Most invoices prompt a single payment for the correct amount. But there are times when two — or even more — payments arrive in response to an invoice. These are called duplicate payments, or double payments, and they occur for an array of reasons and cause a range of problems.
One of the most important things companies can know about duplicate payments is that they happen, even on occasion to those whose processes and technology are set up to prevent them. This is especially true for companies that regularly pay a large volume of invoices, as the scale of the payment management project presents organizational challenges that make mistakes more likely.
Let’s look at why duplicate payments happen, what problems they can cause, and how to prevent and rectify them.
What is a double payment?
A double payment is a second payment made for an invoice that has already been paid. Also called a duplicate payment, these payments are always mistakes and can cause headaches for both the sender and recipient.
Why do duplicate payments happen?
Companies may pay a single invoice multiple times for various reasons, all of them errors that need to be rectified. Here are the main reasons a company might pay twice:
- Human error: Financial managers might forget to record that they have paid an invoice, and then they or someone else in their department may pay it again.
- Technical glitches: Payment processing systems may have technical problems that cause invoiced payments to go unrecorded or for users to receive reminders to pay invoices that have already been handled.
- Miscommunication: Departments in the paying company may not communicate effectively among themselves about payment activities, leading to a failure of coordination.
- Invoicing mistakes: The invoicing company may have mistakenly sent out duplicate invoices, leading to multiple payments for the same charge.
- Timing issues: Financial teams may make payments in multiple ways to satisfy invoices, and lack of coordination can lead to different team members making the same payment both manually and automatically for the same bill.
Problems caused by duplicate payments
Whatever the cause, duplicate payments can disrupt financial processes and create unnecessary problems for the companies on both sides of the transaction. Here are some of the most prominent problems that can arise from double payments:
- Limited cashflow: Overpaying invoices can negatively impact your cashflow, reducing the amount your company has on hand to satisfy other obligations or fund priority activities.
- Reconciliation problems: Bookkeepers will need to spend extra time and effort to identify a double payment and figure out how to correct the mistake.
- Damaged relationships: Trust between vendors and customers can be strained when the customer makes repeated requests for refunds after sending duplicate payments.
- Unnecessary resource use: A company that has a habit of sending duplicate payments must expend resources on tracking, verifying, and fixing these mistakes.
How to prevent duplicate payments
Preventing duplicate bill payments requires implementation of strong processes and use of tech tools that can help keep human error from causing problems.
The process elements of managing payments well include creating strong invoicing processes and centralizing payment processes so you can handle your bills with precision. Strong invoicing means ensuring that all invoices are entered into the payment system, tracked through the payment process, and closed after payment is made. Centralizing payment processes means consolidating bill payments with a single team or in a single system to avoid miscommunication or misalignment of payment tracking.
Automated bill pay systems are the key tech tool that can help reduce the incidence of double payments. Automation enables simplified financial workflows with reduced human intervention — and error. Accounting software automatically flags duplicate entries and prevents the financial system from sending new payments for invoices that have already been addressed.
Standardizing vendor information and conducting regular audits are other strategies for preventing and rectifying duplicate payments. Maintaining consistent and accurate vendor details in the payment system prevents confusion that can lead to mistakes. Frequently reviewing records to identify any duplicate transactions early can make fixing mistakes faster and reduce negative impact on cashflow.
Strategies to recover duplicate payments
Even with preventive measures in place, duplicate payments can sometimes slip through a company’s defenses. Acting as quickly as possible will make it easier to recover them, so it’s a good idea to audit your records regularly.
Carefully review reports from your accounting software to identify double payments, and contact the vendor immediately upon finding any. Always send supporting documentation and a formal request for a refund or credit when contacting the vendor.
While most companies prefer to receive a refund in the case of a duplicate payment, it may be impractical or impossible for the vendor to provide one. In that case, arrange for the vendor to apply the overpaid amount to future invoices.
Make sure that your books account for refunds properly, and that you keep track of any credit owed so you can ensure the vendor’s accounts receivable team applies the amount as agreed to future invoices.
Prioritize proactive financial management
Duplicate payments can occur even within well-organized companies with excellent financial controls. But strong prevention and recovery strategies can vastly reduce the incidence of this issue and cut down its impact on your business. Minimizing this problem safeguards cashflow, helps ensure accurate financial records, and preserves strong vendor relationships.
Using automation tools, maintaining clear communication within financial teams and among departments, and regularly reviewing financial records can help businesses minimize the risk of sending out double payments. Implementing strategies for quick and efficient recovery of any duplicate payments that do go out can minimize disruption of your company’s finances.
To learn how to prevent late payments, read our post here.
Katie Gustafson