Accounts payable manager avoiding duplicate payments

Your 6-Step Guide for Avoiding Duplicate Payments in AP Processing

Here at AvidXchange, we want to help your accounts payable (AP) team avoid making duplicate payments — a significant industry problem. 

With this goal in mind, we’re sharing insights that one of our principal solutions consultants, Rhonda Greene, offered during our recent REVx 2021 event.

She explained what duplicate payments are, outlined the scope of these headaches and taught us how to prevent them, as well as associated fraudulent attacks.

Here’s a summary of her key points and supporting research:

What is a duplicate payment?

When a finance team pays the same vendor twice for the same product or service, that’s called a duplicate payment. Businesses can lose thousands of dollars or more by making these mistakes.

In a 2021 survey conducted by Levvel Research, 16 percent of financial leaders said duplicate payments and/or payments were among their top payment challenges.

But there’s nuance to this as some companies struggle more than others with this problem.

For top performing companies, duplicates or mistakes make up  0.8 percent of total disbursements (paying out money), according to an American Productivity Quality Center survey. As for lower performers, that duplicate and mistake total rises to 2 percent.

“These numbers might seem small, but keep in mind they reflect the percentage of disbursements that are duplicate or erroneous, not the amounts of the disbursements themselves,” according to an article about the survey in CFO.com. “Even one erroneous or duplicate disbursement could amount to tens of thousands of dollars and could put a serious dent in your cash reserves.”

Another serious dent could be, and often is, the time businesses spend fixing these problems. In a PYMNTS survey of AP pros, 25 percent said duplicate invoices or payments “create noticeable pain points in manual AP operations. Something as simple as receiving a second notice for a bill and trying to determine if it has already been paid can quickly turn into a lengthy time-eating detour.”

VMF: Central location for avoiding duplicate payments

So how you do avoid making duplicate payments? Greene’s advice: Change how your business uses and manages its AP vendor master file (VMF) because many duplicate payments originate there. AP teams use this file to set up new vendors and maintain information on current vendors, such as who should be paid and how.

Images from Rhonda Greene’s REVx presentation

A 6-step guide for reducing duplicate payments

Greene, who has spent the great majority of her career as an AP professional, offered these steps you can use as a guide to halt duplicate payment mistakes.

Step 1: Consolidate and validate

As a first order of business, consolidate file data and make sure it’s accurate.

“If you’ve never scrubbed your VMF, it’s really time you do so,” Greene said. “Even if you don’t feel you have time yourself, a temporary agency or intern can take the time to scrub for duplicate payments. It’s that important.”

Step 2: Deactivate duplicate vendors

It’s also important to deactivate vendors listed twice within the file. Greene captures the reason succinctly: “Duplicate vendors equals duplicate payments.”

If you notice you haven’t made a payment to a vendor in the past 15-to-18 months or, alternatively, only once and have no plans to do so again, deactivate them.

Step 3: Standardize data entries

Often, data shows up inconsistently within the VMF. It can get messy and confusing. To fix this, set up standard labels for different types of vendor information using the exact same labels.

For example, you may often come across two different company names such as “The Cardboard Box Company” and “Cardboard Box Company.” Choose one of these two, and then refer to this company by the exact same name throughout the file.

The benefit? You’re likely to think these are two different companies. andbe less likely to send duplicate payments to the same entity.

Step 4: Request W9s from all vendors

In addition to labeling standardization, your AP team should always ask each vendor, at the start of your business relationship, to send to them a filled-out W9 form.

Contractors who work for businesses, such as freelancers, typically use this form to verify their tax identification numbers (TINs), and your business will need those TINs when filing  corporate tax forms.

Step 5: Verify tax information

Don’t forget to verify the vendor’s tax information by going to irs@irs.gov and matching the vendor’s TIN through the IRS’s TIN matching tool.

Why? So when your company files its tax returns, it will have already double-checked to make sure the vendor’s TIN matches IRS records.

Regarding taxes, here’s what really matters: You don’t want to be scrambling at year’s end to get these W9s from vendors. That’s risky. You may file your business tax returns late and/or send duplicate payments.

