Vendor fraud detection has become a critical priority for Indian businesses as digital payments, remote approvals, and API-led finance workflows scale rapidly. From fake invoices and duplicate payments to compromised vendor bank details, vendor-related fraud now sits at the intersection of Accounts Payable (AP), compliance, and payments infrastructure.
For Indian SMBs and mid-market companies, the challenge is clear: how do you spot suspicious vendor activity early, prevent invoice scams, and monitor payouts without slowing down operations?
This blog breaks down vendor fraud prevention in a practical, India-first way — covering real-world examples, AP fraud indicators, monitoring techniques, and the role of modern fraud monitoring software.
What Is Vendor Fraud?
Vendor fraud refers to deceptive activities where payments are manipulated, misdirected, or extracted through fake, compromised, or collusive vendors, often exploiting gaps in AP processes.
Common Vendor Fraud Scenarios in India
- Fake vendors added to the system.
- Genuine vendors submitting inflated or duplicate invoices.
- Bank account details changed without proper verification.
- Internal-external collusion between employees and vendors.
- Payment redirection using forged emails or invoices.
Why Vendor Fraud Is Rising in Indian AP Workflows
Several India-specific factors have increased exposure to invoice scams and suspicious vendor activity:
1. Rapid digitisation without controls
UPI, IMPS, and API-led payouts have shortened payment cycles, but many businesses skipped control redesign.
2. Email-based invoice processing
Invoices received via email are easy to spoof, alter, or resend.
3. Vendor base explosion
Growing SMBs often manage hundreds of vendors manually, increasing blind spots.
4. Limited monitoring post-approval
Once approved, payments are rarely revalidated before execution.
Key AP Fraud Indicators Every Finance Team Should Watch
Early detection depends on recognising AP fraud indicators before money moves.
Invoice-level red flags
- Duplicate invoice numbers with minor variations.
- Sudden spikes in invoice amounts.
- Invoices outside the agreed contract terms.
- Invoices submitted outside business hours.
Vendor behaviour red flags
- Requests to urgently change bank details.
- New vendors demanding immediate payment.
- Vendors unwilling to share verifiable documents.
- Mismatch between vendor name and bank account holder.
Payment pattern red flags
- Multiple small payments to the same vendor.
- Payments are routed to newly added bank accounts.
- High-value payments outside approval norms.
Tools for Vendor Fraud Detection: What Actually Works
1. Vendor Master Controls
- Mandatory document verification (PAN, GST, bank proof).
- Maker-checker approval for vendor creation.
- Restricted edit access to vendor bank details.
2. Invoice Validation Rules
- Duplicate invoice detection.
- Amount tolerance thresholds.
- Automated GST and PAN cross-checks.
3. Fraud Monitoring Software
Modern fraud monitoring software tracks anomalies across:
- Vendor behaviour.
- Invoice patterns.
- Payment execution.
Key capabilities to look for:
- Real-time alerts.
- Rule-based and behavioural monitoring.
- Audit trails for every action.
4. Payment Execution Controls
- Pre-payment validation checks.
- Approval-linked payout execution.
- Delayed release windows for high-risk payments.
Invoice Scam Prevention: Step-by-Step Framework
Step 1: Lock Down Vendor Onboarding
- Verify GST on the GSTN portal.
- Validate bank details with penny-drop checks.
- Enforce approval workflows.
Step 2: Automate Invoice Checks
- Use structured invoice ingestion.
- Flag duplicates automatically.
- Match invoices to POs and contracts.
Step 3: Monitor Before Payment Release
- Revalidate vendor bank details.
- Scan for last-minute changes.
- Apply risk-based approvals.
Step 4: Audit & Review Regularly
- Monthly vendor activity reviews.
- Exception reporting.
- Periodic access audits.
Mistakes Indian SMBs Must Avoid
- Treating vendor fraud as a “large enterprise problem”.
- Relying only on email confirmations.
- Allowing unrestricted vendor master edits.
- Skipping post-approval monitoring.
- Separating AP systems from banking execution.
How OPEN Money Helps Reduce Vendor Fraud Risk
Modern fraud prevention requires tight integration between AP workflows and banking execution — not disconnected tools.
OPEN Money acts as the banking and payments layer that enables safer, controlled vendor payouts through:
- Role-based access and approval-linked payouts.
- Centralised visibility across vendors, invoices, and payments.
- Built-in audit trails for compliance and reviews.
Instead of relying on manual bank portal uploads, finance teams can execute vendor payments only after approvals are complete, reducing exposure to invoice scams and suspicious vendor activity.
