What Is Invoice Fraud and How Can You Prevent It?

How many emails does your accounts payable team process in a day? It only takes one fraudulent invoice to cause serious financial damage.

This is the reality of the modern finance leader’s dilemma. Fraudsters are now leveraging AI-driven attacks at scale, while your defense often comes down to a single person’s judgment in a short moment in time. Relying on your team to ‘spot the fake’ is no longer a viable security strategy. 

The FBI’s 2025 Annual Internet Crime Report confirms the ongoing risks for businesses, with schemes like Business Email Compromise leading to over $2.8 billion in losses in 2024 alone. This guide moves beyond reactive tips, providing a blueprint for building an architecture to neutralize invoice fraud systematically.

What is Invoice Fraud? 

Invoice fraud is a scheme to trick your company into paying for something you shouldn’t, such as a fake bill, a manipulated charge, or a legitimate payment sent to the wrong bank account. The end result creates financial losses for your company at different levels of scale.

However, to truly understand the threat of fraudulent invoices in 2025, you have to see it not as a single event, but as a calculated, multi-stage attack on your financial operations. 

Seeing the Attack as a Process, Not an Event

Think of it as the Vendor Impersonation Kill Chain. It almost always follows a predictable path. 

It starts with Reconnaissance, where fraudsters and scammers identify your key suppliers and high-value payment streams. Next comes Infiltration, where they might compromise a low-level employee account simply to gain a foothold and observe your company’s communication patterns.

From there, they move to Weaponization, crafting a perfect look-alike email domain or using the compromised account to create their fraudulent request. Finally comes the Execution, they send the email with the altered bank details at the precise moment of maximum pressure. 

By seeing the threat as a methodical process, you can begin to see where to build the systemic defenses needed to break that chain at every link.

How Invoice Fraud Works in 2025

To build an effective defense, you have to understand the specific weapons being used against you. The classic email invoice scam still exists, but the tools and tactics have become far more sophisticated. Relying on yesterday’s knowledge to fight tomorrow’s fraud is a losing battle.

Business Email Compromise (BEC) is the Classic Attack

It’s the foundational tactic of modern invoice fraud, a targeted form of phishing known as Business Email Compromise. A fraudster, impersonating either a trusted vendor or a high-level executive from your own company, sends a carefully worded email.

The fraudulent payment request seems simple and urgent—”Our bank details have changed, please update them before the next payment,” or “I need you to process this confidential invoice immediately.” 

Every part of the attack is designed to create a sense of normalcy and urgency, compelling a busy employee to act first and verify later.

AI-Generated Synthetic Invoices are an Emerging Threat

You are no longer just defending against a person with a good Photoshop template; you are defending against algorithms. Fraudsters are now using AI to create synthetic invoices at an unprecedented scale and level of sophistication.

Imagine an AI analyzing your company’s public supplier lists to generate a completely fabricated, but passable invoice from a real-world logistics provider for an amount that doesn’t raise alarm bells. 

These AI-generated documents can have unique, never-before-seen invoice numbers, rendering simple duplicate checks useless.

Why Human Red Flags Aren’t Enough Anymore

For years, the standard advice was to train your team to spot the red flags: poor grammar, a sense of urgency, or a mismatched logo. 

But many of today’s scams use perfect grammar. They replicate your internal communication style. They might even come from a genuinely compromised vendor email account. When the scam has no obvious warning signs, you must accept a critical truth that relying on human vigilance as your primary security control is no longer a viable strategy.

Common Types of Invoice Fraud

Invoice fraud is not a single type of attack; it’s a category of deception with many variations. Understanding the different schemes is the first step in recognizing the specific vulnerabilities within your own accounts payable process. The threats can come from anywhere, such as external criminals, your trusted suppliers, or even from within your own walls.

Threats from a Stranger

This is the most well-known type of fraud, where an outside attacker creates a false reality to trick you. They might create completely fake invoices from a shell company for goods or services you never received, often designing them to look identical to those from a real supplier. 

A more advanced version of this is the classic Business Email Compromise (BEC), where a cybercriminal sends a carefully crafted email that appears to come from a legitimate vendor or even your own CEO.

Threats from a “Partner”

Sometimes the fraud comes from the vendors you trust. One of the most common schemes is the duplicate invoice. An unscrupulous supplier might resubmit the same bill a few months later with a slightly altered invoice number, hoping it slips through the cracks and gets paid a second time. 

Another variation is overbilling, where a vendor will intentionally inflate the charges on a legitimate invoice, billing you for more items than they actually delivered.

Threats from the Inside

Internal fraud is uniquely damaging because employees already know your systems, your vendors, and your control weaknesses. 

An employee could create a phantom vendor, a fake shell company, in your system and submit their own invoices. In a more complex scheme, they might engage in collusion, working directly with an external supplier to approve fraudulent invoices in exchange for a kickback.

Steps to Prevent Invoice Fraud

How do you defend against such a wide array of threats? You don’t do it with a simple checklist. You build a system. A truly secure accounts payable operation relies on a multi-layered defense that enforces your controls automatically at every stage of the process, moving your team from a role of manual detection to one of strategic oversight.

1) Securing the Vendor Master File 

Your first and most powerful line of defense has nothing to do with an invoice. It has everything to do with how you manage your vendors. Your Vendor Master File is the absolute single source of truth for every piece of supplier data: their legal name, tax ID, and most critically, bank account details. Your primary security objective must be to make this file immutable without proper authorization.

