Fixing Duplicate Payment Errors Right from the Start

I have been in the audit and recovery industry for over 20 years. One thing I have seen firsthand is that there is no better way to prevent ongoing duplicate payment errors at an organization than managing your vendor file, and it is important to do right from the start.

It never fails to surprise me how little companies know about their vendors and supplier file; at least as far as operations are concerned. However, it’s important to note that the capabilities and financial stability of a supplier are critical to their performance. Their ability to deliver goods or services of appropriate quality within agreed-upon timeframes can be imperative to your operations.

The best time to learn about a vendor is when you begin the relationship. A vendor management program should start when you first enter their correct information and include the following activities:

  1. Verifying your Vendors: Before you add any vendor to your system, we recommend that you vet their legitimacy. Check the seller’s name, address and telephone number from a reliable third-party source. If you’re spending a significant amount of money here, use a credit rating service to give you an idea of the type of operation the supplier runs on their end. Also, cross-reference your personnel files to look for inappropriate relationships, i.e., to see if the vendor is an employee or related to an employee. (Helpful Tip: See if the phone number, taxpayer ID or address matches that of an employee.)
  2. Getting the paperwork: Send every vendor a W-9 and confirm they return a signed form.  Having a signed W-9 form can help ensure that you file 1099s appropriately, and it reduces the likelihood of B-notices from the IRS. You can use a substitute W-9 to collect additional information about the vendor. You may want to request basic information including North American Industry Classification System (NAICS) codes that are replacing standard industry codes. You can also gather taxpayer identifiers, telephone numbers, type of organization, types of products or services, how long vendors have been in business, and size. Knowing whether they have a minority vendor status and or are a women-owned business is also important.
  3. Making your rules: Let’s face it; there are a multitude of ways to enter a vendor’s name and address into your system. Setting up vendor names using a one-sheet list of rules reduces the chance you will add an existing provider. Conform to the United States Postal Service (USPS) addressing guidelines. If you already have a vendor file with inconsistent addressing rules, a USPS certified mailing house can review your records to normalize, flag and fix addresses that do not conform. For foreign addresses, pay careful attention to how you enter their information as fewer mailing houses are equipped to analyze foreign addresses.
  4. Organizing your database. As an extension of the rules from step three, consider the following details for your vendor-entry preferences: Decide what information you want in separate databases or paper files. Employ low-cost imaging in conjunction with a simple database for quick and easy access information from W-9s and other forms. Search online to find additional background information. With some database packages, you can link directly to relevant web pages.
  5. Developing a vendor communications handbook: Document your procurement and payment policies for your vendors to eliminate future miscommunications. If vendors have written guidelines detailing your purchase order requirements, the approval levels, and who has signing authority, you reduce the likelihood of incurring unnecessary expenses. Not only does this enhance vendor relations, but it also reduces your exposure to claims and even fraud.

Of course, you already have a supplier list. Chances are, you didn’t have the same vendor entry system the whole time it was developing either.  In any case, it’s not a bad idea to get some outside help. However, if and when you do, be sure that you are getting an effective program, one that covers all the bases in the duplicate payment error-prevention game. Also, be sure to employ these five important steps moving forward to ensure that your vendor list is as reliable as the payments you send out.

What would you add to the list? We’d all love to hear your expertise in the comments below.

Chris Bower is the Vice President of Business Development for AP Recovery, a firm delivering straightforward audits to enhance accounts payable efficiency with over 23 years of experience in the post audit industry.