Overpayments in Accounts Payable can erode millions in value. Discover the leading causes and learn how to prevent them before they impact your cash flow.
Overpayments in Accounts Payable (AP) are a silent drain on corporate finances. Industry research suggests that 1% to 2% of annual disbursements are duplicate or erroneous. For a Fortune 500 company processing billions in payments, that translates into millions of dollars leaking out each year — often unnoticed.
These losses typically stem from process breakdowns, system gaps, or vendor missteps. Left unchecked, they can accumulate across thousands of transactions.
The good news? Most overpayments can be detected, recovered, and prevented through stronger controls and systematic audits.
This article examines the five primary causes of AP overpayments, provides guidance on how to prevent them, and offers insights from SC&H recovery audits on how leading organizations recover hidden funds.
The Top 5 Reasons for Accounts Payable Overpayments
1. Duplicate Invoices and Payments
Duplicate payments are the most common cause of AP overpayments—they hide in plain sight and often go unnoticed until well after the money is out the door. For finance leaders, the danger isn’t a one-off mistake; it’s the cumulative effect across thousands of transactions.
They often stem from:
- Processing the same invoice multiple times under slightly different numbers
- Processing the same invoice across multiple systems or supplier accounts
- Missing duplicates in system checks due to minor discrepancies (e.g., spacing, punctuation, or alternate coding)
Research suggests 1–2% of invoices are duplicated, even in organizations with automated systems. For enterprises processing billions of dollars, that’s millions of dollars in leakage each year.
Prevention Tip: Deploy automated duplicate-detection tools and enforce strict invoice numbering rules. Pair automation with regular recovery audits to provide a safety net for missed errors.
2. Contract Non-Compliance and Pricing Errors
Contracts are negotiated to protect margins, yet invoices don’t always reflect the agreed-upon terms. Without ongoing oversight, rate creep and missed discounts can quietly erode savings, leaving companies overpaying for services.
Many pricing errors have a root cause that traces back to one of the following:
- Complex pricing terms are not compatible with purchase order management
- Invoice approvers lack the bandwidth or wherewithal to scrutinize invoices properly
- Suppliers seek informal approval for changes to contract pricing
In one SC&H audit, a supplier with a cost-plus contract inadvertently set up their system to bill at a 10% margin rather than a 10% markup. Every order for two years was billed at the incorrect price until a contract compliance audit resulted in a multimillion-dollar recovery.
Prevention Tip: Maintain a centralized contract repository and implement three-way matching (invoice, purchase order, and contract). Regular contract compliance audits are essential to ensure terms are honored and invoice approval processes are effective.
3. Missed Supplier Credits and Residual Funds
Every credit left on a supplier’s books is cash sitting on the table. Over time, small balances from rebates, returns, and prepaid accounts pile up — and many quietly disappear without anyone noticing.
The most common situations include:
- Residual funds from prepayments or deposits
- Unprocessed credits for returns, rebates, or discounts
- Unresolved overpayments
- Miscommunications or process breakdowns due to turnover and reorgs
For global enterprises, missed credits can quietly total millions if not proactively managed.
Prevention Tip: Establish a process for aging and reconciling supplier credit balances. Periodic vendor statement audits can identify unapplied credits, triggering recoveries before balances disappear.
4. Human Error and Process Breakdowns
Even the best processes can’t eliminate human error. Invoices are often processed under time pressure, and when exceptions bypass the normal flow, the likelihood of mistakes multiplies.
Examples include:
- Data entry errors by suppliers or accounts payable personnel
- Inadequate billing support from suppliers, leading to transparency gaps
- Manual processes that fail when sudden turnover or reorgs occur
According to the Association of Certified Fraud Examiners (ACFE), weak processes and control overrides create opportunities not just for mistakes but also for fraud.
Prevention Tip: Invest in AP staff training, enforce segregation of duties, and monitor exception handling. A “second pair of eyes” review for large or unusual invoices can catch costly errors.
5. Fraudulent or Unverified Payments
Fraud may be less frequent than unintentional errors, but it’s far more damaging when it happens. Fraud schemes are intentional and concealed, allowing them to persist longer and result in significantly larger financial losses.
Examples of fraud can include:
- Setting up fake vendors in the system
- Kickback schemes funded by overpayments
- PO approvers induce suppliers to utilize residual funds in inappropriate manners
The ACFE’s Report to the Nations estimates that organizations lose an average of 5% of annual revenue to fraud. Even if only a fraction of that touches AP, the exposure is substantial.
Prevention Tip: Leverage analytics to flag unusual payment patterns. Communicate regularly with suppliers and encourage them to disclose any unusual activity. Maintain integrity hotlines for all employees and suppliers to raise concerns.
How to Detect and Prevent Overpayments
CFOs and AP leaders often ask the same question: “How do we detect overpayments before they spiral?” The reality is that no single safeguard is enough—it requires the right mix of technology, process discipline, and independent review.
The most effective approaches include:
- Automated Controls: Configuring AP systems to flag potential duplicates, enforce three-way matching, and require approvals for exceptions
- Analytics & Monitoring: Applying continuous monitoring tools to spot anomalies, such as payments above thresholds or duplicate vendor accounts
- Regular Audits: Conducting contract compliance audits, vendor statement audits, and recovery audits to reclaim missed funds and highlight control gaps
- Training & Governance: Educating staff on red flags, enforcing approval hierarchies, and aligning oversight with the Institute of Internal Auditors (IIA) Three Lines Model
With these layers in place, organizations not only reduce leakage but also build a stronger control environment that supports trust and efficiency.
Common AP Audit Findings & Recovery Opportunities
When organizations put their AP processes under the microscope, the results are often eye-opening. Recovery audits don’t just confirm that overpayments exist — they reveal where the most significant dollars are hiding.
The most common recovery drivers include:
- Duplicate Payments: Recovering duplicate payments, which represent 30–40% of claims and are often concentrated in a few high-value invoices
- Pricing Errors & Contract Non-Compliance: Uncovering pricing errors and contract non-compliance, such as suppliers charging above contracted rates or missing negotiated discounts
- Unapplied Supplier Credits: Identifying unapplied supplier credits, a common but often overlooked source of cash recovery in rebate-heavy industries
- Residual Funds: Finding residual funds in dormant balances tied to closed accounts, projects, or prepaid arrangements
- Fraud Indicators: Detecting fraud indicators, rare but high-risk (e.g., duplicate vendor accounts or suspicious approvals)
In SC&H’s experience, clients recover 2–4% of audited spend on average, with some contract audits yielding recoveries of 10–20% on specific supplier relationships.
Turning Leakage into Recovery
Overpayments aren’t just an operational annoyance — they represent real dollars that can and should be reclaimed. Duplicates, contract errors, missed credits, human mistakes, and fraud are challenges that even the most sophisticated enterprises face.
However, with the right mix of controls, monitoring, and independent audits, companies can detect overpayments early, recover lost funds, and prevent future losses. Stronger AP oversight not only protects working capital but also gives finance leaders greater confidence in their numbers.
If you suspect overpayments in your organization, our team at SC&H can help. We conduct contract compliance and recovery audits that not only identify and recover funds but also strengthen your AP processes against future leakage. Contact us to schedule a risk-free consultation and learn how much hidden value your company could be reclaiming.
