Invoice fraud: how to identify and avoid fake invoices

With the increasing sophistication of financial fraud, businesses must understand and identify document fraud. Including supplier and customer invoices. Over the last three years, invoice and payment request fraud has increased by 75%, causing significant financial losses for businesses of all sizes.

Fake invoices pose a serious threat to businesses and tax authorities. Not only are these fraudulent practices illegal, they also expose the businesses involved to major financial, legal and reputational risks. 

In this article, we explore the different forms of false invoices, how to identify them, and the precautions you can take to protect yourself. 

What is a fake invoice?

An invoice fulfils several essential functions. First and foremost, it serves as tangible proof that a transaction has taken place, making it possible to claim the payment due and guaranteeing the security of commercial relations. 

Invoices also play a crucial role in accounting, helping to draw up annual accounts and justifying transactions to the tax authorities. This document is particularly important for small businesses, where it is an essential piece of evidence.

A fake or false invoice is a fraudulent document issued to simulate a commercial transaction that never took place, or to alter the details of a real transaction in order to deceive or conceal illegal activities. There are two main types of false invoices: 

• Fictitious invoices: this is an invoice issued for a service or delivery of goods that never took place. This type of invoice can be used to launder money or to artificially inflate a company's accounts, particularly in the event of receivership or compulsory liquidation.
  
  
• Inflated (or doctored) invoices: inflated invoices are based on real transactions, but the information is deliberately altered or exaggerated. For example, an invoice may show a higher quantity of products or higher prices than is actually the case. This practice is often used to justify undue tax deductions or to conceal undeclared work.

How can you spot invoice fraud?

To avoid falling for false invoices, here are a few points to bear in mind:

1. Check the legal information

A genuine invoice must include all the mandatory information about the company, such as its legal name, address, telephone number and tax identification number. Missing or incorrect information is often an indicator of fraud.

2. Quality and consistency of documents

Poor layout, typing errors, a poor quality logo or poor quality paper can indicate an attempt at fraud. In addition, any inconsistency between order forms, quotations and invoices should alert you. Also check the delivery address. 

If in doubt, contact your customer directly to confirm the authenticity of the e-mail and make sure it has not already been reported as fraudulent. It’s also wise to use a different contact method — if the invoice was sent by mail, follow up by phone or email. This adds an extra level of certainty that the contact is who they say they are. 

3. Unusual payment methods

If the invoice requests payment by an unconventional method or to a foreign bank account, this may indicate an attempt at fraud. Check suppliers' bank account details and record them in your database so that you can check this information each time a new invoice is issued.

4. Haste or pressure to pay

Fraudsters often try to speed up the payment process by offering discounts or threatening to suspend a service if the bill is not paid quickly. If the pressure is unusual — or if a deal sounds too good to be true — be wary.

5. Absence of a contract or proof of purchase

If an invoice is received for a transaction that you have no memory of, or if the supplier cannot provide proof, you certainly shouldn’t pay it without first verifying its authenticity.

Invoice fraud examples

The type of false invoice most frequently encountered by businesses relates to a real transaction, but where the invoice is drawn up by someone other than the person who actually carried out the service. Suppose you have a standing order with ACME Supplies. If one month, an invoice arrives from ACME Necessities, you may end up paying it (even to a different bank account) without realising. 

In addition, some companies use false invoices to deceive banks and obtain a loan. In such cases, they tend to use fictitious or doctored invoices to inflate the amounts and show they have a larger client base or steadier supply chain than in reality.

Why does invoice fraud occur?

Issuing false invoices lets the issuer collect undue sums or to conceal the real identity of the person who carried out the service. It is also a way of avoiding paying social security contributions for labour.

But false invoices do not only benefit the companies issuing them. A company may wish to receive one in order to reclaim the VAT invoiced without having paid it, thereby obtaining an illegal tax deduction. False invoices also make it possible to artificially reduce taxable profits by deducting them from income.

Finally, false invoices are often used to create a slush fund, a reserve of money that is not recorded in the company's books. This is strictly forbidden.

The risks and penalties of false invoicing

Companies involved in invoice fraud face severe penalties, ranging from heavy fines to prison sentences. In France, a fine of up to €45,000 and a prison sentence of up to three years can be imposed on those responsible for false invoices. 

In addition, the company may suffer a tax audit and reassessment, and lasting damage to its reputation. All good reasons to be vigilant.

Issuing or inflating false invoices is illegal and very risky. If you need cash, opt instead for financing solutions such as the one offered by Defacto, which gives you instant access to on-demand financing to cover your trade receivables and purchases.

How can you protect yourself?

To minimise the risks, use certified invoicing software that automates the verification of information and detects potential anomalies. These tools also help to reduce human error during manual data entry. 

French businesses liable for VAT will be legally obliged to use e-invoicing from 2026. They will therefore have to comply with regulated procedures. So it's in your interest to start your digital transformation now.

Vigilance is the best defence against false invoices. By adopting rigorous management practices and using appropriate tools, you can protect your business from the risks associated with fraudulent invoicing. 

For simplified invoice management, explore online invoicing solutions that help you keep total control over your transactions and avoid the pitfalls of fraud.