Recovering duplicate payments is a vital step after they have been identified. The recovery needs to be handled by experienced staff who can get through the task of discovering the supplier financial team details, making contact, and professionally extracting the overpaid fees. The most effective teams are those with a lot of experience in either debt collection or, specifically, duplicate payment recovery itself.
How Can I Recover Duplicate Payments?
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Typically an experienced duplicate payments recovery team will work on your behalf. They will take on a email address at your organisation and maybe even have a directed phone number from your own accounts payable team. This is important. A collection team must be seen to be acting on behalf of whomever they are collection for officially. Without a verifiable connection to the accounts payable team sending the money, the recovery process will only encounter delay and often fail to make any recovery at all, as well as possibly upsetting uncertain suppliers, wary (understandably so) of being taken for a ride.
Who Can Collect The Duplicate Payments?
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An experienced collector will know how to address any objections that a client may raise and will have experience in sending over the correct information to satisfy any uncertainty a supplier may have that the duplicate is genuine and that it should be returned. They will be able to explain the situation and how it has come about and what the accounts payable audit service they provide is aiming to achieve. A supplier depends on the business of its customers and will be only too happy to send back a single payment in order to continue the regular payments it continues to receive from the company in question. Once collection is made, the funds are sent straight back to the source and the recovery team make a note of the successful collection so that the payment can be tied to the overpayment in the company ledger.
Should all Accounts Payable Departments Consider Conducting a Duplicate Payments Audit?
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While conducting a duplicate payments audit can be beneficial for many Accounts Payable (AP) departments, whether it's necessary for your specific organization depends on various factors. Here are some considerations to help you decide:
1. Transaction Volume: If your organization processes a high volume of transactions, the likelihood of duplicate payments increases. Larger transaction volumes might make a duplicate payments audit more valuable.
2. Historical Issues: If your AP department has experienced duplicate payment issues in the past, it's a strong indicator that conducting an audit is necessary to identify and rectify any ongoing vulnerabilities.
3. Industry Norms: Consider the practices within your industry. If duplicate payments are a common issue, or if regulatory requirements dictate regular audits, it might be prudent to conduct such audits.
4. Internal Control Strength: Evaluate the strength of your internal controls. If there are gaps in your processes that could potentially lead to duplicate payments, an audit can help identify and address these vulnerabilities.
5. Risk Assessment:
Conduct a risk assessment to determine the potential impact of duplicate payments on your organization. If the financial impact is substantial, it's wise to consider an audit.
6. Cost-Benefit Analysis:
Compare the potential financial recovery from identifying and recovering duplicate payments with the cost of conducting an audit. If the potential recovery outweighs the costs, an audit could be justified.
7. Previous Audits:
Consider whether your AP department has undergone audits in the past. If not, it might be a good time to consider a comprehensive audit that includes duplicate payments.
8. Automation and Technology:
If your organization relies heavily on automated AP processes, there might be built-in safeguards against duplicate payments. However, an audit can still be valuable to verify the effectiveness of these safeguards.
9. Efficiency and Accuracy Goals:
If your organization is aiming to improve the efficiency and accuracy of its AP processes, a duplicate payments audit can be a part of this improvement initiative.
10. Budget and Resources:
An audit requires resources, both in terms of time and money. Consider whether your organization can allocate these resources to conduct a thorough audit.
In conclusion, while a duplicate payments audit can provide valuable insights and help prevent financial losses, it's not a one-size-fits-all solution. Carefully evaluate your organization's specific circumstances, transaction volume, historical issues, risk profile, and industry requirements before making a decision. If in doubt, consulting with financial experts or auditors can provide guidance tailored to your organization's needs.
If the Service Costs a Percentage of what is Recovered, is there a Downside to a Duplicate Payment Review?
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In our opinion, no. The risk is being taken by the auditors and so the risk to the company is only the costs of exporting and supplying the data, When you take this into account, the value of such an in depth analysis of the accounts payable may well uncover other issues that the company may benefit from being made aware of. The outsourcing of these services should be viewed as another feather in the cap of a finance director or head of accounts payable. It is, after all, a company appointed by them that has found extra money in the budget that management had not realised it had (in spite of having control and accountability over their own budget) and so it is no different top an IT director outsourcing the server backups. It is a way of offloading services to people who are legally accountable for producing results that fulfill any contract signed between the two. outsourcing services is a very common practice and it should be viewed no differently when it comes to the accounts payable team.
Indeed, in nearly all cases, if the proposed service costs a percentage of what is recovered, there is no downside to a duplicate payment review. In fact, it's almost entirely an upside. The fee structure is designed to align the interests of the service provider with the client, creating a "win-win" situation.
Here's why:
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No upfront cost or risk: The service provider doesn't charge a fee unless they successfully recover money for you. This means you don't have to risk any of your own capital on the review. If the review finds no duplicate payments, you pay nothing.
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The service provider is motivated: The provider's fee is directly tied to their success. They are highly motivated to find and recover as many duplicate payments as possible because the more they recover, the more they earn. This incentivizes a thorough and diligent review.
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Net financial gain: Any amount of money recovered, minus the service fee, is a net gain for your company. For example, if a service recovers $10,000 and charges a 25% contingency fee, you've still gained $7,500 that would have otherwise been lost.
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Identification of systemic issues: Beyond just recovering lost money, these reviews often identify the root causes of the duplicate payments (e.g., poor data entry, lack of controls, or system weaknesses). The service provider can often provide recommendations to prevent future errors, which saves you money in the long run.
The only potential "downside" (which is more of a minor consideration than a true disadvantage) would be the time and resources you or your team might need to dedicate to the process, such as providing access to data and reviewing the findings. However, a good third-party service will minimize this burden, and the potential financial benefits almost always outweigh this small investment of time.
