How to mitigate AP duplication and improve accounts payable

Accounts payable duplication refers to a part of the accounts payable process that gets mistakenly reproduced, such as purchase orders, vendor files, etc., resulting in duplicate invoices or payments.

In simple words, a business can end up paying a supplier twice for the same invoice. It also signals the existence of flaws in an entity’s accounts payable system wherein an initial payment to the same vendor goes undetected.

Impact of Accounts Payable Duplication

Accounts Payable duplication could be largely attributed to how the suppliers raise invoices. This could be in the form of an incomplete invoice number provided on the invoice or adding/deleting any character in the invoice, intentionally making it look like a fresh one, etc., by the supplier.

Such duplication often goes unnoticed when an organisation deals with a large volume of invoices and daily payments.

If one has to highlight the impact such payment duplication could have on an organisation, it goes without saying that the entity’s working capital would be deeply affected. This would, in turn, push the company to seek an extension of the line of credit, unaware that the vendor is reaping the benefit of duplication of receipts at the company’s expense.

Further, a payment made twice against the same invoice will increase the company’s liabilities. Overall ratios like the payables turnover ratio, percentage of duplicate payments processed etc., might depict an unfavourable picture.

With frauds of this nature being prevalent worldwide, companies are choosing to be extra cautious while making vendor payments. This is where the accounts payable function in an entity plays a vital role.

The function not only has to ensure that a warning is triggered each time any duplicate invoice is identified or fed into the system but also keeps constantly working towards embracing technology to plug this loophole to reduce the possibility of fraud.

Examples of Accounts Payable Duplicate

Company X, an FMCG company, regularly receives invoices from its vendors for raw materials and other expenses. The company has a set accounts payable process to ensure accurate and timely payment to its vendors. However, a duplicate invoice situation arises as explained below.

Vendor A sends an invoice to Company X on 1st September 2023 for a shipment of raw materials worth Rs.10,000. The invoice number is “INV-2023-001.” Company X's accounts payable department gets the invoice and records it in their accounting software marking the invoice as "pending" until it's approved for payment. The accounts payable team checks the invoice and finds it to be in order. However, there is a delay in the approval process due to the department being busy with vendor payments. On 6th September 2023 after the initial submission, vendor A mistakenly sends another copy of the same invoice, which is also numbered as “INV-2023-001.” 

Due to the delay in the approval process and the initial invoice being marked as "pending," the accounts payable team doesn't immediately notice the duplicate submission. Eventually, on 15th September, the accounts payable team approves the initial invoice "INV-2023-001" for payment, not being aware of the duplicate. On 30th September, both the original invoice "INV-2023-001" and the duplicate invoice "INV-2023-001" are paid off, resulting in an overpayment of Rs.10,000 to vendor A.

Vendor A realises the mistake when their team receive both payments for the same invoice. They promptly communicate this to Company X for the duplicate payment issue. Company X acknowledges the error, apologises to vendor A, and requests a refund for the duplicate payment. The accounts payable team reviews their AP processes, adds a validation on the system to prevent such duplicates in the future.

Ways to Mitigate AP Duplication

To fix the above risks while settling vendors’ dues, bringing in certain basic checks can go a long way in protecting the organisation’s interests. These are as follows-

1) Review the organisation’s vendor master files at frequent intervals and remove duplicate vendors

An entity must conduct a periodic review of its vendor master to ensure there is no duplication of vendors. This generally happens when the same vendor’s name has been entered twice but with a different spelling or by using abbreviations, acronyms, etc.

One can address this by making the PAN / GST number/ Aadhar number (as applicable) mandatory at the time of vendor creation in the entity’s database.

2) Double check while keying in invoice details

The invoice details must be double-checked while being entered into the system. This would reduce the possibility of errors like transpose errors example; an invoice number ‘59’ can be entered as ‘95’, entering incorrect values in the invoice (could be intentional or unintentional). For example, 1000 is entered in place of 100, incorrect tax rates being entered in the invoice, etc.

3) Full Invoice number is mentioned in the system while processing:

Missing even a single digit, alphabet or character like “/”, “-” can increase the chances of the same invoice being entered twice. Hence, entering the full invoice number into the system is important.

4) Avoid rushed payment requests and avoid using multiple modes of payment for one vendor:

There would be instances where the vendor would request early payment, sometimes even before issuing an invoice. The payables function should not come under pressure and act hastily to settle the vendor. One must take sufficient care while processing the invoice.

Further, it is also important to stick to only one mode of payment for any vendor. Following different modes of payment would also lead to losing control over the entire process. Further, adequate recording of payment post a transaction into the ERP with all necessary details like payment reference number, mode, etc., would also reduce the risk of making the payment again.

5) Always enter data from a single source document

There are instances where a vendor could send two different source documents relating to a single payment. This could result in payment being made twice for the same transaction. Hence, resort to relying on only one single source document while processing invoices.

6) Leverage AP automation

One of the best ways to mitigate the risk of duplicate payment is through AP automation which is mostly designed to keep a check on duplicate payments. Such AP automation software would have built-in checks that flag and identify duplicates across the invoice processing lifecycle.

Many companies worldwide follow a policy of breaking the function of accounts payables wherein some employees would be in charge of feeding invoice details into the ERP. At the same time, some of them would take up the responsibility of verification of invoices with all required supporting documents.

Under this, another team processes the invoice provided. Such division of responsibilities also contributes to mitigating the risk of duplicate payments to a large extent.

How to Prevent Duplicate Payments in Accounts Payable

If a payment is accidentally processed twice due to a system error, it may result in duplicate payment. To avoid duplicate payments in accounts payable, follow the below checklist:

• Centralise Invoice Receipt: Ensure all invoices are received at a single point to prevent multiple entries.
• Document Review: Implement a robust invoice review process, checking for duplicates before approval.
• Vendor Master File: Maintain an updated vendor master file with accurate vendor information.
• AP Automation: Use accounts payable software/solution to automate invoice matching and flag potential duplicates.
• Segregation of Duties: Assign separate persons with the responsibilities for invoice receipt, approval, and payment to reduce errors.
• Regular Reconciliation: Periodically reconcile payments with vendor statements to detect discrepancies.
• Vendor Communication: Establish clear communication and channels with vendors to resolve discrepancies promptly.
• Purchase Order (PO) System: Enforce the use of POs to create a clear record of authorised transactions.
• Staff Training: Train staff on the importance of avoiding duplicate payments and proper invoice handling.
• Maintaining Audit Trails: Maintain detailed audit trails to trace payment history and resolve any payment disputes effectively.

Importance of Automated Checks to avoid AP Duplication

At this juncture, it is also important to note that too much manual intervention to mitigate the risk of duplicate payment would lead to an unnecessary increase in time and cost of processing invoices. Automation of the payment process comes to one’s rescue here. 

Frequent shuffling of the person handling the accounts payable function is also a good alternative which helps break the chain.

To conclude, the accounts payable function plays a key role in any organisation; hence, this function ought to discharge its responsibilities with utmost diligence and care.

If need be, companies may either outsource the function in case there is a requirement to deal with huge volumes of payments or resort to taking support of specialised software available in the market.

The latter is purchased based on the satisfaction of certain parameters like the ability to track multiple modes of payment, flagging duplicate entries, the feasibility of working with existing ERP systems etc.