Invoice Fraud – Who Bears the Cost When A Scam is Successful?

Invoice fraud – who bears the cost when a scam is successful?

Invoice fraud is when a fraudster sends a fake invoice to a business, directing funds to their own third-party account. While some fraudulent invoices may be easily identifiable, sophisticated scammers often employ advanced techniques to create highly convincing forgeries that closely mimic legitimate invoices. Best practices for fraud prevention include implementing multi-factor verification procedures, such as confirming payment details through pre-established contacts, maintaining updated supplier databases, and following documented verification protocol.

But if you are unfortunate enough to pay a fraudulent invoice, who bears the cost?

Under the precedent set in Mobius Group Pty Ltd vs Inoteq Pty Ltd (2024), the paying business bears the responsibility to verify invoice authenticity and ensure correct payment. The business sending the invoice generally owes no duty of care regarding email security, this may be subject to exceptions if the sending business has been grossly negligent in their security practices or has failed to promptly notify customers of known security breaches.

Additionally, if payment is made to a fraudulent invoice, the original debt to the legitimate company typically remains due and payable, subject to any applicable fraud insurance coverage or recovery of the fraudulent payment. So, ultimately, if you fall victim to invoice fraud, you will end up having to pay the invoice twice. Once to the fraudulent invoice, and once to the real one.

The takeaway is that businesses must implement and follow robust security protocols and verification procedures before processing invoice payments. Failure to implement reasonable security measures may result in liability for fraudulent payments, with limited prospects for recovery.

If you have any questions about liability for invoice fraud, please do not hesitate to contact me. I am here to help.

DISCLAIMER: This explanation is for informational purposes only and does not constitute legal advice.