The Hidden Costs of Duplicate Payments: Why Finance Operations must face the facts

By Otto Acuna, Founder of e-Consulting Global Solutions, a global Estonian B2B helping consultancies worldwide compete better through Innovative Tech & Methodologies.

In today’s fast-paced business environment, most companies are trying to strengthen the effectiveness not only of their commercial processes (CRM, customer service interface, customer experience, etc) but also the efficiency of their so called “back-office” operations, that contribute to the bottom line by lowering costs and a number of soft benefits (more control, visibility/control of the operation, working capital optimization, and agility).

In this context, the importance of maintaining robust finance operations processes cannot be overstated. Despite advancements in technology, including today the widespread adoption of ERP systems, the risk of duplicate or erroneous payments continues to loom large over many organizations. This issue is often overlooked, but the consequences can be substantial, both financially and operationally.

Let’s see a brief example: Handling of supplier invoices that come into the organization for payment

With the prevalence of digital invoicing in most areas of the World, every invoicing transaction becomes a PDF file and sometimes other files, namely XML files. Depending on the geography and local laws, most invoices are sent to a central email at the receiving company where they need to be “processed”.

Depending on the company, the industry, the ERP that the company has and other factors, this “processing” might involve steps such as verifying that the invoice corresponds to a Purchase Order, that the quantities invoiced are correct, whether or not there is a deduction in the invoice for a quality claim, backlogged items, etc. Once this validation occur, based on company policies, one or more managers might have to approve the payment, and once the approval happen, then the invoice is registered as an Account Payable and some more steps might happen until the invoice is finally paid.

Unless you are running one of the leading ERPs, that have the option to have a “Supplier Portal” where they submit their invoices tied from the beginning to the originating transaction, most companies handle the above process manually or at least semi-manually, with emails that go back and forth and sometimes even approvals by whatsapp or a verbal instruction with no traceability.

The diagram above exemplifies the route followed by only one invoice. How many invoiced receive and process your company every month? Do you have approval schemes that involve a pool of managers where anyone can approve? Multiply those variables on your own scenario and try to establish how many copies of the same invoice ar circulating through your emails at any given time? I assure you they are probably a high number. This is the environment where an error can occur and you may end up paying an invoice twice or mistakenly. Let’s see what statistics there are about this issue.

Benchmarking the Problem: Industry Standards and the Reality of Duplicate Payments

According to benchmarking data from the American Productivity and Quality Council (APQC), top-performing organizations manage to keep their rate of duplicate or erroneous payments to an impressive 0.80%. In contrast, the median for the industry hovers at 1.5%, and the situation is even more dire for organizations with lower levels control about their accounts payable processes, who experience rates exceeding 2.0%. The Institute of Finance & Management (IOFM) supports this assessment, estimating that most companies average around 1.5% in duplicate payments.

These figures, though seemingly small, represent a significant loss when scaled across the volume of transactions that large organizations or shared services organizations handle daily. For instance, in a company that processes millions of dollars in payments annually, even a 1.5% error rate can translate into substantial financial loss—not to mention the administrative burden of identifying and rectifying these errors.

The Need for Vigilance: Why Duplicate Payments Cannot Be Ignored

Regardless of the ERP system in place, monitoring and measuring the metric of duplicate payments should be a priority for every finance operations team. Unfortunately, many companies tend to sweep these incidents under the rug, perhaps due to the embarrassment of admitting that a mistake—such as paying the same invoice twice—has occurred. However, acknowledging and addressing this risk is crucial for financial health, operational efficiency and perhaps even for cashflow purposes.

it’s essential to recognize that duplicate payments are an inherent risk in any payment process.

From a best-practice perspective, it’s essential to recognize that duplicate payments are an inherent risk in any payment process. This risk is magnified in organizations with high volumes of transactions or those lacking specific controls to detect and prevent such errors. Therefore, establishing rigorous monitoring and control mechanisms is not just recommended; it’s necessary.

The Purchase Order “Coverage”: Another KPI to Watch Closely

Another critical key performance indicator (KPI) that demands attention is the percentage of payments made without a corresponding Purchase Order (PO). While not every payment can or should have a PO—given the nature of certain transactions—this metric is a valuable measure of financial process discipline. Payments made without a PO can increase the risk of duplicate payments, unauthorized expenditures (so called “maverick buying”), and other financial anomalies. Monitoring this metric allows organizations to identify and mitigate potential risks before they escalate into more significant issues.

Leveraging Technology: The Role of BPM Tools in Finance Operations

One of the most effective ways to combat the risks associated with duplicate payments and other financial process errors is through the implementation of Business Process Management (BPM) tools in support of your current ERP -based processes. BPM tools can automate workflows, particularly those processes that fall outside the scope of traditional ERP systems, such as approvals made via email, messaging apps, or even verbal communication. These informal processes are fraught with risk and can easily lead to errors or fraud.

For effective and flexible action upon financial processes, we favor what are called “LowCode / NoCode” workflow management systems, which offer a cost-effective, fast and effective solution by enabling expert users in financial departments to establish themselves effective controls in an automated, consistent manner. IT is also involved in the deployment of these type of tools, assuring that the IT Governance is in place, but they are “enablers” of the solution, not part of the queue of pending items. These tools can integrate seamlessly with existing ERP systems, providing a layer of security and oversight that significantly reduces the risk of duplicate payments and other operational errors.

A Call to Action: Taking Control of Your Finance Processes

In conclusion, the risks associated with duplicate and erroneous payments are real and can have significant financial and operational repercussions. Organizations must take proactive steps to monitor, measure, and mitigate these risks. This includes paying close attention to relevant metrics like duplicate payments and the percentage of transactions made without a PO, as well as leveraging technology to automate and secure the areas of the process that are not handled directly by the ERP.

At e-Consulting Global Solutions, we work with local consultancies worldwide to expand into the field of back-office operations with automation capabilities. Through our ecosystem of trusted and effective tools we support and eventually transfer the know-how to our partner SMB consultancies, enabling them to compete on the same terms as their bigger colleagues.

Our expertise in finance operatios processes and our knowledge of BPM tools can help your SMB consultancy to acquire new clients or expand into current ones with new services, establishing the necessary controls and automation to prevent costly errors.

For more information on how we can help your consultancy tackle the last-mile delivery of back-office operations services with innovative Technologies and Methodologies, visit e-consultingsolutions.ee.