In this final installment of our Errors Everywhere series, we’re going to examine a trio of errors that accounts payable teams face when making business payments. We’ve covered duplicate payments and other overpayments, and here we’ll cover late, lost and wrong payments, all of which happen, are a bother, and can be easily avoided with a tech solution. Most importantly, like the other types of business payment errors we’ve reviewed, each of these comes at a cost, eating up time and money for AP teams that should focus on more important priorities rather than chasing down errors.
Vendor payments should never be "fashionably late” or any kind of “late.” However, delayed payments happen often. One of the things vendors care about most is getting paid on time because it directly impacts their cash flow and how they manage their finances. For example, if a payment doesn’t arrive on the due date, a vendor might not be able to cover payroll for that month. It isn’t a surprise that being paid on time is a high priority for all vendors, especially for smaller vendors that don’t have large cash reserves and where even one late payment could derail their finances. Late payments are also bad for organizations because of the associated costs, namely, the potentially resulting late fees and interest payments. There could even be legal action taken if the payment is too long overdue. Late payments could also create compliance and reconciliation problems on both sides of the vendor-client relationship.
It’s so easy for late payments to happen. Human error is a major cause. If there are thousands of invoices requiring payment, due dates can be easily overlooked and mismanaged, and an invoice might not be added to the correct payment cycle to meet the date. There could also be data entry errors. An overwhelmed employee might enter the wrong payment date into the ERP, causing the payment to fall into a later cycle. Inefficiencies in the business payment process can also slow things down. For example, a lengthy and manual approval process with many approvers involved can create bottlenecks that delay the process. The payment approval process is typically a linear one, which means that if there is someone out of office within the chain, their delayed approval could hold up the release of funds to the vendor. Also, there could be a change within the company that would impact the AP team and their ability to make timely payments. For example, sometimes a business experiences rapid growth but the AP team isn't expanding in proportion to the volume of invoices that suddenly start flooding in. The influx of invoices could make it challenging for the AP team to keep up with all the additional work and pay everything on time.
Invoices might go missing sometimes and can’t be found, causing unnecessary headaches. In the first place, a lost invoice causes reconciliation issues because the transaction hasn’t been resolved, which can be detrimental to other operations within the financial organization such as continued delivery of goods or services. A lost invoice is troublesome because it causes inaccuracies in the company books. In other words, lost invoices can lead to inconsistencies between what is recorded in the books and cash flow. Furthermore, losing an invoice means that there will be payment delays. As we previously covered, delays can cause late fees for the organization and adversely affect their relationships with vendors because of the direct impact on their cash flow. Finding a lost invoice consumes time, effort, and money. Finance teams are pulled away from their core priorities to investigate and figure out what happened, which can often result in unwelcome manual work. A recovery audit may be necessary, which as we know, comes at a high cost as well.
It can be hard to pinpoint how an invoice gets lost, but there could be many reasons. An email containing an invoice might be overlooked or accidentally deleted. Perhaps an invoice was sent to the wrong department that assumes someone else is handling it and ignores it. A vendor might even forget to send an invoice in the first place or send it to the wrong email address such as that of someone no longer at the company. The invoice might have been saved to a share drive somewhere within the company but mislabeled. Perhaps no one remembers to upload the invoice to the ERP or other system for payment. At the end of the day, the impact of lost invoices on the organization and their vendor is manifold and must be avoided.
Why might a vendor payment be plain old wrong? There are a few ways this could happen. Like late and lost payments, accidental wrong payments result from human error and mistakes. One example is a company might pay the invoice amount to the wrong bank account. A vendor sometimes makes requests to change their bank account, perhaps because they decided to work with another bank or open a new account to receive certain transactions, or any number of other reasons. An employee at an organization might lose track of these instructions and not make the update in the ERP and then end up transferring the funds to the old bank account. Another way a wrong payment occurs is through simple data entry errors, where one number in a bank account is mistyped, causing the payment to go to the wrong account. Once this issue is discovered, the transfer must be reversed and then sent to the correct account. This requires multiple steps and meticulous attention to make sure everything is recorded correctly in the books.
Matching errors can be particularly challenging and can open organizations up to inefficiencies, manual work, and potential human errors. Three-way matching is a process that ensures a purchase order, a vendor’s invoice, and the receipt all match. This is an effective way to check that the amount requested for payment matches all the paperwork involved in the transaction. But this process can be highly manual and take up a lot of time for both the organization and the vendor. The process requires the people involved to communicate back and forth, check the documents and ensure everything is correct. Most importantly, it’s easy for an employee conducting three-way matching on many invoices at once to miss a number or misplace paperwork or fall into any other number of traps that could end up causing the wrong payment to slip through. Also important to note is that traditional three-way matching is limited and isn’t enough to prevent wrong payments and fraud. For example, three-way matching doesn’t check all the payment terms and the nuances within the agreement between a vendor and an organization. This means certain payment details might not be included on the paperwork even though the numbers match on the three documents, which could result in a wrong payment that comes back to haunt the organization down the line. The process also doesn’t catch fraudsters that create fake vendors and submit all the seemingly correct paperwork to pass a three-way match. Once a bad actor has access to the right email inboxes and systems involved in the payment process, they can ensure that all the right paperwork is submitted. Thus, an unsuspecting employee involved in the payment process won't realize anything is amiss and will send the payment through, resulting in a wrong and fraudulent payment!
As we’ve seen in this series, there are so many ways that errors can plague the business payment process and cause losses on multiple levels for organizations and their vendors. In the case of late, lost and wrong payments, an AI platform like Trustmi can provide numerous benefits. Our Payment Flows module is a powerful tool that can help to automate and protect the payment approval workflow. It catches data entry errors and other mistakes. It also ensures that due dates are always met and that every invoice is added to the correct payment cycle for payment. Because of the automation the platform offers, this module helps vendors get paid faster, which they love. And since the platform records every vendor’s “fingerprint,” or the baseline of their data and payment activities, the module can make sure invoices don’t get lost in the process and that errors don’t cause the payment to be redirected to the wrong place or delayed.
Trustmi is an end-to-end solution. This means that we’re not just looking at the payment approval process. The platform layers across multiple systems, including communication channels between vendors and an organization. Our platform tracks the communication patterns between vendor and client so that if there’s a deviation from the usual correspondence, our platform detects it. As an example, if a vendor generates an invoice on a certain day of the month every month but skips one month, that could be a sign that they forgot to send the invoice. Or if an invoice was emailed to the organization but doesn’t show up in the approval payment flow, the platform would highlight that to ensure the invoice isn’t lost, misplaced or incorrectly uploaded to the ERP.
When it comes to three-way matching, we discussed previously that there are limitations with the traditional method. Trustmi acts as a definitive line of defense ensuring that the three documents not only match, but that every other variable that signals a correct payment meets the mark. Additionally, our bank validation solution ensures the full identity of the person, the vendor and the bank account, even when change requests are made, so that these parameters always match and are up to date in real time. As we’ve discussed in the past, traditional bank account validation has much to be desired, and only an advanced solution like ours can ensure the right payment amount is always sent to the right account, avoiding wrong payments and fraud.
As we’ve discussed in this series, while fraud is a big problem, human error is equally so. Trustmi’s solution helps businesses to accurately prevent and eliminate errors in B2B payments, which is another reason we’re a stand-out in the B2B payment space. To learn more about how we can end the errors plaguing your bottom line and give you peace of mind, get in touch today.