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Duplicate payments have become a source of profit degradation for businesses of all shapes and sizes as they are not only troublesome to detect, they seem to evolve new ways of outsmarting detection in spite of the emergence of complex electronic duplicate payment detection solutions.
If duplicate payments remain undetected, they can add-up to represent substantial financial losses in that businesses could've simply invested attempting to iron out overpayments in the first place. This is an frustrating concept for those in charge of accounts payable.
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Causes of Overpayments
Now we could repeat what every website will tell you here, that duplicate payments are the result of human error and transaction volume, but the truth is a little more complex. Sometimes, despite the business having plugged some obvious holes for possible duplicate payments, people just cannot get the system to accept a PO that they have been asked to process immediately, this is the real issue. If the head of AP is under pressure to get something out immediately because the supplier is just about to shut the doors, then it must be entered into the system. If there is a duplicate number on the system already that says it is paid, no one is going to do an investigation, they just put an 'a' or a '1' on the end so that they can get it done and dusted. This is how nearly every duplicate is made - because the system is telling them something different to their boss, and so the system has to be circumvented in order to get the boss off of their back.
If gone undetected, these duplicate payments result in huge losses for the company. Aside from the financial burden, they can also lead to professional resources being wasted trying to rectify the associated overpayments with various providers. Previously a report by SAP Concur suggested that some SMEs might be losing up to $12,000 PCM on duplicate payment retrieval.
What Can We Do About Duplicate Payments?
Pinpointing these holes in the AP process and strengthening internal controls can improve any business profit margin and give management greater visibility over the problems leading to overpayment and the time spent in recovery.
Existing records for invoices allegedly remaining unpaid.
What is your process for settling an invoice? What is the remittance system? How do you know that an invoice has been paid? If your telecommunications provider is just about to shut off your system because they claim an invoice has not been paid then how quickly can you access the receipts for the payments and record of the transaction?
All of these questions are vitally important when addressing queries with AP on mission critical supplier accounts. If they are claiming you have not paid, you must be able to prove them wrong before they hang-up the phone. If you can provide information to your own satisfaction that they invoice has been paid and they shut you down anyway, with the call recordings and remittance advice necessary, they will be paying all of your damages and more. You need to make sure your payment records and the controls based upon them tie up and are searchable and referrable.
Data Integrity
The thing about data integrity of your master file and master suppliers files is that regular checks may prove to be futile. Repeated checks for errors is the job of a computer or robot and should not be a burden on your profits every quarter. If your data is double entered by both you and the supplier when they are tendering, this kind of check should be completely automatic. Manual checks can often lead to more problems than they solve.
Data loss
Again, the idea of data loss should be in the past. No system should ever be upgraded when it is the only instance of that data. A duplicate system should always be made and most companies have a test environment and a production environment, both of which can be rolled-back at any time. If you are dealing with suppliers or customers suffering from data loss then it may be time to turn elsewhere.
Cancelled or Altered Invoices
A dangerous habit is the habit of changing an invoice after the #PO has been signed off or reusing an old invoice number or code for something else. These types of practices are very common and can often lead to serious misrepresentation or confusion. An invoice number that has been previously used is a mistake that you would think that an AP department would only make once and yet duplicate payment recovery specialists see it over and over again. The number has been signed off as one amount and has been received as an invoice for a different amount. People trying to input the invoice are told it has already been used and cancelled and so they add the famous '1' or 'a' to the end to get it into the system. Once again bad practices have forced staff to find a way around the duplication checking built into the system.
Fraudulent Invoices
Everybody has heard the stories. Just send an invoice into a massive company and see if they pay it as they are overloaded and it can cost more time to check who is sending the invoice if it is under a certain amount. Historically some companies just paid anything under $1000 USD . These days things are different as the systems have become more complex and resistant to fraud. But just like the systems, the fraudsters have become more complicated in how they try and get an invoice through the system.
It is when the fraudulent invoice is designed to use a duplicate invoice number that duplicate payment recovery services can help you uncover and identify any fraudulent behaviour.
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Typically, double invoice fraud is carried out in two completely separate ways. The first is with the assistance of a member in the AP team, and the second is entirely outside of the company, but with some piece of private information that has somehow become leaked (such as an invoice or remittance being intercepted in the post) being used to action the fraud. These types of frauds are either paid by the insider to either the same or a different account in exchange for some fee or bonus, or they are reinforced by the inside knowledge that the outsiders have obtained so as to appear as if the account was mis-paid to the wrong account and they have the old account numbers to prove it.
Either way these frauds are detectable with a decent duplicate payment recovery audit and will guard against the same or any other parties trying the same scam again.
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Duplicated Payment Channels
Some merchants might send the same invoice through multiple channels, and these duplicate invoices being received could generate a situation where AP make an alteration to the invoice number or reference in order to get the invoice put into the system
Once any alterations have been made to get an invoice successfully entered into the system, the duplicate payment becomes far more likely. In this way, the system that has been designed to prevent multiple payments being made is aiding the overpayment as it has forced an alteration to production data. The most important part of a control is that it forces staff to investigate where the last payment went before issuing a new payment. It is tricky, but it is a good way of alleviating overpayments moving forward.
Manual Data Entry
Manually entering invoices into a system is not only extremely time-consuming, it has the effect of forcing errors on someone performing such a repetitive task. Eyes become tired, brains become clogged, people become sloppy. The solution is to be sure that everything is submitted electronically.
Any large supplier should be sending invoices electronically through a completely automated system and that system should be being auto-checked against POs automatically. Automation of this kind is far more reliable than any manual entry and is also a huge relief of time on the AP staff and their management teams. If you are going to manually enter any invoices, they should only be from very small suppliers and should be manually checked by separate members of staff. Even optical character recognition is extremely hazardous but it has improved hugely over the last few years. The difficulty of recognising hyphens and currency symbols is too great and often gives too many misinterpretations.
More problems arise when it comes to amounts with positive entries being made for negative entries etc., decimal points becoming commas and vice -versa, the whole data entry issue is just a huge can of worms.
Conclusion
Automation is king, but you will still get errors, errors that external duplicate recovery specialists will still be interested in recovering on a no-win, no-fee basis. If you can get a decent recovery audit specialist in, it can only bring benefits, so why wouldn't you do it? If your AP manager makes a fuss about the time or the privacy, remember that the bottom line is the responsibility of the whole of the finance department and not just that of AP. No-win, no-fee agreements are designed to take the worry out of bringing in services that may be of benefit so it can only be a good try. If they fail, they pay, so don't worry.