Running an AP department is stressful. Processing invoices is tedious work, yet it requires tremendous focus and attention to detail. And when AP teams miss payments, they not only rack up expensive late fees, they also disturb the company’s cash flow. Unfortunately, missed payments aren’t the only thing that can go awry. Another common problem AP departments face is duplicate payments.
Below, we’ll cover what constitutes a duplicate payment, the causes of duplicate payments, and the best practices you can use to avoid them.
What Are Duplicate Payments?
A duplicate payment is an additional payment made to a vendor that a company has already paid. The American Productivity & Quality Center found that one to two percent of payments are duplicates. While that doesn’t sound like much, those payments can really add up. Imagine your company makes $1 million a year in vendor payments. This means up to $20,000 of those payments could be unnecessary, extraneous payments- money that your company could have allocated to product development or your valuable employees.
What Are the Causes of Duplicate Payments?
Duplicate payments can arise for many reasons, both unintentional and intentional. Here are a few typical causes:
1. LACK OF STANDARDIZED ACCOUNTS PAYABLE SOPS
There is a much lower likelihood of duplicate payments when all employees follow the same set of rules. Without standard operating procedures (SOPs), it’s easy for employees to get confused or even negligent. Instituting SOPs can help avoid inattention, costly discrepancies, and more.
2. HUMAN/DATA ENTRY ERRORS
When AP teams manually enter hundreds of invoices a day, they’re bound to make mistakes. A momentary lapse in concentration can lead to miskeying, like typing “O” instead of “0” or “72” rather than “27.” Basic ERP validations won’t catch minor errors like these and can cause a whole host of issues down the line.
3. LACK OF CENTRALIZED DATABASE
When a company doesn’t have a centralized database, employees are constantly sifting through emails, attachments, and physical pieces of paper to figure out which invoices have been paid and which haven’t. Not only is this inefficient, but it also increases the chances of human error that can lead to late payment charges and duplicate payments. A well-maintained database, on the other hand, makes searching for invoices, identifying which ones have been paid and monitoring cash flow much simpler.
More importantly, with the major shift in employees working remotely, entire AP teams may no longer be in the same physical location. Therefore, a centralized database is literally the only way for team members to access the information required to perform their duties.
4. DUPLICATE INVOICES
It’s tough to distinguish copies of invoices from originals, especially if they are sent as a PDF. Would-be scammers know this to be true, so they attempt to send fraudulent invoices hoping that the AP department won’t notice. Generally, most duplicate invoices aren’t born out of such nefarious circumstances. Instead, AP team members themselves might accidentally create duplicate vendor accounts and send payments to both.
For instance, one person on the AP team might enter “Armstrongs Commercial Insurance” (note the lack of apostrophe) when an invoice comes in and immediately pay that vendor. But because the actual name of the vendor is “Armstrong’s Commercial Insurance” with an apostrophe, the vendor never received that payment, so they send a notice of late payment a few weeks later. A different team member sees that notice and pays the invoice right away to avoid more hefty fees. As a result of this one missing apostrophe, the company has paid both the real vendor and the misspelled one.
5. LACK OF SET APPROVAL PROCESSES
Without checks and balances, companies can’t prevent unauthorized payments or payments made outside of the standard process. Strict approval processes significantly reduce the chances of duplicate payments. Automated approval processes take this to the next level, validating that payments are legitimate, and accommodating rush payments if necessary.
Introducing MHC NorthStar,
our Cloud-Based AP Automation Solution
With our next-gen solution, you can now process invoices from end-to-end at scale. Not only reduce late payments, but increase potential early pay discounts. Set your sights for MHC NorthStar and navigate your AP team to process nirvana.
Best Practices to Prevent Duplicate Payments
Although there are many ways duplicate payments can occur, there are also plenty of ways to protect your company against them. Implementing the following best practices is a terrific start:
1. REQUIRE PO NUMBERS ON INVOICES
Insisting that all invoices include purchase order numbers is one of the easiest ways to dodge duplicate payments. With PO numbers available, AP teams can sort invoices quickly and perform a three-way match. Three-way matching ensures that the order amount, vendor name, and products and services rendered are the same on the invoice, purchase order, and receipt. This makes it nearly impossible for duplicate payments (and other issues) to occur. Non-PO invoices are not suitable for three-way matching, which makes them more difficult to process. These types of invoices can easily lead to duplicate payments, so it is best to avoid using them.
