Unmasking Fraud: How Invoice Validation Can Protect You from Fake Invoices

According to the Report published by The Economic Times in December 2024, a whopping 59% of the companies in India have been through financial fraud in the last 24 months. Among all the companies that participated in the survey, 50% identified procurement fraud as a major concern. Businesses like yours are just one step away from such fraud; your one mistake can cost you lakhs of Rupees. To safeguard your business from such financial scams, especially procurement fraud, you need to implement a strict invoice validation process in the Accounts Payable (AP) department. 

If you are starting your business and don’t know how to validate the invoice, don’t worry. We will guide you through this blog. 

What is Invoice Validation? 

The process of invoicing is a bit tricky, as it involves arithmetic calculations, so mistakes are likely. Not all mistakes in invoices are intentional. To safeguard your company from a heavy financial loss, invoices are examined for accuracy, and to find discrepancies, this process is known as invoice validation. 

Why is Invoice Validation Significant? 

Improved cash flow: When invoices are validated, payment gets disbursed on time, which keeps the cash flow predictable and stable. 

Minimizing the risk of fraud or duplicate payment: When invoices are thoroughly checked before making payments, the chances of fraud becomes negligible. 

Enhanced compliance measures: Invoice validation helps in identifying improper invoice which does not adhere with GST rules and regulations. 

Better vendor relationship: By having a streamlined invoice validation process and timely payment disbursement, the relationship with the vendor becomes stronger. 

Read More: Detailed Guide on Export Invoice

Benefits of Invoice Validation

The following are the advantages of validating an invoice before processing the payment: 

To identify the errors in the invoice and get them corrected by the vendor on time. 

This is to ensure that you are paying only the mutually agreed amount for the said products and the corresponding quantity. 

To prevent financial frauds linked to invoices, such as duplicate billing, labour mischarging, attaching additional charges that were not communicated before, etc.  

To find non-compliant invoices, and save penalties or legal action, which could have been taken if the invoice was submitted for ITC. 

Invoice Validation Process [Step-by-Step]

The process where each and every invoice is reviewed thoroughly for its accuracy before making payment is called the invoice validation process. Validating invoices before disbursing payment is essential to identify fake or inaccurate invoices. Here’s how you can validate an invoice at your company: 

Step 1: Confirm the Delivery 

The first step in examining an invoice is to know whether the order is delivered or not. Get in touch with the procurement manager and get delivery confirmation. 

Step 2: Examine Invoice Details 

The second step in the invoice validation process is to check the accuracy of the invoice data, such as: 

• Invoice date

• Vendor’s GST number

• Invoice date and due date

• Item description and quantities 

Most small businesses do this process manually. However, you can automate this process with the help of SaaS. 

Also, check out What is a Sales invoice? 

Step 3: Two-Way or Three-Way Matching 

Once the details are identified, the next step is to cross-verify the details with the corresponding purchase order, which is called two-way matching. For further confirmation, you can cross-verify the details of invoice, purchase order and delivery receipt, all the three together, which is called three-way matching. 

Step 4: Check for Invoice Completeness & Accuracy 

One of the important part of the invoice validation procedure is to check the following details for its accuracy: 

• Unit prices
• Discounts or promotions
• Tax amounts
• Shipping and handling fees
• Payment terms
• Invoice number
• Billing address and recipient information
• Arithmetic validation of the entire invoice 

As some of the details mentioned above are secondary, and we tend to neglect them, that’s how financial frauds happen. Your negligence can drag you to the loss of lakhs of rupees. 

For example, arithmetic calculation of the total invoice amount does not add up with the pricing and the quantity mentioned in the invoice, then paying such invoice without validating can drag you in loss. 

Step 5: Seek Necessary Approvals and Process Payment

Once all the details are verified and confirmed, the next step is to get approval from senior management or whoever is responsible for them. 

Once it gets approved, proceed for transferring payment via the medium mentioned in the invoice. It could be UPI, NEFT, RTGS, Cheque or Demand Draft. 

Summing Up

This was all about the invoice validation process and the steps that you need to follow to ensure the accuracy of the invoice. We hope that after reading this blog you get an understanding of the invoice validation process and how important it is to prevent your business falling into the trap of financial fraudsters. Just in case, if you are looking for an accounting and billing software that manages your purchases, do subscribe to Munim Accounting and Billing software. It is free for 14 days.  

FAQs on Invoice Validation 

What is the role of Invoice Validation? 

Invoice validation is a part of invoice management process wherein invoices received from all the vendors are reviewed for its correctness, if any discrepancies are found then it is reported to the vendor. This validation process can be either manual or automated through software. 

Is a duplicate invoice valid?

Duplicate invoices are not as valid as the original ones unless they are explicitly marked as “Duplicate” and are issued under specific circumstances (e.g., loss of the original invoice). Otherwise, duplicate invoices can lead to duplicate payments or fraud.

How do I prove an invoice is real?

To know whether an invoice is real or fake, follow these steps: 

• Check vendor information
• Review the invoice properly, especially the pricing, quantity, grand total and additional charges (if any)
• Verify vendor information.
• Check the logo carefully. 
• Check for typos or grammatical errors throughout the invoice
• Check the payment details 
• Review payment history 

Can I reject an invoice? 

Yes, you can reject an invoice if pricing or payment terms are invalid. 

What is the time limit for the GST tax invoice?

As per the CGST rules, a tax invoice must be issued within 30 days of the product or service being rendered.