Accounting Basics 4: Overpayment of suppliers and poor credit control

Simple steps can protect a charity from unnecessary stress and expense in the long run, says senior accountant Jonathan Lachmann

Jonathan Lachmann
Jonathan Lachmann

There might be different causes behind the overpayment of suppliers and poor credit control, but both can needlessly cost a charity time and money. 

The overpayment of suppliers can be the result of simple oversight or, at worst, of deliberate fraud. Either way, it is a problem that can be difficult to spot and unpick after the event, so it's much better to prevent it in the first place.

Changing a supplier but failing to cancel a direct debit to the old supplier is a basic but common mistake. Your accounting team should check the charity’s direct debit list regularly to ensure that no unnecessary payments are made.

Suppliers can make mistakes, of course – for example, by sending two identical invoices for payment. The best way to protect against this is to record all invoice numbers and check for duplicates.

A second and very important level of protection is to ensure that all invoices are agreed by the individual receiving the goods or services before they are sent for payment. That way you will ensure you pay only for things the charity has received.

Actual levels of spending should be compared regularly with budgets as an early warning of potential overpayment errors.

Finally, unauthorised payments to suppliers can mask internal fraud. If an authorising individual is shown an invoice twice, or not at all, this could be because of an innocent error or possibly of a staff member attempting to defraud the charity.

Robust safety procedures can prevent this: all payments should be dual-authorised and signatories must see an invoice and create evidence that they have seen it before signing.

Keeping on top of the incoming money is no less important, and your accounts-receivable books can easily get out of control if not monitored regularly.

Named individuals should be made responsible for monitoring the amounts owed to the charity and for chasing debtors regularly.

An agreed number of phone calls should be made and reminder letters sent to a late-payer before the debt is written off or passed over to a debt collector or legal adviser.

Such debt professionals can really help when your own chasing is not proving fruitful, but they charge a fee for amounts recovered, which can reduce the benefit.

Legal action is also an option for diehard non-payers, but it is not worth taking if the unpaid amounts are small.

But a little caution can go a long way to prevent this sort of problem in the first place. It is risky to issue credit to previous non or late-payers, so your accounts team should regularly review credit terms.

Just as rigorous procedures can protect a charity from overpaying its suppliers and insulate it from the risk of fraud, so prudence with the offering of credit to clients can greatly mitigate the risk of bad debts.

These are simple steps in principle, but it’s in their careful application that a charity can save itself a lot of unnecessary stress and expense.

Jonathan Lachmann is a senior manager at the accountancy firm HW Fisher & Company

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