4 Ways to Prevent Invoice Fraud in Trucking

In current economic and freight market conditions, what trucking or logistics company can afford to lose $300,000 to invoice fraud? None. Yet, it’s happening.

According to the Medius Financial Professional Census, U.S. companies lose this amount to invoice fraud every year. Fortunately, the problem is preventable if you know what to look for and put the right safeguards and technologies in place.

What is Invoice Fraud? 

When was the last time you received an invoice that was clearly fake? Scammers are becoming very sophisticated.

In some cases, you might receive a real invoice but notice that someone altered the amount due or discover that a malicious actor changed the payment information. To avoid suspicion, scammers will often make a phone call or send an email informing the payor that the remittance address or account number has changed before the invoice arrives.

Many other types of invoice fraud exist, especially in the trucking and logistics industry, which is notorious for using paper documents in the invoicing process.

B.J. Alicandro, chief executive of Extreme Transportation, an auto-hauler based in San Diego, recently switched from an outdated transportation management system (TMS) to the modern, cloud-based Magnus TMS. The key to preventing invoice fraud, he stresses, is to have electronic processes and automated workflows.

“When you start accepting paper invoices or paper bills of lading, they can be manipulated,” he says.

Why is Trucking at Risk? 

The trucking industry has more than its fair share of invoice fraud, from scammers posing as parts suppliers and repair shops or other vendors billing for goods and services never rendered.

A common point of entry for scammers is to pose as a carrier or freight broker that you already have a relationship with, and then present a false invoice for a load they did not transport.

This type of scam is often associated with double brokering, which involves an entity misrepresenting itself as a carrier to a freight broker. Rather than transport your load, the scammer will make arrangements with a real carrier.

Once the load is delivered, they present an invoice. The fraudulent transaction can go undetected for weeks. Everything appears to have gone smoothly until you get a phone call from the carrier that transported the load asking why they never received payment.

Vulnerability is the common thread for these and other scenarios. It exists because trucking and logistics companies often use manual processes that are prone to human error and oversight.

To protect your hard-earned cash, we’ve outlined 4 ways to digitize the back office to detect and prevent invoice fraud.

How to Enhance Accounts Payable/Receivable Protections in Trucking Companies

Slim profit margins make it essential to manage invoicing efficiently and implement robust measures to prevent invoice fraud. Four effective strategies to do this are outlined below. They share a common denominator of automating routine back office functions to establish digital checks and balances.

  1. Enhance Communication Security:

Trucking and logistics companies rely heavily on electronic communication channels with their customers to submit invoices and receive payments. Email is a common method but is not inherently secure. Important steps must be taken to improve security of routine communications, especially when sending invoices.

Nick Crown, Chief Operations Officer at Magnus Technologies, recommends implementing digital signatures and encryption on messages to protect email sends, but stresses that automating invoice transactions via EDI or APIs is a more secure method since it enables systems to communicate directly, without human involvement.

  1. Implement Checks and Balances:

Regular auditing, both internally and externally, can help businesses identify potential vulnerabilities and ensure compliance with best practices. Trucking companies should maintain thorough records of shipped orders, invoices generated, and payments received.

Crown suggests having an approval process before an invoice is uploaded into the payment system. The process should include someone manually going through each invoice and checking to ensure the load was delivered on time and that the expected documentation was provided. By reconciling this information and actively monitoring receivables and payables, trucking companies can quickly identify discrepancies and take appropriate actions.

  1. Establishing Baselines and Monitoring Anomalies:

Another effective strategy to detect invoice fraud is to establish baselines for each shipper by monitoring their invoicing patterns over a predefined period. Patterns will differ by shipper but could include a consistent number of invoices each month, similar amounts, issued on certain days, having a cohesive look/brand, etc. By tracking these baselines, trucking companies can identify anomalies and potential fraud attempts. 

Trucking and logistics companies can leverage specialized software, like Magnus TMS, to automate the process and perform a quick checksum on the report against what was sent for that period and if there is a discrepancy, then an alert is sent.

  1. Introduce Credentialed Tokens for Double-Brokering:

Double-brokering introduces additional complexities for invoice fraud. Often, the damage is already done by the time it is detected. To help prevent its occurrence, trucking and logistics companies could require a type of "credentialed token" to present with the driver during pickup and delivery on a mobile app.

This digital token could ensure that only registered carriers can handle the freight, reducing the potential for fraudulent activities. Crown suggests the possibility of setting up a clearinghouse service that would act as a central authority or token issuer for this type of transaction. He notes a collaboration among shippers and carriers through an association or affiliation would help distribute the costs of implementing such a system.

How a Modern TMS Can Help

Invoice fraud poses a significant threat to trucking companies but there are effective measures to prevent and address it. A cloud-based transportation management system plays a vital role in combating the risks. 

A cloud-based TMS offers advanced features such as more secure communication channels than email, encrypted data transmissions, and the ability to track loads and documentation throughout the freight transaction.

It also acts as a centralized platform for managing and tracking invoices, payments, and auditing procedures. With data in one place, trucking and logistics companies are easily able to reconcile data and promptly identify any inconsistencies or fraudulent transactions. With real-time monitoring and proactive alerts, a modern TMS can empower trucking companies to take swift action against invoice fraud and maintain a secure financial environment.

Ready to simplify your invoicing while keeping it secure? Reach out now for a demo of Magnus TMS.

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