A modern defense is built on a secure, self-service vendor onboarding portal. This requires your suppliers to enter and maintain their own information, authenticating their identity with two factors before they can make any changes. 

When a fraudster sends an email with “new bank details,” the attack is neutralized before it even begins.

2) Automating Invoice Validation (Your Firewall)

Once a vendor is securely in your system, the next layer of defense focuses on the invoice itself. This is where you build an automated firewall to catch fraudulent or inaccurate documents before they consume any of your team’s time. The key to this is a deep, bi-directional integration with your ERP.

This integration enables real-time, automated 3-way matching. When an invoice arrives, the system automatically validates the invoice line-items, quantities, and prices against the data in both the purchase order and the goods receipt note residing within your ERP. Any mismatch is automatically flagged for review.

3) Enforcing Digital Workflows 

The next layer of defense is about protecting you from internal threats and errors. A manual process relies on people remembering and following policy. An automated system enforces it without exception. This is how you achieve true segregation of duties.

Complex, digital approval chains can be configured to ensure that the person who enters an invoice can never be the same person who approves it for payment. Every single action, from receipt to approval to payment, is logged in a digital audit trail. 

This creates a level of transparency that makes internal fraud schemes much harder to execute.

4) Securing Payment Execution

The final layer of defense is the act of payment itself. Even after an invoice has been validated and approved, a secure system performs a final series of checks before any cash leaves your business. This is especially critical when dealing with a global supply chain.

A modern platform has built-in bank account validation capabilities, checking payment details against global banking databases to detect invalid account numbers or routing information. 

Furthermore, it allows you to use different payment rails for different levels of risk. You can use highly secure, single-use virtual cards for new or high-risk vendors, while relying on trusted rails like ACH or SEPA for established partners.

How Tipalti’s AP Automation Helps Defend Against Invoice Fraud

The layered defense model provides a clear blueprint for security. Tipalti’s end-to-end AP automation software aligns with this approach by centralizing AP processes and embedding controls at key points across the workflow. Locking Down Your Vendor Data

For Layer 1, securing your vendor master file, Tipalti’s self-service supplier portal is your foundational control. Vendors onboard and manage their own payment and tax information through a secure, two-factor authenticated system. This greatly reduces the risk of fraud attempts like unauthorized bank detail changes.

Catching Bad Invoices Automatically

Tipalti’s ERP integrations, featuring bi-directional sync with platforms like NetSuite and QuickBooks, play a critical role in Layer 2 invoice validation, ensuring accuracy while minimizing risk. This enables automated 2-way and 3-way matching, validating every line item against your purchase orders and goods receipt data. 

The system catches discrepancies in price, quantity, or item numbers that might be overlooked during manual review.

Enforcing Your Internal Rules

To enforce your internal controls at Layer 3, the platform’s advanced approval workflows are your enforcers against payment fraud. You can configure complex, multi-step approval chains based on any criteria to ensure proper segregation of duties. Every action is captured in a detailed, unchangeable audit trail.

Making Payments Safe and Secure

Finally, at Layer 4, the final checkpoint of payment, Tipalti’s global payment infrastructure secures every transaction. With built-in validation rules that check payment details against a database of global banking requirements, the system dramatically reduces payment errors. 

By giving you the ability to use highly secure payment methods like virtual cards, you gain another powerful tool to fortify your defenses.

Invoice Fraud in Action

Understanding the theory of a layered defense is one thing. Seeing it defeat a real threat is another. When you have a truly systemic defense, the narrative of an attack changes entirely: the system becomes the hero, not the individual.

How an Automated System Defeats a Real Threat

Imagine this scenario. A perfectly crafted fraudulent invoice, appearing to be from a key international supplier, arrives in an employee’s inbox. A busy employee, under pressure at the end of the quarter, might not spot the subtle signs of a fake.

But with a layered defense, it doesn’t matter. The attack fails instantly at Layer 1. The system rejects any attempt to change bank details via email because the company’s policy, enforced by the platform, requires the supplier to log into the secure portal and pass multi-factor authentication. 

Even if the fraudster had submitted an invoice fake, it would have failed at Layer 2, blocked automatically when it didn’t match a purchase order in the ERP.

The Rise of AI in Invoice Fraud

The same AI that can help you build a stronger defense is also being used by fraudsters to create more convincing and contextually aware scams. This is the new reality of financial security, which is an ongoing arms race between defensive and offensive AI.

This reality underscores the critical need for a modern, adaptive platform. Your defense system cannot be static; it must constantly learn from new data and evolving threat patterns. The future of fraud prevention will rely on advanced AI that can detect subtle anomalies in vendor behavior and payment patterns, ensuring your company remains protected not just from today’s threats, but from tomorrow’s as well.

Transform Your Processes to Prevent Invoice Fraud

You now have a clear framework for defending your company against fraudulent invoices. The strategy is not to create a longer checklist for your team to follow, but to build a resilient system that automates your financial controls from end to end. This is how you move beyond simply reacting to threats and begin to proactively eliminate them.

Remember that the cost of inaction is staggering. The Association of Certified Fraud Examiners estimates that organizations lose an average of 5% of their annual revenue to fraud. That is a direct drain on your profitability and a competitive disadvantage in the market. 

Protecting your company’s assets starts with building the right defense. See how Tipalti’s Invoice Management Platform can secure your entire accounts payable process.