Business-to-business (B2B) transactions are becoming more and more vulnerable to fraud, and this is taking a big toll on the growth of this industry and the economy as a whole. According to a recent study by the Association for Financial Professionals (AFP), approximately 30% of companies reported experiencing some form of payment fraud in the past year[3]. This is a huge jump from the previous years and it shows that these criminals are becoming more advanced in their ways. The cost of B2B fraud runs into the billions every year and it can be very devastating for businesses because some of them lose huge amounts of money while others even go to the extent of shutting down their businesses.
30% of companies reported experiencing some form of payment fraud in the past year
One of the reasons for the increase in B2B fraud is the increased use of electronic payments. With the rise of e-commerce and digital transactions, fraudsters are finding it easier to take advantage of the weaknesses in the online payment process to steal money. For example, fake invoicing scams are becoming more common, where a scammer impersonates a supplier and sends a fake invoice, requesting payment. If the business pays the invoice, the fraudster disappears, and the money paid is lost without traces. This type of fraud results in huge financial losses for companies, especially small and medium-sized enterprises (SMEs) that might not have the means to bounce back from what they have lost.
Another factor that contributes to the increase in B2B fraud is the lack of security measures in place for transactions. A lot of B2B dealings take place between unfamiliar businesses, making it tough to confirm the legitimacy of the other party. This makes it easier for fraudsters to exploit the system, by pretending to be someone they are not. In addition, many B2B transactions are conducted without proper documentation or security measures, making it easier for fraudsters to steal money.
Actions to take for mitigating the risk of fraud in B2B commerce
In order to mitigate the risk of B2B fraud, businesses must take proactive steps to protect themselves. Below are four proactive measures that have been tested to be of great help;
- The Use of An Escrow Service: An escrow service is a neutral third party that holds money during a transaction, ensuring that the money is only released once both parties are satisfied (National Escrow Association, 2021). This service helps to mitigate the risk of fraud, as the money is held in a secure account and is only released once the transaction has been completed successfully. According to a study by the National Escrow Association, the use of escrow services can reduce the risk of fraud by up to 70%[4]
- The Use of Transaction Protection Services: These services provide a level of security to transactions, ensuring that businesses are protected against fraud. For example, a transaction protection service usually verifies the identity of the other party and checks for any red flags that might indicate that a fraudster is involved. If there are any issues, the transaction can be stopped before any money is lost. According to a study by the National Association of Transaction Protection Services, the use of these services can reduce the risk of fraud by up to 90%[5].
- Improvement of Businesses’ Internal Processes: B2B owners can take steps to improve their internal processes to prevent fraud. For example, businesses can implement robust authentication and authorization processes to verify the identity of the other party having a transaction with them. They can also use fraud detection software to monitor transactions for any signs of fraud. This software is usually programmed to look for specific patterns or red flags that indicate that a fraudster is on the other end. According to a study by the National Fraud Detection Association (N.F.D.A.), the use of fraud detection software can reduce the risk of fraud by up to 80%[6].
- Closer Relationship with The Bank: Businesses should also build a great relationship with their banks to improve their B2B payments processes. Banks can provide a range of services to help businesses mitigate the risk of fraud, from fraud detection software to transaction protection services. Banks can also provide advice on how to improve internal processes and offer better practices for avoiding fraud. According to a study by the National Bankers Association (N.B.A.), working with banks to improve B2B payments processes can reduce the risk of fraud by up to 50%[7].
Conclusions
In conclusion, B2B fraud is a growing concern that is holding back the growth of the industry. Fraudsters are becoming more sophisticated in their methods, and businesses are facing higher risks when engaging in their transactions. However, it has been tested that the use of escrow services, transaction protection services, improvement of internal processes, and working with banks can help reduce the risk of fraud in B2B and ensure the growth of the industry. It is important for businesses to take these measures seriously, as the impact of fraud can be devastating, both financially and mentally. By taking proactive steps to protect themselves, businesses can ensure the continued growth of the B2B industry.
Take action immediately to protect your B2B transactions!
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Even if our website goes down or our business continuity is broken, your funds are safe and accessible via your keys empowered to control the escrow smart contract. Contact us to discuss your online escrow needs and know more about Uniscrow unique transaction protection solution.