How to Transform Accounts Payable Errors into Opportunities

Technology is constantly changing the way businesses manage their financial operations. Companies use software to avoid mistakes, but, paradoxically, it is sometimes the source of these mistakes itself.

In this article, we look at the most common types of erroneous payments and discuss how companies can turn them into opportunities for growth.

Most Common Erroneous Payments?

At Transparent, we have spent 23 years analyzing spend and vendor data and have gained unique insights into the most common types of erroneous payments.

Unposted credit notes (53%)

In an ideal world, a vendor issues a credit note and it gets seamlessly recorded in the AP system. However, processes are far from perfect, and credit notes often go unregistered.

This can happen for several reasons:

• Communication issues: Suppliers may not send or notify clients about credit notes, causing a lack of awareness.
• Incorrect address/contact: Credit notes sent to the wrong address or contact within the organization may go unnoticed.
• Approval issues: Mismatched invoice requirements or discrepancies can prevent credit note approval in systems like SAP.
• Data entry errors: Mistakes in data entry or processing, such as incorrect amounts or dates, can result in credit notes not being applied correctly or being overlooked.
• Inefficient processes: Lacking standardized procedures in accounts payable departments may result in unrecorded or unapplied credit notes.

Overpayments (6%)

Overpayments occur when a company pays more than the invoiced amount, usually due to data entry mistakes, calculation errors, or misinterpretation of contract terms.

Incorrect VAT (6%)

Incorrect VAT coding in the accounts payable (AP) system refers to errors in applying the appropriate Value Added Tax (VAT) rates to transactions. These errors can result from misclassification of goods and services, incorrect tax rates, data entry mistakes, or a lack of understanding of VAT regulations. Incorrect VAT coding can lead to compliance issues and potential penalties from tax authorities.

Unallocated payments (5%)

Unallocated payment occurs when a vendor receives a payment but is unable to allocate the full amount to outstanding debits or invoices. This can happen due to insufficient payment information, discrepancies in payment amounts, or incomplete records.

Open credit postings (5%)

Open credit posting refers to credits that have been recorded in the accounting system but have not been deducted. This typically occurs when credits await approval, but if the approver or department responsible is no longer available, the credits may be forgotten and left unapplied. As a result, these open credits remain on the books without being properly utilized.?

Other types of errors (6%)

Additional sources of error include missed bonuses and rebates, contractual fees, and payments in the wrong currency. These mistakes can also cause financial discrepancies and hinder accurate reporting and decision-making.

Duplicate Payments (21%)

Duplicate payments happen when an invoice is paid more than once. Advanced accounting software solutions like SAP have robust mechanisms to prevent such occurrences. So, you may wonder, "How can duplicate payments still happen?"

There are many different causes. For example, a simple action such as changing the invoice reference or using different notations can lead to a duplicate payment. Based on our extensive data, these are the most common causes of duplicate payments:

• Original & Copy: This occurs when both the original and reminder invoices are paid.
• Different invoices: Sometimes different invoices are mistakenly paid for the same services or products.
• Different divisions: Occasionally, different divisions within a company pay the same invoice.
• Multiple supplier records: If vendor details, such as names, don't match, the same invoice may be paid twice.
• System migration: Moving to a new Enterprise Resource Planning (ERP) system can sometimes result in invoices being booked and paid twice.

Transforming Errors into Opportunities

Identifying and resolving these AP errors opens a multitude of opportunities for organizations to improve and grow. Let us explore how these mistakes can be turned into opportunities:

Recovering lost funds: After identifying overpayments, companies can reclaim these excess funds from their suppliers. This unexpected cash inflow can improve their financial position. According to our data, typically for every billion dollars spent, about one million dollars in overpayments are detected and recovered.

Improving vendor relationships: Addressing errors in the AP process, such as outstanding items and duplicate payments, can improve communication and trust between companies and their vendors. A proactive approach to resolving these issues demonstrates a commitment to maintaining a strong and healthy relationship with suppliers, which ultimately leads to better collaboration and smoother transactions.

Process understanding and improvement: Analyzing and understanding the root causes of AP errors enables companies to develop solutions to avoid future errors. Through an accounts payable recovery audit, companies gain insight into:

• The reliability of their controls
• Areas of weaknesses
• The performance of their automation and matching systems,
• The accuracy of their vendor records,
• Whether VAT coding is done correctly.

Data quality: Regular maintenance of vendor master data is key to working fast and accurately. Having complete and correct data helps to increase automation levels, ensure quality control, reduce exceptions, and improve the quality of reporting. This, in turn, improves decision-making and compliance with financial reporting standards and tax regulations.

Employee development: Resolving AP errors can provide a unique learning opportunity for staff involved in the process. Given the high turnover rate often seen in AP departments, documenting these errors and the lessons learned can ensure that knowledge stays with the organization, even when employees transition.

Where to Begin?

At Transparent, we help businesses to turn errors into opportunities for growth and improvement. We help companies find erroneous payments through thorough data analysis and statement investigation. We do the heavy lifting by proactively working with suppliers to clear up old items.

The end result? Financial recoveries, improved operational efficiency, and significant improvements in data quality, transparency, and control.

Here is how we achieve maximum results with minimal disruption

• Fusion between technology and human expertise

Why do we find more discrepancies than software alone? Because our method combines the best of technology and specialized skills. We directly communicate with vendors, comparing their statements against your records to identify discrepancies software can’t see.

• High vendor response rate

Our secret? There are no secrets. It's all about commitment, hard work, and a well-structured follow-up approach. With proficiency in over 30 languages, our teams can communicate with vendors in their own language, which allows us to achieve industry-leading response rates of 95% and create good relationships.

• We don’t cherry-pick, we recover every type of claim

Our extensive experience allows us to recover a diverse range of claims, regardless of their complexity. Most frequent claims include unposted credit notes, duplicate payments, overpayments, missed discounts and rebates, unallocated payments, and incorrect VAT payments.

• Real-time control

Keep track of our progress anytime with our intuitive client portal. It offers real-time tracking, updates, progress reports, and dispute resolution.

• Effortless onboarding

Embark on this journey with us at no upfront cost. Your data is all we need, which we handle with the utmost care and security.

• No recovery, no fee

Our fee structure is success-based. In simple terms, if we don't recover anything, you don't pay anything.

Curious to learn more?