No-one wants to pay for anything twice. Every corporate, particularly those with high volumes of payables, faces the often time-consuming burden of addressing duplicate payments. It’s a drain not only on the time staff spends working to resolve each erroneous payment, but also costly to your bottom line.
According to the American Productivity & Quality Center (APQC) Open Standards Benchmarking® Accounts Payable survey, even top performers report that almost a full percentage point (0.8%) of their annual disbursements are duplicate or erroneous. Bottom performers report more than twice that amount at 2% of total annual disbursements. Though this reflects the percentage of duplicate payments, it does not address the amount of the payments themselves.
Though these percentages may seem small on the face of it, the question you should really be asking is: what kind of hit can your cash reserves take addressing duplicate payments?
Learn how to end duplicate or erroneous payments here
What causes duplicate payments?
There is rarely one reason for duplicate payments. It’s generally a mix of factors that may seem small on their own, but have more significant impact when combined. Duplicate payments typically occur due to the following reasons:
- Duplicate Vendors
Many companies have manual processes for creating vendors and as a result, it becomes standard process to create a new vendor when requested.- Remedy: Establish a process to compare new vendors against vendors with similar names, addresses, and banking instructions allows easier identification of duplicates later in the process. Maintaining good quality control on vendor master data is critical.
- Invoice duplication
- Same invoice, different vendors
- Remedy: This can be prevented first by ensuring that duplicate vendors are eliminated. Subsequently, logic needs to be added to ensure unique invoice numbers are entered for each payable, both manual and automated
- Vendor sends multiple invoices due to clerk or system error
- Remedy: Create a process to identify abnormal invoices. This process can be a manual process by which erroneous invoices are identified or an automated process to analyze current period invoice information against historical norms and identifying these as exceptions to be reviewed prior to release for payment. In many cases, clerks alone will look at each invoice in isolation and approve each based on their individual merits.
- Bonus-This same logic, but systematically automated, will identify abnormal amounts in addition to identifying abnormal number of invoices.
- Invoice received from different sources from the same vendor
- Remedy: In many cases, vendors have standard processes sending both electronic and paper invoices. Primary channels should be identified to enable automated flow of invoices and to programmatically exclude the duplicate channel where applicable.
- Remedy: Create a process to identify abnormal invoices. This process can be a manual process by which erroneous invoices are identified or an automated process to analyze current period invoice information against historical norms and identifying these as exceptions to be reviewed prior to release for payment. In many cases, clerks alone will look at each invoice in isolation and approve each based on their individual merits.
- Same invoice, different vendors
Learn how to end duplicate or erroneous payments here
How to eliminate the risk
Correcting duplicate payment issues in a timely manner is important not only to a company’s financial position but also to its vendor relationships. The additional efforts to contact and remedy a duplicate payment with a vendor – especially if it occurred in the past – results in additional research efforts and the communication required to get the error resolved.
When erroneous payments have been sitting too long without speedy remediation, it may never be recovered and will require additional sales to make up for lost profit. In addition, the accounting department and existing financial controls are affected. Most companies rely on the accounts payable department to prevent duplicate payments. Sometimes people outside of the A/P department have approved the same invoice both the original and a copy of the invoice. This is why putting strong controls in place is essential.
Just like a triangle is the strongest shape, these 3 things will create a strong foundation for eliminating duplicate invoices:
- Solid Automated process for capturing invoices
- Exception identifying process to limit manual validation
- This process must be accurate enough to capture the small amount of invoices which contain potential issues, whether that be duplication or something else outside the norm like an abnormally large amount or number of invoices
- Users educated on handling identified exceptions and process to determine in a timely fashion duplicates or invoices with other issues while also enabling a clear process to approve/release identified exceptions for payment once validated
Continuous Improvement
To prevent duplicate payments, the main objective is to have a continuous improvement process to prevent duplicate payments from happening and, if they do, to remedy them as quickly as possible. The cost is high for any failures in the process so continuing to improve software and processes is key.
- Push toward standardization. If electronic invoices are desired, reach out to gain adoption and set follow-up schedule. As your vendor’s tech stack and personnel change, adoption may become possible. Every inch toward standardization will help drastically improve processes.
- Ensure any exceptions are reported to the responsible party for them to address and hopefully avoid going further. Internal examples should be anonymized and presented as learnings for the broader group. Correcting the root cause and/or at the source is key to continuous improvement.
Automated Solutions
Consider a B2B payment solution that automates and streamlines workflows as a preventative measure not only for duplicate payments, but also to improve your B2B payment process across your organization.
ERP-native applications remove barriers, creating secure and on-demand direct connections to the banks via APIs for real-time payment initiation, greater visibility into payment statuses, and enabling automatic reconciliations that continuously improve through artificial intelligence.
When you manage many formats, systems and banks, B2B electronic payments must follow a tortuous path. In legacy systems, the flow moves from the company’s ERP to its treasury-management system (TMS) then routed via host-to-host channels to a number of different banks, each presenting opportunities for fraud and error.
With legacy technology, companies must maintain separate sets of user access and payment-approval information for third-party systems, causing extra maintenance work as IT has to maintain separate systems while keeping an eye on access rights, and treasury manages approval authority to check and ensure they are consistent between the two.
Treasury is obligated to ensure that the person initiating a transaction is not the same person approving it. When approvals are fulfilled manually, the process involves numerous emails, printed papers and other documents that must be reviewed or signed. The process is not only inefficient and time-consuming, but also creates significant fraud risk, as there are more opportunities for corporate payment information to be manipulated.
With a streamlined and transparent payments workflow powered by an automated API solution, it removes the need to transfer payments files. The payment information generated in the ERP is sent securely to your banks via prebuilt, pretested APIs. Since there are no intermediary parties or processes, you always retain full transparency and get immediate feedback regarding payment status or fees all in real-time.
