Basic Accounting

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One of the dirty little secrets in the corporate world is just how many duplicate payments are actually made. While you may like to think that if your accounts payable department made a duplicate payment, the vendor would return it, the sad fact is few do. What’s more, some vendors actually suppress credits on their customer statements. But, I’m getting ahead of my self here. While utilities and credit card companies will credit your account and carry the balance forward, not everyone is so magnanimous. In responding to a recent survey, readers of Accounts Payable Now & Tomorrow indicated that putting an end to duplicate payments remains one of their top concerns.

What follows is a seven step plan any accounts payable department can follow to put an end to duplicate payments. As a side benefit, it also helps tighten controls while reducing the risk of fraud.

1) Recognize the potential for a duplicate payment problem. Too many executives refuse to admit they could have a problem and thus continue with processes that permit the duplicates.

2) Have all invoices sent to accounts payable first. This gets the invoices into the process as soon as possible and provides accounts payable with the best information for identifying potential duplicate invoices.

3) Wherever possible, convert to electronic invoicing. By receiving invoices electronically, mail time is cut to nothing and there is an electronic audit trail putting an end to some of the finger pointing games that go on in some companies.

4) Insist that processors employ rigid coding standards when processing invoices. This should conform to the naming standards used when the master vendor file is set up and when new vendors are added. Companies that take this relatively simple step find that duplicate payment are almost completely eliminated. While we present this as a simple step, it will take some doing to get all your processors on board.

5) Focus on how your processors enter invoice numbers. Many executives believe they do not make duplicate payments because their accounting system will not allow the entry of the same invoice number a second time. And, they are partially correct. What they have not taken into consideration is just how easily their processors get around this constraint. They simply add a space or a period to the end of the invoice number - and they have a new invoice number.

6) Request vendor statements at least once a year. Quarterly statements are better for your more active vendors. When the request is made insist the statement show all activity not just open invoices. As mentioned above, some vendors will suppress credits.

7) Hire a third party duplicate payment recovery firm. These organizations work on a contingency basis. If they recover nothing, you pay them nothing. The best of these firms will help you locate the weaknesses in your processes that allowed these duplicates to slip through. If you employ all the steps in this article, eventually the auditors will find little - and then you will know you have succeeded. This is not a battle you win overnight, but one that requires diligence over the long haul.

Mary S. Schaeffer is the author of 15 business books, including The Controllers & CFO’s Guide to Accounts Payable, published by John Wiley & Sons. She is the editorial director of Accounts Payable Now & Tomorrow, a CRYSTALLUS, Inc. publication, and directs the firm’s accounts payable consulting efforts. Her latest rants on accounts payable issues can be found on her AP Now blog.

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Reprinted with permission from Accounts Payable Now & Tomorrow. Sign up for Ms. Schaeffer’s free weekly ezine featuring tips, news and items of interest to the payer community.

2008 Mary S. Schaeffer & Accounts Payable Now & Tomorrow
http://www.ap-now.com/index.php

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