, ensuring every transaction is traceable and accountable.

Take control of your spend and protect your business

Vendor invoice fraud is not an unavoidable cost of doing business. It’s a preventable risk that can be mitigated with the right processes and technology. Moving from a manual, reactive AP workflow to a proactive, automated procurement software solution means you can build a resilient defense that protects your finances.

Order.co provides the end-to-end platform you need to gain complete control over your spend, eliminate payment fraud, and scale with confidence.

Ready to see how Order.co can protect your business from vendor invoice fraud and simplify your entire buying process? Request a demo today.