Discover the Differences Between POs and Invoices
2. UTILIZE A CENTRALIZED LOCATION
Ask your vendors to send invoices to one place that your entire AP team can access and search. Once a new invoice comes in, it will be properly routed through the invoice process to ensure it is properly paid. Typically, this central location is an email address that the AP team manages, like email@example.com, or a database created in a workflow automation tool. An email address may be easier to set up, but workflow solutions have more functionality to enable automatic routing for approval, payment reminders, and payment scheduling.
3. ESTABLISH CHECKS AND BALANCES TO REDUCE HUMAN ERROR
Employees do their best to enter information carefully, but having a system that catches miskeys and duplicate entries adds another layer of protection. Many workflow tools have features that automatically notify team members of potential errors as they work, minimizing the chances of duplicate payments.
4. SIMPLIFY THE APPROVAL PROCESS
Approval processes get a bad rap because often they’re too lengthy and hinder operations. Your approval process should be extensive enough to detect possible duplicate payments (and other issues) but not so cumbersome that it deters employees from actually using it.
When implemented correctly, your approval process will allow your team to be more nimble. For instance, a supplier calls stating they need to change their payment date. With a solid approval process, the AP team can quickly access and review the payment terms, know which managers to contact for approval, confirm the new due date with the vendor, and update it in the necessary systems.
5. HAVE HUMANS APPROVE INVOICES
Automation is an important part of the AP workflow, and human activity is too. Humans should approve all invoices before they are paid to ensure to avoid duplicate payments and any final mistakes. Thankfully, workflow automation can automatically route invoices to the designated person for a quick approval. This ensures that invoices are reviewed by human eyes without creating delays. Make sure to mark the invoices as “paid.”
6. PAY FROM THE ORIGINAL INVOICE ONLY
Copies of vendor statements look very similar to an invoice, but as we know, they are not the same thing. In fact, they are a recipe for duplicate payments. Some workflow automation systems have technology that can catch duplicate invoices, but it’s always a positive to train your AP teams to make payments exclusively from original invoices and inside of the established workflow.
7. IMPLEMENT PROCESS AUTOMATION
In this day and age, many robust tools can help you automate the AP process, fit it to your company’s unique needs, and impose the above best practices. When done well, automation can reduce human errors, standardize processes and approvals, catch duplicate invoices, and more.
What Can Workflow Automation Offer You?
The thought of making duplicate payments is another stressor atop the AP department’s already high-pressure job. And no matter how careful employees are, they’ll make mistakes from time to time.
That said, there are always opportunities to improve your process and eliminate risk factors for duplicate invoices payments. By combining standardized operations, centralizing data with a SaaS solution, and requiring robust approval processes, duplications can become a problem of the past. And the ability to automate your workflows with drag & drop functionality is the best way to quash duplicate invoices and payments once and for all.
MHC NorthStar is a powerful workflow automation platform that eliminates both invoice and payment duplication. Remove the worry of bothering a valuable customer with extraneous invoices, causing confusion and jeopardizing the relationship. Reduce the need to constantly have to double-check that you haven’t accidentally overpaid a vendor, costly mistakes that can potentially impact your organization’s bottom line. And wave goodbye to the threat of being a victim of fraud.
Taking advantage of duplicate invoice and payment detection technology, MHC will keep you from the stress of having to explain your boss or auditors “what exactly happened here?”. The best part is that MHC NorthStar is fully configurable: power users can dictate who should be notified of a duplication, what their next steps should be, and enforce those next steps within the solution itself.
MHC is so dedicated to removing the problem of duplicate payments, we invited AP Now’s Mary Schaeffer to join us to discuss concrete steps you can take to eliminate this drain on staffing, resources, and finances forever.
Duplicate Payments Checklist
Take the first step to removing the pain of duplicate payments.