With global payments fraud expected to reach $40.62bn in 2027, threat mitigation is increasingly taking priority in discussions on B2B payments. Nicolas Rabinovitch, Head of Data Science and Fraud at payments facilitator Hokodo, takes us through the best practices when it comes to fraud protection.
By building real-time visibility into the status of invoice payments, businesses are better able to understand their cash flow. When you know where invoices are within the payments process – when they were issued, to which customer details, when they are due, any specific or unusual payment terms, and whether any payments or processes are blocked – you are better positioned to prepare for any potential liabilities and identify risks sooner. This will not only help to improve your cash flow, but help you to make the right decisions and investments going forward.
Digitising accounts receivable
There are various reasons why a growing number of businesses are moving towards digitising accounts receivable. It’s a good way to reduce overheads, improve efficiency, reduce errors, and create an easily auditable centralised hub for simplified tracking and compliance but it also helps to streamline each step in the transaction process, which affords greater accuracy and fraud detection.
Real-time analytics from alternative data sources
Due mainly to time constraints – and sometimes a lack of technical understanding – businesses have become too reliant on the data provided by credit bureaus for B2B sales. In most instances, the traditional credit bureau assesses a customer’s creditworthiness based on their credit history, and this has provided the basis of B2B deferred payment for decades. While this is helpful to a certain extent, it doesn’t give the full picture.
An excellent credit rating is something for a business to be proud of, but it’snot much use to you if this rating is outdated and the customer you are offering credit to right now is currently sitting quietly on the brink of administration. So, when times are tough, you need to take into account alternative data sources that can give real-time insights into the customer’s current circumstances such as open banking data or digital footprints.
The use of different payment types
Some payment types are more susceptible to fraud than others. According to UK Finance research, total fraud loss in the UK reached £1.26bn in 2020, and just under half (45%) of this was attributed to credit, debit and other payment cards. Meanwhile, a further 38% of the total loss was chalked up to authorised push payment (APP) scams, whereby fraudsters gain access to their target’s information, usually via a hacked email account, and then pose as a company with whom the hacked account owner is already doing business. Remote banking – including mobile, internet and telephone banking – was credited with 16% of UK fraud loss in 2020, while the final 1% was attributed to cheques.
However it’s also important to remember that these numbers aren’t necessarily representative of the risk carried by each payment type. For example, the figure for cheques is likely so low because the use of cheques is dwindling so rapidly, thanks to the pandemic and an accelerated shift to e-commerce in B2B.
The best course of action for B2B merchants is to prioritise secure, digital payment methods and work with trusted payment partners.
Don’t become complacent with returning customers
Customer loyalty and lifecycle are massively important to the success of any B2B business. That’s why we’re seeing such a wave of customer experience tools and trends coming onto the market. But while it’s important to build and maintain those relationships, it’s also important not to let loyalty and past experience blind you to potential risk.
Just because you’ve been able to trust a business customer in the past, doesn’t mean you can afford to automatically trust them now, or next time.
Regardless of the customer or the length of their relationship with your business, make sure that the same checks are run before every transaction: this good customer may face difficulties and change behaviour, or the details may have been taken over by a fraudulent party.
Based on card transactions alone, payment fraud losses have more than tripled since 2011. And with fraudsters becoming smarter, they are finding more and more ways to take advantage of businesses. But not all losses are a product of fraud. Some are the result of straitened businesses trying their best to survive.
The problem is that it is all too easy for them to take your business down with them. While it is never a good time to suffer a financial loss, in the current economic climate, any loss has the potential to be devastating. The more precautions you can take to mitigate loss and protect your business against fraud, the better the position you’ll be in.