Duplicate payments are expensive mistakes that cost businesses significant time and resources each year. If you’re wondering how to better avoid duplicate payments in accounts payable (AP), this article will address:
• How to reduce duplicate payments by managing your vendor master file (VMF)
• How to avoid duplicate payments in accounts payable
• How to address duplicate invoices
• How to reduce fraud associated with duplicate payments
Data from the American Productivity & Quality Center shows that, on average, 0.8% to 2% of companies’ annual disbursements are duplicate or erroneous. A study by SAP Concur underscored this, reporting that 1.29% of the invoices businesses process are duplicates, each valued at an average of $2,034.
Added up, duplicate payments can account for a significant financial loss. Avoiding duplicate payments is essential within AP departments. Not only will making an effort to catch these payments help an organization financially, but it can also obstruct fraud.
What is a Duplicate Payment?
A duplicate payment occurs when the same invoice or payment is processed and paid by a business’ AP department more than once, leading to an unintended overpayment. This can result from errors in accounting systems, manual input mistakes, technical glitches or other causes.
Duplicate payments cause financial discrepancies that AP departments must rectify. Businesses can lose thousands of dollars or more by making (and spending time fixing) these mistakes.
How to Help Reduce Duplicate Payments by Managing Your Vendor Master File (VMF)
Rhonda Greene, AvidXchange’s principal solutions consultant, has worked in AP for decades. She is a strong advocate for keeping your VMF clean and up-to-date. She believes the VMF is the first line of defense against duplicate payments. Greene shared the following six-step process for helping ensure your VMF is set up to reduce duplicate payments
1. Consolidate and Validate the VMF
Consolidate VMF data and make sure it’s accurate. Review and edit the vendor database to ensure accuracy and reliability. This involves verifying and updating vendor information and rectifying errors.
Greene notes that if your team doesn’t have time to do this, you should consider hiring a temp or intern to work on this. “It’s that important,” she said.
2. Deactivate Duplicate and Inactive Vendors
Deactivate vendors listed twice within the VMF. According to Greene, “Duplicate vendors equals duplicate payments.”
Additionally, if you haven’t made a payment to a vendor in the past 15-18 months, deactivate it. If you’ve only paid a vendor once and have no plans to do so again, deactivate it as well.
3. Standardize Data Entries
Often, data shows up inconsistently within the VMF. It can get messy and confusing. To fix this, set up consistent, standard labels for different types of vendor information.
For example, make a rule to eliminate “The” at the start of company names so suppliers aren’t accidentally listed twice as “The Cardboard Box Company” and “Cardboard Box Company.”
4. Request W9s from Vendors
Ask each vendor at the start of your business relationship to send a completed W9 form.
Contractors who work for businesses typically use this form to verify their tax identification numbers (TINs), and your business will need those TINs when filing corporate tax forms.
5. Verify Tax Information
Verify the vendor’s tax information by using the IRS’s TIN matching tool. When it comes time to file tax returns, you’ll have already confirmed that the supplier’s TIN matches IRS records. Waiting till the last minute to file taxes can be risky.
6. Maintain the VMF Annually
Set aside time to review and update your VMF at least once a year, checking for double entries and inconsistencies that may result in duplicate payments.
How to Help Avoid Duplicate Payments in Accounts Payable
These best practices will help your team avoid duplicate payments in accounts payable.
Use a Numbering System
A numbering system makes it easier to track and manage your invoices and may prevent you from sending duplicate payments.
Additionally, a numbering system makes it easier to locate an invoice during an audit.
Conduct Invoice Matching
Invoice matching is a best practice within AP departments. 2-way matching involves checking the invoice against the purchase order (PO). 3-way matching checks the invoice against the PO and receipt.
Invoice matching helps ensure that payments correspond accurately to a valid and unique invoice.
Employ Data Analytics
Data analytics helps organizations prevent duplicate payments by identifying patterns and anomalies in invoicing data.
Advanced algorithms can flag duplicate invoices based on various parameters, providing a proactive approach to detecting errors and ensuring payment accuracy, ultimately saving resources and preventing financial discrepancies.
