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Reprinted from RIAG's Controller's Cost and Profit Report, with permission of the publisher, Research Institute of America Group. Are You Losing Big Bucks Through "Mispays"? Even accounts payable software can miss a lot of mispayments to vendors unless you have a backup system in place. Companies are losing more than $500 of every $1 million in accounts payable not because of mistakes by the accounts payable department, and not because of erroneous invoices by vendors, but simply because of administrative oversights. And these "mispays," according to Jon Casher, a founding principal of RECAP, Inc. in Oak Ridge, New Jersey, don’t get picked up and corrected by most accounts payable software. "Our experience over the past ten years," Casher told Controller’s Cost & Profit Report, "is that about one in every 1,000 payments to vendors, which translates into one in every $1,000, is erroneous, either because the vendor ends up with more than it should, or because it gets a duplicate payment. Perhaps one-third of these errors – which we call mispays- are picked up and lead to 50 percent of the wrongly paid out money being returned. That still leaves $500 of every $1,000 in accounts payable that goes out and is never discovered or recovered if a company is not actively working at stopping erroneous payments." Why Mispays Occur There are several reasons why these mispays occur. Someone higher up in the organization, for example, sits on a bill, and only sends it to accounts payable after a new bill has been issued and paid. Sometimes the highly efficient billing system of vendors can cause mispays. Companies like FedEx and Airborne may send you a new bill just fifteen days after the first one was sent. The mispays that result from these administrative mix-ups may then be overlooked by honest vendors because they have an outstanding balance with the company at any given time, and because they have the same problem spotting mispays as their customers. "In the vast majority of cases," said Casher, "vendors aren’t aware that they have been overpaid." One might suppose that companies would be more adept at preventing mispays than smaller ones. But Casher believes the opposite is the case. "When you have one person in accounts payable, that person will say, ‘I think I saw this bill last week.’ That doesn’t happen as often when you have dozens of people in accounts payable. On a percentage basis, small companies actually have fewer mispays." Software’s Shortcomings Accounts payable software, of course, is designed to pick up duplicate payments. But Casher points out that several factors keep many software packages from realizing this end. "Typically," said Casher, "these software checks are based on vendor name and invoice number. But a vendor can be in a company’s files multiple times. IBM might be vendor 123, and might also be number 567, and the system might not catch a duplicate payment even with the same invoice number and amount. Cleaning up your vendor files is thus one of the keys to preventing mispays." Other shortcomings some software systems have in preventing mispays, according to Casher, include paying more than once the same vendor because it has more than one remittance address. Problems with invoices that usually have no invoice numbers- like accounting bills, utility bills, rents, etc. – can also lead to mispays. Invoice numbers that have special features like dashes can generate errors if the dashes are sometimes entered and sometimes not. RECAP Solution Casher’s company, RECAP, specializes in providing the kind of tracking and recoveries that software may miss. And although many of the mispays it finds are small (under $500), some are very large indeed. "The single largest mispay we ever found was a tax overpayment for $2 million. That year the company made five payment instead of four." Casher has three basic tips for any company thinking of getting more serious about mispays: Don’t dawdle in this area. For various reasons, it is usually very difficult to recover erroneous payments made more than three-and-half years ago. If you find an erroneous payment, track it carefully and see if it has any ‘associates.’ It is often the case that the same vendors and the same check approvers cause these problems over and over again. And if you bring in an outside company to help cut your mispays, this company should be able to implement new controls that cut the mispay rate from one in 1,000 to one in 5,000. For more information
about RECAP or its services,
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