How to identify fake invoices

All it took was a single document—and the implicit belief that goods are in the warehouse, waiting to be paid. For any business, that was a routine procedure: paying invoices for goods received or services rendered. Yet these invoices morphed into something much more sinister: ⅓ of UK businesses falling victim to products and services that never existed. 

But this isn’t just a nightmare for UK businesses, it’s also a cautionary tale for any trade finance business about how easy it is to tamper with invoices through basic PDF edits—either to falsify, forge or fake invoices to obtain illicit funds. 

For fraudsters, tampering with invoices is just one way to defraud businesses. In fact, there is more than one way to create fake invoices.

How do fraudsters create fake invoices 

Fraudsters primarily commit invoice fraud in one of three ways: 

• Modify documents: The most accessible way to create fake invoices is to use online editing tools or PDF editors on a computer to edit the prices or the descriptions of goods and services on existing invoices, and pass them off as real ones.

• Create fake vendors: Bad actors—especially ones committing internal fraud as happened with this huge Amazon scandal—will sometimes create shell companies through fake invoices, complete with fake contact and payment details in order to embezzle funds.

• Hacking vendor emails: Commonly known as business email compromise, fraudsters first hack the emails of a vendor or create lookalike email domains, and then send invoices with edited invoice amounts and payment details that reroute funds to their own accounts. This devious tactic has resulted in over $26B in fraud losses for businesses between 2016 to 2019).

• Buy invoice templates: Bad actors commit invoice fraud by buying and editing pre-made invoice templates. These pre-made invoice templates with modifiable fields are usually found in template farms.

8 ways to detect fake invoices

Data discrepancies

The easiest way to commit invoice fraud is to modify an existing one. However, fraudsters tend to overlook small details and leave discrepancies. Rather, here are some examples to look out for: 

• Mismatched data on the purchase order and invoice—this applies to the prices, descriptions, and dates of the goods or services provided

• The product description does not fit the market price–Eg. a pack of AA batteries that costs 5 times more than what the market sells (common in trade finance lending fraud)

• Equipment such as vehicles that do not have identification or serial numbers 

• The purchase order and invoice number are not identical to the documents submitted

• Lack of descriptions on the bills of lading, invoices, and purchase orders

• Round numbers listed as prices without additional information or descriptions of the products or services provided

Changes in contact details

New contact details can be a clear indication of invoice fraud, especially when fraudsters impersonate vendors using a different email address, or compromising a real one. This is why it's crucial to verify contact details in advance, ideally by maintaining a single, reliable point of contact with each vendor. 

Another dead giveaway of fraud can be when company logos or payment details on the invoice don’t match previous records. Whether it's an unusual email address, a mismatched name, or an incorrect account number, any changes in payment information should be carefully verified and approved before funds are released.

Irregular invoice submissions

Monitor invoice submissions closely. An unusual spike in the number of invoices from a single vendor may indicate fraudulent activity. Tracking patterns can help identify anomalies that warrant further investigation.

Unverifiable vendors

Fraudsters often defraud companies by creating fictitious vendors or 'shell' companies that exist only on paper. A tell-tale sign of this type of fraud is a sudden change in business relationships, such as replacing a trusted supplier with a new one that has different or suspicious payment details. Such changes should raise red flags. 

To prevent falling victim to these schemes, conduct thorough due diligence, including verifying vendor information with procurement teams and using external tools like online searches to confirm the legitimacy of the vendor.

Illogical pricing

Illogical pricing on an invoice often manifests in two ways: prices that conflict with historical data or inflated amounts that don't align with market rates. For instance, if an invoice lists prices significantly higher than those seen in previous transactions, it's essential to cross-check these against historical records to verify authenticity. In the case of inflated prices, apply critical judgment and conduct quick online searches to assess the product's actual market value. 

Unusual patterns and formats

Every genuine invoice from a firm has the same details when it comes to logos, templates, fonts, paper, billing patterns, etc. If an invoice deviates from the standard format such as using weird fonts, low-grade paper quality, poor template resolution, or abnormal billing patterns that don’t match previous records, etc—it may indicate the possibility of a forged or fake invoice.

High-pressure tactics in invoicing

Any invoice that demands urgent payment or the immediate release of funds is usually a red flag. Typically, payment terms are agreed upon before an invoice is issued, so unexpected urgency is suspicious. In addition, fraudsters tend to use threatening language such as, “We’ll take legal action if this…” to pressure you into hasty decisions. Any invoice that emphasizes payment without giving you time for due diligence is likely fraudulent.

Lack of documentation

For chemicals, large equipment, and niche products, export and import certifications are usually required. If an invoice is submitted with vague descriptions, missing serial numbers or certifications, and documentation that is inconsistent with similar products, requesting verification is critical to weed out bad actors and prevent potential trade finance fraud.

How can you prevent invoice fraud?

There are two ways to prevent fake or forged invoices: manually inspect invoices and automated AI-driven inspections. Here’s a closer look at how they work:

Manual inspections

The most accessible way to prevent invoice fraud is to manually inspect each document for some of the signs we detailed above. Experienced employees must rely on a keen eye for detail, instincts, and a strong record-keeping of previous invoices paid to detect document fraud during due diligence. However, as fraud techniques become ever more sophisticated and technologically advanced, manual inspections to spot fake documents are inevitably hitting a limit, both in terms of effective detection and the business delays they can cause. 

Use an AI document fraud detection service

AI document fraud detection services analyze digital documents in seconds to uncover signs of modification and tampering. This gives risk, underwriting, and audit teams instant confirmation of document authenticity or forgery, letting them focus their investigative resources effectively and speeding up their approval or rejection processes. 

What to look for in an AI-driven document fraud detector?

AI and machine learning greatly enhance a company’s document verification processes by improving precision and accuracy in detecting fake invoices—with low false positives. Here are five essential components that a good AI document fraud detection software should have:

• High accuracy: An AI-powered document fraud detector must verify invoices with a high level of accuracy to give credit companies, trade financiers, and merchants the confidence to process large volumes swiftly. This includes identifying subtle signs of forgery, fake templates, and other fraud indicators that are often undetectable to the human eye, ensuring that fraudulent invoices don’t slip through document verification processes.

• Support for multiple document formats: An AI document fraud detection software that analyzes different document formats like PDF, JPEG, and PNG facilitates smoother document verification processes by giving customers more options to submit invoices.

• Clear verdicts: A high-quality AI document fraud detector should provide clear verdicts that do not need further interpretation—enabling you to approve or deny invoices based on clear, evidence-backed results to minimize potential risks.

• Explainable results: Explainable results enable credit companies, trade financiers, and merchants to understand the risk each invoice carries, helping them assess its authenticity and verify an applicant’s income.

• Configurable to match your risk appetite: The best AI document fraud detector can be configured by businesses to detect outcomes with their risk appetite—only accepting or approving invoices that only come in certain formats, for example.

Leveraging the benefits of technology to combat document fraud 

The rise of AI gives businesses the opportunity to streamline internal operations by automating their invoicing processes without compromising on invoice fraud prevention. The key is creating a layered approach that lets you automate document processing without fraud. 

Shameless plug: Resistant AI’s Document Forensics provides a detailed explanation of the findings so that investigators know the full story of each document, and can help create automated approval, escalation, or rejection workflows perfectly tailored to their risk appetites.