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Accounts Receivable Frauds Every Startup Owner Should Know

There are many types of business frauds to look out for. Here are a few business frauds that are related to accounts receivable that every startup founder and small business owner should be aware of.


Lapping is conducted by stealing a customer’s payment and using the additional payments from that customer to cover the theft. By stealing the payment from one invoice to cover another invoice payment, fraudsters create a cycle in which they hide their stolen cash.

However, if a customer leaves the service and makes their final invoice payment, total invoice billings will not match the total money received. This can be a clear indicator of wrongdoing, but creative fraudsters may use payments from other customers or other methods to cover this discrepancy.

Example: Jerry is at work and receives a $500 check from Customer A. With no one around, he pockets the check.

2 days later, Customer B sends in a $500 check as well. Jerry uses the check from Customer B and credits it to Customer A’s account to replace the missing $500 payment.

Jerry now has an extra $500 in his pocket and Customer A’s account has balanced out with the payment from Customer B. Customer B’s account is still in the negatives until Customer C’s money arrives.

Jerry will continue this cycle, continuously recording one customer’s payment to another customer’s account until the scheme is found out.


Skimming entails an employee intercepting payment from customers and pocketing the cash. There are several ways fraudsters can commit skimming fraud:

Check Skimming

In this scenario, an accounts receivable employee intercepts an incoming check from a customer. Before the payment has been recorded, the employee steals the check and cashes it into a private bank account.

Because they are stealing these checks before they have been recorded, the said employee disguises their actions by diverting account statements and late notices.

Refund Skimming

Companies can issue refund checks to customers. A company with weak internal controls gives the fraudster an opportunity to pocket the refund check before it has been recorded into the accounting system and then endorse it to himself.

Fake Sales

Accounts receivable are not equivalent with actual cash. When someone creates a fake invoice, accounts receivable becomes inflated and there is more “money” in the company. And at the end of the day, more money in the company benefits everyone in it.

For example, a salesperson with a commission-based pay might create fictitious sales to meet daily, weekly, or monthly goals and get the target bonus. Once a sale has been booked, the corresponding journal entry is to a payment that has never collected and eventually written off. So while the payment is never received, the effects and benefits that come from a fake sale (booked to a fake account) remain.

Company owners might be incentivized to create fictitious sales to make their business seem more profitable to prospective or current clients.


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