Accounts Payable
Accounts Payable -Purchase Ledger Services
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How do overpayments to suppliers occur?

No organisation wants to pay a bill twice. Yet it is a surprisingly common occurrence, costing an organisation money, having a detrimental effect on cash flow and creating extra work reclaiming duplicate payments, assuming the error has been spotted in the first place...

Why do overpayments happen?  

So why do overpayments happen?  The main causes are often surprisingly trivial, being a result of typographical errors and/or duplication of supplier records:  

Typographical errors  

Duplicate invoice numbers are not identified, due to typing errors.  Common examples include:

  • Typing a letter O instead of a zero (0)
  • Confusing the number 5 with the letter S
  • Confusing the number 1 with lower case L (l) or upper case I (I)
  • Omitting leading or trailing zeros
  • Adding an extra letter or digit to the invoice number to get past the system controls
  • Using different date formats   For example, invoice number 123450 may be the same item as invoice 1234SO.  

Similarly, an overpayment may happen if there is no clear policy for dealing with invoices without an invoice number, such as utility bills.  Often, the policy is to use the date as the invoice number, however if different date formats are used, normal system controls will fail to spot duplicates.  

  • Payment amounts are mis-keyed.  It is common to misplace a decimal point, causing a payment to be made for 10 or even 100 times the real value.
  •  Payments are made in the wrong currency; e.g pay 2,000 instead of 2,000. 

Duplicate supplier records  

It is fairly common for one supplier to have more than one account in an organisation's purchase ledger supplier master file.  For example, British Telecom plc could be set up as "BT" in one account, "BT Plc" in another and "British Telecom" in a third. 

This tends to evolve over time and is usually unintentional.   However, it means that it is possible for the same invoice to be entered into each account undetected.  This is a common error, but is avoidable.  

Other reasons for overpayment  

Overpayments may also arise due to:

  • Incorrect prices charged by suppliers - agreed discounts are not applied to invoices   
  • Payments continuing to be made after a contract or service has expired 
  • Credit notes issued not being deducted from payments 
  • Input VAT not being identified and reclaimed  

Risk factors  

There are a number of risk factors that can contribute to the breakdown of controls, process weaknesses, and the introduction of human error:  

  • High staff turnover
  • Use of temporary staff
  • Understaffing
  • Rapid growth
  • Organisational change
  • Changing accounting systems and upgrading purchase ledger software    

 Identifying and recovering overpayments  

How can you identify and recover any overpayments?  Here are three ways...

Supplier statement reconciliations

Do them!  

Perform an in-house audit

Data can be exported into a database and special searches can be performed to highlight the items which only differ by the transposition of the letters O, S, L for the digits 0, 5, 1.  

Use an external specialist

External specialists will have access to software that can do these audit checks for you.  They generally charge a fee based on a percentage of the value of recoveries made.
 
   
 
Created by: The Accounts Payable Team
Company: The Accounts Payable Team
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