Facing the omnipresent threat of rising inflation, interest rate hikes, supply chain disruptions, and fluctuating levels of consumer demand, more and more SMEs are engaging in fresh air invoicing to boost cash flow and profitability. Fresh air invoicing is the sly practice of issuing fraudulent invoices for goods or services that were never delivered, exploiting gaps in manual verification processes to claim undue payments from unwitting clients. The UK’s Intellectual Property Office recently reported that the issuance of misleading invoices has increased 63% year on year.

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Unfortunately, the tidal wave of economic pressures in 2024 makes fresh air invoicing an appetizing proposition for cash strapped firms. The fail safe excuse of administrative error and plausible deniability of malevolent intent allows them to maintain a degree of separation from fraudulent activities, enabling them to feign ignorance if incorrect invoices are flagged. Another likely factor contributing to the increase in fresh air invoicing is the widening trade finance gap, which stands at $2.5 trillion, up substantially from $1.7 trillion in 2020. This deficit is particularly problematic for smaller businesses in emerging economies vying to participate in highly competitive markets. With the odds already stacked against them, they urgently need sufficient levels of trade financing to stay afloat.

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However, legacy financial institutions are typically risk averse when it comes to SME clients seeking financing. Very often, their lack of credit history and demonstrable collateral undermines their perceived creditworthiness. According to the OECD, the legacy banking system denies over 45% of trade finance requests by SMEs each year, with a typical application comprising up to 100 documents. Given the limited accessibility of financing, businesses might consider fresh air invoicing to inflate their financial statements, boosting their chances of securing loans or credit by presenting a healthier financial status to lenders and investors. The lack of robust verification processes in traditional invoicing systems makes it easier to introduce these fake invoices undetected – but sophisticated tools are now available to companies who want to address any blind spots in their invoicing processes.

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How Automation Can Help

Automation can greatly mitigate the risks associated with fresh air invoicing by enhancing accuracy, efficiency, and security. Automated verification processes systematically cross-reference invoices with purchase orders, delivery receipts, and other relevant documents, ensuring that only legitimate invoices are approved for payment. Machine Learning algorithms play a crucial role in this context, as they can be trained to detect anomalies and flag suspicious invoices for further scrutiny, thereby reducing the likelihood of fraudulent transactions going undetected. Additionally, automation facilitates real-time tracking and reporting, providing businesses with up-to-the-minute visibility into their invoicing and payment processes.

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However, the successful implementation of automation to mitigate the growing risk of fresh air invoicing requires a nuanced approach. Businesses should begin by conducting a thorough needs assessment to identify areas where automation can deliver the most significant benefits. Legacy providers in particular face challenges when it comes to embracing automation due to outdated infrastructure and high integration costs. Significant initial investments in training are also required to ensure that staff members are equipped to manage new systems.

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The 40Seas Global Accounts Receivable platform centralizes invoice data in a user-friendly dashboard, allowing companies to easily track payment statuses, manage due dates, and expedite invoice approvals. By connecting their ERP or accounting software, companies can enjoy a streamlined reconciliation process, matching invoices with purchase orders and delivery receipts in real-time, while collecting payments via credit card, direct debit or digital wire transfers in different currencies worldwide. Our platform also enables companies to offer extended payment terms of up to 90 days to their customers, without absorbing any credit risk, so they can focus on driving sales volumes rather than debt collection and underwriting payments. 40Seas is available as an API or stand-alone platform, both of which can be seamlessly embedded into checkout portals to improve business flow and deliver more convenience to customers.

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With Gartner forecasting expenditure on accounts-focused automation and supplier e-invoicing software to reach $1.75 billion by 2026, companies that opt not to embrace automation will be at a marked disadvantage, potentially leaving themselves vulnerable to fresh air invoicing and avoidable financial losses.

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