At the start of 2020, two owners of a Florida property management company, Tracy and John, grappled with inaccurate payments. The company, Incurrent Holdings, paid vendors multiple times for the same service and for services not provided. In some cases, they paid suppliers late. These inefficiencies cost the company several thousand dollars a month.
But when the business started using automated accounts payable (AP) software, it stopped incorrect payments thanks to increased visibility of data and bills.
In this blog, we’re going to cover the most prevalent types of inaccurate payments, how much money they can cost your business and what you can do to stop these types of payment mistakes.
Types of Inaccurate Payments in B2B
Inaccurate payments can occur in business for many different reasons, so there isn’t a one-size-fits-all solution. The potential mishaps range from typing the wrong invoice information, to sending a payment to the wrong company or person, to making a payment twice for the same product or service.
Payments Journal notes the most common payment mistakes stem from data-entry errors, poor quality data in the vendor master file (VMF) and pricing inaccuracies.
Here we’ll do a deep dive into these most common types of payment mistakes.
Outdated information in the vendor master file
Many inaccurate payments originate in the AP VMF, a main hub of the AP processes. AP teams use this information database to set up new vendors and maintain data on current vendors, such as who should be paid and how.
If in this file the address or bank account vendor data gets entered incorrectly, payments may not appear in the account on time or unauthorized people may access it, causing payment mistakes to occur.
“Errors in the vendor master file have a way of multiplying down the line,” according to Payments Journal. “Nowhere is this truer than in the form of mistakes like duplicate payments.”
Duplicate payments are one of the biggest incorrect payment types. They happen when a business pays for the same product or service twice. Depending on the invoice, businesses could spend tens of thousands of dollars on payments for products or services they didn’t order.
Faulty payments can also soak up a lot of time and money as you try to get the extra payment back. Even then, it may not happen because vendors can be slow – or unwilling – to pay back the money.
According to NetSuite, duplicate payments can happen when finance teams use several financial applications rather than one consolidated system.
Data entry miscues
Another major cause of incorrect payments is using a manual system in which someone enters invoice and payment data. Finance pros are vulnerable to:
The unfortunate result? An invoice for $100.50 gets typed in as $1,000.50. You then pay an extra $900.
Mistakes in data entry can also lead to paying the wrong vendor. This often happens when two companies use similar names but are different enterprises.
Bypassing 2-way and 3-way matching
Payment mistakes become much more likely to occur if you don’t use automated two-way and three-way matching processes. Two-way matching makes sure invoice and purchase order amounts align, while three-way matching confirms invoice, purchase order and sales receipt data line up.
This helps prevent payments from being made to the wrong business or for the wrong amount by catching any oversights.
How to Prevent Inaccurate Payments in B2B
Inaccurate payments can decrease your cashflow, revenues and profits, not to mention strain business relationships and erode trust in your brand. To help prevent them, consider these three steps:
1. Review your vendor master file.
Focus on reducing errors in your vendor master file, the epicenter of your AP processing system. Do regular audits of the file’s data to ensure accuracy. Identify suppliers with abnormal credit limits, payment terms and discount rates. Conduct maintenance work checking for discrepancies.
In addition, standardize your processes so your team names companies consistently. For instance, use “Company X Inc.” style for every supplier listed so you don’t have some companies with Inc. and some without. If you don’t standardize your vendor list, it could get confusing who to pay if two vendors are named similarly. The potential result? An inaccurate payment.
It also helps to remove or archive inactive suppliers to keep the list clean and up to date.
2. Train your team.
Ensure new teammates are trained well on the invoice and payment processes for accurate data entry and effective approval workflows. You don’t want one person in the finance department in charge of all invoices and payment processing. Spread out those responsibilities in a process known as separation of duties. Dividing tasks works well because a team is more likely to catch mistakes than an individual. This also minimizes the potential for fraudulent payment activity.
3. Leverage the power of machine learning.
This type of artificial intelligence is used with AP automation systems to help you detect fake invoices and other types of fraud before sending inaccurate payments.
Machine learning empowers you to continuously monitor and control invoice and payment processes to confirm, for instance, that all invoices, vendor names, dates and other key information match up.
“AP processors let system controls tell them which of the thousands of possible risk vectors require attention, which of the outliers are benign, and which may indicate fraud,” according to Payments Journal. “AP becomes an analysis department, looking at spending norms over time to help optimize spend. Through continuous monitoring, their roles elevate, and the gaps in financial systems close.”
AP Automation Can Help Reduce Inaccurate Payments
Preventing inaccurate payments comes down to closing gaps and flaws in your financial system. Automation can help solve these problems more efficiently than manual systems. Automated self-audit tools, for example, locate invoices with numbers that closely match, pinpoint unusual payments and invoices and catch out-of-sync financial transactions. Incurrent Holdings automated its AP payments to solve its inaccurate payment problems, elevating its business performance.
You, too, can reduce payment mistakes and boost overall performance. The key is to automate what you can, continuously monitor the accuracy of your invoices and supplier information, and ensure teammates are trained in these processes.