Preventing Payment Fraud with AP Automation for Auto Dealerships

It may seem hard to believe, but incidents of business payment fraud have been on the rise in recent years, and the statistics are alarming: A 2024 report by the Association for Financial Professionals found that 80% of organizations were victims of payment fraud attacks or attempts in 2023—a 15-percentage point increase over the previous year. This upward trend emphasizes how crucial it is for auto dealerships to begin taking immediate steps toward protecting their financial processes from fraud by adopting AP automation software.

But what makes auto dealerships prone to fraud? It’s partly because dealerships, by nature, handle a high number of transactions, often involving many vendors with different payment terms and conditions. Also, when dealership invoices and payments are processed manually, the potential for errors and fraud tends to increase. 

Here’s an example: A hacker might alter an invoice’s payment details to redirect funds to a fraudulent bank account, leaving dealership personnel unaware until it's too late. Or, a dishonest vendor could alter a payment amount in anticipation of the total amount being overlooked. Worse yet, an employee could be altering a check amount and unexpectedly funneling extra funds elsewhere.

This blog will go into detail about why fraud prevention is so important in auto dealerships and what can be done to reduce and prevent future payment fraud incidents from occurring.

The Problem with Manual AP in Auto Dealerships

The risks of payment fraud becomes more pronounced when dealerships rely on manual accounts payable processes to manage invoices and payments, underscoring the importance of implementing AP automation software. While these methods were the default norm in the past, relying on paper invoices, checks, and manual data entry in modern times presents a major vulnerability. Mistakes, oversights, and fraud attempts can easily slip through the cracks in a system that doesn’t have the necessary safeguards or controls.

One common issue with manual processes is the inherent risk of human error. For instance, data entry mistakes—whether a staff member transposes numbers or enters incorrect amounts—can lead to significant financial discrepancies, which are difficult problems to trace and correct. Fraudsters, aware of these vulnerabilities, may then target a dealership by altering invoices or creating fake ones altogether. Without proper scrutiny, these invoices can pass through an AP department and ultimately lead to fraudulent payments being made to unauthorized accounts.

Additionally, paper-based processes are inherently slow and prone to delays. In fact, a study by Ardent Partners showed that the average time to process an invoice manually is 10.1 days, a timeframe that can be significantly reduced with the use of automation software. So, when invoices require manual approval, reviewing gets bogged down by paperwork or bottlenecks in communication resulting in late payments that affect a dealership’s cash flow and overall financial health. 

Beyond paper invoice processes, check fraud is a growing concern in dealerships that rely on paper checks for payment. Checks can be intercepted, altered, or even stolen, leaving the dealership vulnerable to financial loss. The Association for Financial Professionals (AFP) found that 47% of organizations experienced challenges in their accounting systems in 2022. fraud involving paper checks in 2023—a slight rise from the previous year.

Another significant challenge with manual AP processes is the lack of visibility. Without automated systems in place, dealership teams have limited insight into where each invoice is in the approval cycle. As a result, detecting errors or uncovering fraud attempts in real time becomes a monumental task. Often, discrepancies in payments—such as duplicate payments or payments to incorrect accounts—are not caught until they show up in reconciliation reports weeks or months later, making it harder to recover funds or identify the perpetrators.

Finally, inefficiencies in manual AP processes can result in wasted time and resources, negatively impacting the ROI of the dealership. When security threats or issues surrounding fraud arise, AP teams often need to dedicate substantial amounts of time to managing paper-based records, chasing down approvals, and reconciling invoices manually. The extra hours involved not only strain accounts payable department resources but also reduce a dealership's ability to focus on core business operations, highlighting the need for automation software to streamline the payment process.

What is AP Automation in Accounts Payable?

Accounts payable (AP) automation is the use of data technology to streamline the entire accounts payable process, from receiving invoices to making payments. With AP automation, invoices are received electronically, processed, and automatically matched to purchase orders and receipts. An accounts payable automation solution ensures that payments are only made for authorized, accurate invoices, thus preventing errors and fraud incidents before they occur, allowing dealerships to pay vendors more efficiently.

