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Paper Checks Pose Major Risk to Corporate Coffers

·3 min read
B2B payments, checks, digital
B2B payments, checks, digital

On top of being a cumbersome payment vehicle, the paper check continues to pose a major risk to corporate coffers. Fraud is on the rise from both within and outside of the organization, and bad actors continue to take advantage of the paper check’s lack of security, particularly in a work-from-home environment.

Even before the pandemic hit, researchers found that successful check fraud makes up 47% of overall fraud losses for banks, surpassing volumes related to fraudulent debit card transactions. With organizations managing their payment workflows through remote staff, the growth of this threat has only accelerated as many workers continue to operate remotely.

It’s one of the many reasons why chief financial officers and treasurers should continue to drive their firms toward electronic B2B payments. However, just migrating away from paper checks isn’t enough to fully protect the enterprise.

A Rising Risk From Home

While CFOs and corporate treasurers have always been concerned about B2B payments fraud infiltrating their accounts receivable (AR) and accounts payable (AP) operations, that risk is more inflated today than ever before — and employees having access to corporate networks in a remote environment also raises risks.

Related: B2B Payments Complexity Challenged by Speed, Fraud and Fees

That’s particularly true with paper checks, as AP professionals, in some cases, were forced to physically migrate check-printing machines to their homes to continue paying suppliers remotely. That presents a much broader opportunity for bad apples to act on a temptation to steal company cash.

It’s not only internal employees driving up the B2B payments fraud threat — and it’s not only the paper check that’s causing CFOs grief.

Beyond ePayments Adoption

Fraud occurs in many forms beyond paper checks, and electronic payments, of course, are not immune to the risk.

One of the biggest threats is business email compromise (BEC), a strategy among cybercriminals in which legitimate employees’ emails are spoofed to redirect supplier payments into a fraudulent bank account. Those criminals are growing more sophisticated, with the ability to access email servers and create misleading email addresses in near-real time.

It’s a sort of hybrid between consumer and business identity theft. It’s also particularly effective in a work-from-home environment, thanks to the sudden disappearance of internal measures that would have otherwise addressed the problem.

For instance, an AP professional who receives a seemingly legitimate email from the CFO to change payment details would normally be able to walk down the hall to simply verify the request. Today, confirming those details takes a bit more effort.

That multi-level authentication process isn’t only for wires and ACH transactions, either. It should also be in place for invoices received from vendors who are not yet on a master vendor list. Such cases are big red flags that must be investigated before any payment is made.

Beyond Paperless

One of the most effective ways to combat B2B payments fraud is to migrate away from paper checks. However, eliminating paper doesn’t necessarily mean the threat disappears.

The first step is to implement effective supplier onboarding processes to minimize the window of vulnerability. Though it’s only one component of the battle against B2B payments fraud, ePayments adoption can be particularly valuable if CFOs are purposeful about which electronic payment methods they choose.

See also: Virtual Cards Mark Evolution of Spend Management

One of the most secure methods of payment is the single-use virtual card. These cards automate much of the fraud mitigation effort, as the technology can facilitate payment for only one invoice or transaction amount.

Developing internal controls is vital to mitigating risks like BEC and invoice redirect scams. Authentication measures are often the last step in the chain to stop fraud, and organizations must develop these controls to function in a remote working environment.

Training employees to identify red flags, like requests to change bank account details, is another important step, and it is important for professionals to be aware of risks and on guard.

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