Embrace Automation
Many companies use AP automation software to streamline invoice processing. These systems automate invoice data extraction and approval routing, allowing real-time visibility into invoice status.
Aside from these benefits, AP automation platforms can also help flag duplicate or potentially fraudulent invoices to ensure your company does not issue payment if there are any discrepancies.
Audit Vendor Files
Taking time out to review payment records and reconcile payments with vendor statements allows teams to examine details. Manual reviews allow a personalized understanding of each transaction, which might help catch issues contributing to duplicate payments.
How to Address Duplicate Invoices
If your business receives duplicate invoices, it should promptly address the issue by initiating a thorough investigation. Engage with the supplier promptly to seek clarification.
Simultaneously, determine whether the duplicate might be a result of an internal system glitch or procedural error. If you find internal issues contributed to the cause, implement corrective measures immediately. This may include voiding duplicate entries, updating records or adjusting payment schedules.
To help prevent future occurrences, enhance your invoice processing system, incorporating validation checks and controls. Streamline communication channels with vendors to ensure accurate billing. Consider leveraging technology solutions, like duplicate detection algorithms and automated approval workflows, to reduce the likelihood of errors.
How to Help Reduce Fraud Associated with Duplicate Payments
Sometimes, duplicate payments may be the result of fraudulent invoices in your AP system. Fraudsters may create fake vendor accounts or impersonate legitimate vendors, submitting duplicate invoices in hopes that they’ll go unnoticed in a high-volume AP department. Sometimes, they may alter legitimate invoices, changing details such as amounts and payment details to redirect funds.
Greene offered the following tips to help reduce fraud associated with duplicate payments.
Separate Duties
Greene advocates for a “separation of duties” policy so that one person does not have complete responsibility for all vendor activities, updates and transactions. This means, for example, different people should do vendor set-up, invoice coding and VMF updates.
By separating duties, it’s more likely someone will catch errors or suspicious activity and, as a result, help minimize the likelihood of duplicate payments.
Vet New Vendors
Proceed with caution when receiving an invoice from a vendor you haven’t done business with before. Prior to entering the vendor in your VMF and sending payment, be sure to do your due diligence.
In addition to checking the legitimacy of the vendor, make sure they don’t appear on any of these government watchlists, which include known terrorists and drug traffickers, among other entities with whom U.S. businesses are prohibited from working:
• The Office of Foreign Assets Control Sanctions List
• The Specially Designated Nationals List
• The Bureau of Industry and Security Lists of Parties of Concern
Check Vendors’ Financial Standings
Before adding a new vendor to your VMF, find out all you can about the entity’s financial status. You may request financial statements or permission to conduct a credit check. Even a cursory Google search may turn up some enlightening information.
Avoid Shell Company Schemes
Shell companies exist on paper and have no office or employees. To commit financial fraud, they’ll often invoice a company for a small amount just to see if they get paid. If the scheme works, the shell company starts sending invoices for large amounts. AP teams should be on the lookout for unusual billing patterns.
Spot Invoice Red Flags
Train your team to catch the following invoice red flags that may require further investigation:
• No physical address
• No purchase order number
• Vendor does not appear in relevant business directories
• Services are unspecified or poorly defined
• Vendor name is similar to another company you do business with
• There’s an unexplained increase in the volume or amount of invoices from a vendor
• New vendor submits unusually large invoices
Duplicate Payments: Final Thoughts
According to Greene, the two most important actions an AP department can take to avoid duplicate payments are:
• Keep the VMF clean and delete duplicate vendor entries
• Track new vendors closely and be wary if they submit unusually large or small invoices
Avoiding duplicate payments is imperative for an organization’s financial health and operational efficiency. Duplicate payments not only strain resources but erode trust with vendors. Payment discrepancies also undermine the accuracy of budgeting and reporting.
To safeguard against these outcomes, organizations should implement invoice verification processes and leverage technology within the AP department, including artificial intelligence (AI) and automation tools. By embracing these practices, businesses can fortify their financial integrity, streamline operations and ensure that all spending contributes to sustainable growth and success.