With automated systems, manual data entry is largely or fully eliminated, reducing the risk of human error. Invoices are scanned, extracted, and processed using optical character recognition (OCR) technology and artificial intelligence (AI), which helps match them with corresponding purchase orders and receipts. Overall, the technology ensures that only legitimate invoices are paid and prevents the possibility of fraudulent invoices being processed.

How AP Automation Solves Manual Accounts Payble Process Issues

AP automation is an up-and-coming solution to many of the problems posed by manual accounts payable systems. By adopting an automated accounts payable solution, dealerships can begin transforming their invoicing and payment workflows—drastically reducing the risk of fraud and operational inefficiencies.

Visibility and Transparency of Accounts Payable Processes

One of the most significant advantages of AP automation is the enhanced visibility it provides into dealership invoices and payments. Dealerships can track invoices in real time, view payment statuses, and access a full audit trail of all transactions. With this enhaced visibility, a dealership’s AP department can monitor the flow of payments and quickly identify any discrepancies, including duplicate invoices, unauthorized payments, and delayed approvals.

Automated systems also make it easier to set up alerts that notify AP teams of overdue payments, discrepancies, and unusual activity. These alerts can be customized according to the dealership’s needs, ensuring that any potential issues are flagged before they turn into major problems.

Automated Accounts Payable Exceptions and Approval Workflows

Another critical feature of AP automation is the automated approval workflow. Instead of invoices being passed around manually for handling and approval, automated systems route invoices through pre-designated channels, so only authorized personnel can handle invoice exceptions and approve payments. This reduces the likelihood of unauthorized actions and makes certain that no payments are made without proper oversight.

AP automation also allows dealerships to set up approval hierarchies, so payments are only authorized by personnel with the appropriate authority based on the size or type of transaction. The additional layer of control generated by this technology further minimizes the risk of fraud or unauthorized payments since only designated individuals can approve higher-value invoices, ensuring that payments are made to verified vendors.

Using Payment Automation to Reduce Payment Fraud Risk

Once authorized personnel approve invoices, dealerships need a secure method to process payments. Unfortunately, traditional payment methods—especially paper checks and ACH transfers—are inherently vulnerable to fraud. Checks can be intercepted, altered, or stolen, and ACH payments can be targeted by cybercriminals if the right precautions aren’t in place.

Virtual Cards as Secure Vendor Payment Methods

One of the most effective ways to mitigate payment fraud is through payment automation using virtual credit cards. Virtual cards are unique, one-time-use card numbers generated for each transaction that can be set with specific limits and expiration dates, providing an end-to-end solution for secure payments. They reduce the risk of fraud by ensuring that even if the card details are intercepted, they cannot ever be reused. Virtual cards also provide a higher level of security and control over vendor payments, as dealerships can restrict the amount or designate specific vendors for each card.

Enhanced Fraud Detection with AI

AP automation solutions are vital for modernizing accounting systems and enhancing operational efficiency, as they often integrate AI to enhance the payment process and improve overall efficiency. AP automation solutions additionally help organizations detect potential fraud efficiently through the use of machine learning (ML) algorithms to analyze transaction patterns and flag anomalies. 

Faster Account Reconciliation and Payment Tracking

Automation makes reconciliation faster and more accurate since payments get automatically matched with corresponding invoices and purchase orders in real-time. Automation solutions also help a dealership track vendor payments in real time, providing full visibility into the general ledger (GL) and ensuring that each payment is accounted for properly.

Get Your Auto Dealership on Track with Fraud Prevention

With payment fraud rising, auto dealerships should begin taking steps now to safeguard their accounts payable processes. Manual AP processes leave dealerships exposed to a wide range of risks, from human errors and slow processing time to late payments and fraud. By adopting AP automation, dealerships can reduce these risks, streamline payment workflows, and improve visibility and control over their payments.

In summary, as fraud continues to evolve, automating accounts payable is no longer a luxury—it's a necessity. If you want your dealership to stay ahead of fraudsters, improve operational efficiency, and maintain a secure financial system, you must embrace AP automation. To learn more about how CloudX’s AP automation solutions can help protect your dealership from payment fraud, please fill out our online form here