Processing invoices is a tiresome task, but it demands continued focus and meticulous attention to detail. If your accounts payable team fails to pay bills on time, it disrupts cash flow and can incur steep late-payment fees.
But late payments aren’t the only thing that can go wrong with the AP process. Duplicate payments can also hurt your business’s bottom line, and they can be frustratingly hard to identify.
How common are duplicate payments, and how do they happen?
The definition of a duplicate payment is an additional payment made to a vendor that has already been paid. Data suggest that from 1% to 2% of payments are duplicates, according to the American Productivity & Quality Center. Duplicate invoices are often created when AP accidentally makes duplicate vendor accounts and then sends payment to both.
In addition to hitting your company’s bottom line, the process of reclaiming a duplicate payment could even cost money. While many vendors will recognize your erroneous extra payment and simply send it back or issue a credit to your account, some may be less than forthcoming about overages.
Businesses that employ vendor master data management systems that integrate with AP and other backend systems, which are designed to mitigate errors, are not necessarily immune from making duplicate payments, either.
It is also important to note that fraudsters have been known to send out fake invoices under the assumption they will go undetected by the AP team.
Below are seven steps your business should follow to prevent duplicate payments.
Step 1 – Consolidate, verify data
As a first step, consolidate your file information and ensure its accuracy. Eliminate any duplicate payments from your vendor master system or database. In the event you can’t spend the time yourself, consider hiring an intern to review your records.
Step 2 – Remove duplicate vendors
Incorrect data in the form of duplicate vendor accounts is a primary contributor to duplicate payments. For example, the same vendor may be named both “Lee’s Tax Services” and “Lees Tax Services” in your database. Team finmembers might unknowingly send payments to both.
This can in turn create payment problems, prolong the payment cycle and impact your relationship with the vendor. For example, the vendor whose correct name is “Lee’s Tax Services” may never get the payment from the incorrectly named “Lees Tax Services” (without the apostrophe) and end up sending a late payment notice. Meanwhile, a colleague quickly pays that late invoice, so the business ends up having paid both the real vendor and the incorrectly spelled one.
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If your VMD is large, start by reviewing seldom-used vendors. Move on to verify the VMD in its entirety to remove unnecessary data and disable any duplicate vendors. It’s also good practice to deactivate vendors in the VMF who have not paid in the past 12 to 18 months.
Cleaning the VMD at least once a year is another best practice. This can be achieved through automated invoicing systems, or even by outsourcing the data evaluation process to an accounting firm.
Step 3 – Standardize data
Creating uniform data standards is a key component of vendor data management. Data that appears inconsistently can leave you perplexed and contribute to mistakes. Set up standard labeling for various types of vendor information to improve data accuracy. For example, establish a set of labeling guidelines for payments and invoicing, and make sure that they are used consistently throughout the VMD.
Step 4 – Request W-9s
Request a completed Form W-9 from every vendor at the beginning of your business relationship. This tax form is used by freelancers and independent contractors to verify their tax identification numbers for the IRS.
Step 5 – Verify tax information
It is crucial to confirm your vendor’s tax details. You can validate TIN and name combinations through the IRS’ Taxpayer Identification Number Matching system. Doing so ensures the vendor’s TIN is double-checked before you file your company’s tax returns. Finally, be sure you don’t pay any vendor for whom you have no W-9 form.
Step 6 – Separate responsibilities
Maintaining an accurate VMD and verifying W-9 information alone can’t prevent duplicate payments. To reduce the risk of accounts payable fraud, avoid assigning one person to handle all responsibilities relating to vendor payment. Instead, divvy up the responsibilities.
Additionally, before bringing on a new vendor, conduct a background check into their financial stability and to learn as much as you can about its key personnel and track record. The goal is to mitigate your company’s exposure to risk.
Step 7 – Automate and train
Train staff to be vigilant over invoice irregularities, such as inconsistent purchase orders or multiple addresses for the same vendor. In the event your in-house resources for AP are limited, consider hiring an outsourced accounting firm for assistance. Automated approval processes can also process invoices.
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