“You shouldn’t make a payment to any vendor without that vendor’s W9 form,” said Greene. “You shouldn’t have to worry about paying penalties because you didn’t set up a vendor correctly using their W9 form.”

Step 6: Scrub VMF annually

Greene recommends you update and clean your VMF at least once a year. At that time go through your entire VMF and check potential duplicate payments and inconsistencies.

This takes time, granted, but it’s well worth it. Don’t wait two, three or four years because you’ll have to wade through more information that could be outdated, making duplicate payments more likely.

“Once you establish these best practices, make sure to adhere to them going forward,” Greene said. “You’ll find at the end of the year the struggle with vendor tax forms and just getting the year closed will become much easier.”

Tips for reducing fraud

Besides preventing duplicate payments, you can also use the VMF to avoid fraudulent crimes against your business. In her REVx presentation, Green shared several tips for how to do that.

Separate duties

She emphasized that across your finance team you’ll want to embrace a “separation of duties” policy in which no one person has responsibility for all vendor activities, updates and transactions. This means, for example, that no single person does the vendor set up process while another enters invoice data. And so on.

By separating duties, you reduce the chance of one person committing fraud against your company and, as a result, minimize the likelihood of duplicate payments.

Perform compliance screening

Another way to prevent fraud is to be careful when you receive an invoice from a new vendor you haven’t dealt with before. When that invoice arrives, you can’t be sure it’s legitimate. Check into it – carefully and immediately. Before entering the vendor in your VMF and sending them payments, be sure to do this due diligence.

And there’s more – and it’s so important. Find out if the vendor shows up on any government watchlists created in the aftermath of 9/11. Of all the lists, these three are crucial:

  • OFAC, Office of Foreign Assets Control
  • SDN, Specialty Designated Nationals
  • BIS, Bureau of Industry and Security

 

If you do business with someone on any of these lists, you’ll expose your company, potentially, to fraudulent attacks, fines and penalties.

 

Know your vendors’ financial standings

The truth is  new vendors may or may not be legitimate. Before you add them to your VMF, find out all you can about the entity’s financial status.

Probe deeper than a cursory search of the vendor’s name, conducting several searches using variations of the vendor’s name and address. You may find information that clues you in to how solvent the company is — or isn’t.

Identify and avoid shell company schemes

Financial standing should also be on your mind as you identify and avoid shell company schemes. Even though they often only exist on paper and have no office or employees, these companies frequently portray themselves as legitimate businesses. Beware. That might be just a cover.

In the payment arena, shell companies have been known to send an invoice to a company’s AP department for a small amount of money to see if they get paid. If that works, they’ll start sending invoices for larger amounts.

Track unusual invoice patterns

All this due diligence should not be done as an afterthought. Be fully committed to non-stop vigilance in spotting fake vendors, without adding any of them until you’re sure you know who they are and whether you should pay them.

“Anything that looks odd, check it out,” said Greene. “It’s that simple.”

Train AP people to spot fraudulent invoice red flags

While you’re taking all these smart steps to prevent duplicate payments using your VMF file, you’ll also help avoid fraudulent attempts to steal money from your business. Here’s a sample list of ways your AP team can spot red flags suggesting you might be dealing with a fraudulent invoice:

  • no physical address or purchase order number
  • vendors not in business directories
  • vendor address isn’t a street address
  • residential address
  • incorrect address
  • multiple addresses
  • invoices for unspecified or poorly defined services
  • vendors with similar names
  • unexplained increases in volume of payments or invoices
  • new vendors that have high invoice activity

Final thoughts

It doesn’t make sense to make duplicate payments or be victimized by fraud, and we’ve outlined ways to avoid these problems. That begins with consistently updating and monitoring all the data in your VMF, focusing above all else on two steps.

First, quickly and completely delete duplicate vendor entries. If you don’t have any vendors listed twice in your file, you’re much less likely to pay any of them twice for the same services. It really is that simple and straightforward.

Second, track closely new vendors sending you invoices for small amounts. Be on the lookout for ploys designed to lull you into believing they’re legitimate when they’re not.

If you focus on those two things, you’ll be well on your way to avoiding costly duplicate payments and fraud.

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