Double payments and double invoicing – what is the difference and why are they missed by financial systems?

Back in 2019, we wrote an article about double payments and double invoicing, where we explained the difference between them and why they are so often missed by financial systems, even though most of them have built-in controls. So what has happened since then? The answer to that question is: not much. Double payments and double invoicing remain a common and costly problem in businesses, both private and public. We therefore believe that an updated article is in order.

What is a double payment?

A duplicate payment means that the same invoice is processed and paid twice. There can be many reasons why this happens, and the problems become more extensive the larger the business is, as there are more payments and more units handling payments internally. So what are the most common causes of duplicate payments?

Reminder invoices

• The customer is late with the original payment and then pays the reminder without realizing that the original invoice has already been paid.
• The supplier has started using factoring, but payment is made directly to the supplier. In this case, there is a high risk that the reminder from the factoring company will also be paid.

Silos in internal systems

• A supplier is registered with two supplier IDs in the financial system. The same invoice number in combination with different supplier IDs is regarded by the financial system as unique payments, even though in reality it is the same invoice that is being paid twice.

Incorrectly interpreted invoice information

• Incorrect interpretation of payment reference. A payment reference often consists of a combination of text and numbers, and it is not uncommon for the payment reference to be misinterpreted, e.g. the number 0 is interpreted as the letter o, etc. This means that any double payments are not detected by the financial system.
• Incorrect value interpreted as payment reference. For example, an order number, customer number, OCR number, or similar may be mistakenly read as a payment reference. This means that any duplicate payments will not be detected by the financial system.
• Manual errors in processing result in the invoice being registered with incorrect invoice details, which at a later stage leads to a double payment that is not detected.

What does double billing mean?

Unlike a double payment, double invoicing means that the supplier has issued two different invoices with the same content. For various reasons, this is overlooked, resulting in both invoices being paid by the customer. There are several reasons why these incorrect payments occur, and below are the most common causes.

• The customer has raised concerns about the invoice and its contents. The supplier then updates the invoice, creates a credit invoice internally, and sends a new debit invoice to the customer. However, the customer does not receive the credit invoice, or misses it, and instead pays both invoices that are in their system.
• The supplier accidentally sends both a paper invoice and an e-invoice. In this case, it is not unusual for the invoice numbers to differ, meaning that they are not picked up by the financial systems.
• The invoice is first sent to the wrong company within the group. When the invoice is then sent to the correct recipient, both invoices are paid. In this case, the invoice may contain the same supplier, amount, and payment reference, but the financial system will still not catch the duplicate as it only checks for duplicates within the same company.

Why are duplicates often missed by the built-in controls of business systems?

We have already touched on some of the reasons, and there are several reasons why duplicates are not caught. However, the root cause for all of these is the same: the checks performed by the financial systems are simply not comprehensive enough. In most cases, the control consists of the system ensuring that two payments from the same company do not have both an identical supplier ID and invoice ID. But as you can see from the points above, this is not enough to catch double payments and double invoices that are more complex. In summary, it can be said that financial systems are good at catching "normal" duplicates, i.e., cases where the same invoice has simply been registered twice with exactly the same invoice information. For all other cases, it is necessary to have an additional and more advanced control.

What is Betalkontroll's "secret sauce"?

We are very proud to have a market-leading product for this type of control, and it has also been a clear focus for us since day one. Unfortunately, we cannot go into detail about our solution in this blog post, but we are happy to share how we work to capture these more complex duplicate payments and double invoices.

Analyze root causes of incorrect payments

We have listed a few of these above, and there are of course many more. Through dialogue with our customers, we have been able to adapt our existing controls over the years and also add new ones to catch the incorrect payments that customers encounter. To catch a duplicate payment, it is not enough to simply check the supplier ID against the invoice ID; you also need to check for variations that may arise due to manual or machine errors.

Eliminate data silos that naturally exist in a financial system

Within large organizations and financial systems, silos are naturally created. This is absolutely necessary for the business to function effectively, but it creates challenges when it comes to controlling payments made from different parts of the organization and the system. With the help of an external system that can bring together several legal entities, this type of control becomes possible.

Tailor the analysis to the user's needs

It is not difficult to build a system that warns of all potential double payments. The challenge lies rather in catching the vast majority of errors without issuing warnings on a large number of payments that are correct. This is our core business and what we call "sharp warnings." In Betalkontroll, the user can control each individual parameter, and we can also fine-tune the system to eliminate unnecessary alerts. Over time, our system becomes smarter and only alerts when it is actually needed.

Smarter control that saves time and money

Something we still encounter in dialogue with potential customers is the belief that they already have effective controls in place for double payments and duplicate invoices through their financial systems, which in most cases is true. Almost all financial systems have controls, but what is not always clear is what is actually being controlled—and perhaps even more importantly—what is not being controlled. As in so many other cases, the devil is in the details. And it is precisely with those details in mind that we at Betalkontroll continue to develop our controls – for duplicate payments, duplicate invoices and everything else related to payments. Through smarter controls, we help our customers save both time and money, because few things are as bad a deal as paying your suppliers twice for the same purchase.