In summary, a duplicate payment review structured on a contingency-fee basis is a low-risk, high-reward proposition that helps your organization recover lost funds and improve financial controls without any upfront financial commitment.
How Do I Keep Track of Duplicate Payments Recovered?
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Any decent duplicate payment recovery company will be able to then supply reports explaining the effectiveness of the audit and recovery process and the company in question will then be expected to pay a percentage of sums recovered in lieu of the work carried out by the duplicates payment recovery team, to settle matters an continue a profitable association.
Keeping track of duplicate payments you've recovered is crucial for financial accuracy and for identifying systemic issues within your organization. Here's how to do it effectively:
1. Establish a Dedicated Tracking System
A reliable tracking system is the foundation for managing recovered payments. This can be a simple spreadsheet, but for larger organizations, dedicated software is more efficient.
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Spreadsheet (for smaller businesses): Create a clear, well-structured spreadsheet with columns for essential information.
- Date: When the duplicate payment was identified.
- Original Payment Date: The date of the initial, erroneous payment.
- Vendor: The supplier who received the duplicate payment.
- Invoice Number(s): The invoice numbers associated with the duplicate payment.
- Amount: The total value of the duplicate payment.
- Recovery Method: How the payment was recovered (e.g., credit memo, refund check, future invoice offset).
- Recovery Date: When the funds were actually received or applied.
- Status: A simple status column (e.g., Identified, Vendor Contacted, Awaiting Payment, Recovered).
- Notes: Any specific details or communication logs.
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Accounts Payable (AP) Software: Many modern AP automation and recovery audit software solutions have built-in features to track and manage duplicate payments. These systems often use AI and machine learning to proactively identify duplicates and provide a dashboard for monitoring recovery efforts.
2. Implement a Clear Recovery Process
Having a documented process ensures that every duplicate payment is handled consistently and efficiently.
- Identification: The initial discovery of a duplicate payment. This can be done through a manual review, an audit, or an automated software alert.
- Verification: Once a potential duplicate is found, verify it against payment records, invoices, and supplier statements to confirm it's a true error.
- Supplier Contact: Reach out to the supplier with professional, clear communication. Provide all supporting documentation (e.g., copies of the two payments, invoice details) to demonstrate the overpayment.
- Agree on Recovery Method: Work with the supplier to determine the best way to get the money back. The most common methods are a direct refund or a credit memo that can be applied to a future invoice.
- Record the Recovery: Log the agreed-upon recovery method and the date it was completed in your tracking system. This is a crucial step to ensure the recovery is not forgotten and is properly accounted for.
3. Reconcile and Report
Regularly reconciling the recovered funds is essential for an accurate financial picture.
- Journal Entries: When a duplicate payment is identified, it's typically a receivable from the supplier. A journal entry should be made to reflect this. Once the funds are recovered, another entry is required to clear the receivable and update the cash or payables account.
- Regular Reporting: Generate reports from your tracking system on a monthly or quarterly basis. This helps you analyze trends, such as which vendors or departments have the most duplicate payments, and identifies the root causes of the errors. These insights can then be used to improve internal controls and prevent future duplicates.
Reporting is also a vital component of any professional duplicate payment recovery team. Any company engaged in an externally run audit of their accounts payable needs to know precisely what is happening and exactly who has been previously overpaid and when that overpayment was collected. All of these numbers need to be sent back to the accounts payable audit department and looked into by the company so as to be understood by the management so that action can be taken to streamline and improve the current auditing systems.
How Much of the Value Recovered do the Recovery Team Keep?
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Well this depends upon how much risk and what terms you decide with the team. If they can be reasonably sure that they are going to be able to recover what they find, and you are not capping the value of an over payment that they can process as some customer prefer to do, then you should be looking at a 20-25% pay-out to the recovery team. If the circumstances are different, then there may be greater risk. If the company was in administration and many of the suppliers are already owed money, then the risk is substantially higher for any recovery to be successful, whereupon you may be looking at a 50% pay-out or perhaps even more.
So, the percentage of the recovered value that a recovery team keeps is determined by their fee structure, which is almost always a contingency fee or "no-win, no-fee" model.
While the exact percentage can vary, a typical range for these services is 10% to 30% of the recovered funds.
Here's a breakdown of the factors that can influence this percentage:
- The Amount of the Recovery: The percentage may be tiered, meaning the fee is lower for larger recoveries. For example, a firm might charge 25% on the first $100,000 recovered, but only 15% on any amount over $1 million.
- Complexity of the Case: If the duplicate payments are particularly difficult to track, require extensive research, or involve multiple legal jurisdictions, the percentage may be on the higher end of the range.
- The Scope of the Service: Some recovery firms not only identify and recover the funds but also provide detailed analysis and recommendations to prevent future duplicate payments. This added value may be factored into the fee.
- The Industry: Some industries may have a higher or lower fee structure depending on the typical transaction size and the complexity of their payment systems.
- Competition and Negotiation: The market is competitive, and some firms may be willing to negotiate a lower rate, especially for large, potential clients. It's always a good idea to get quotes from a few different providers and compare their services and fee structures.
Example:
Let's say a recovery team finds and recovers $50,000 in duplicate payments for your company.
- If their contingency fee is 20%, they would keep $10,000 ($50,000 x 0.20).
- Your company would receive a net recovery of $40,000.
The "no-win, no-fee" model is very popular because it eliminates risk for the client. The recovery firm only gets paid if they are successful, which strongly incentivizes them to be thorough and effective in their audit.
As long as you agree a suitable compromise with the duplicate payments recovery specialists, you should be expecting good things. They only charge for what they find, so there is literally no cost to you.