The payments cycle is an essential part of any business operation. It involves the process of invoicing customers, receiving payments, and reconciling those payments against invoices. However, this process is not without its risks. Fraud, errors, and other issues can lead to financial losses, which can be detrimental to a business. Therefore, it’s crucial to reduce risks. Here are some steps you can take to do that:
1. Implement strong internal controls
One of the most effective ways to reduce risk in your payments cycle is to implement strong internal controls. This includes ensuring that there is segregation of duties between those responsible for creating invoices, those responsible for receiving payments, and those responsible for reconciling those payments. It also means implementing a system of checks and balances to ensure that no single person has complete control over the payment process.
Try to limit access to payment systems and ensure that all transactions are properly documented and authorized.
Finally, you should carry out regular audits and reviews of your payment processes to help identify any weaknesses or vulnerabilities.
2. Switch to secure payment methods
Another way to reduce risk in your payments cycle is to use secure digital payment methods. This means choosing methods that are encrypted and secure, such as credit cards, e-wallets, and payment gateways.
By using secure payment methods, you can reduce the risk of fraud and unauthorized access to your payment systems. Additionally, you should ensure that your payment systems are compliant with industry standards, such as PCI DSS (Payment Card Industry Data Security Standard).
In our 2022 poll, 78% of respondents use digital payment methods to pay their suppliers.
3. Verify supplier and vendor information
Reviewing your supplier and vendor information is another essential step in reducing risk. This includes verifying the accuracy of contact and payment information, such as addresses, phone numbers, and payment details.
In our 2022 poll, just under half of respondents (46%) review and update their vendor masterfile data annually, and only 15% do this monthly.
Verifying this information regularly can reduce the risk of payment errors, such as sending invoices to the wrong address or using incorrect payment details. It can also help prevent fraud by ensuring that you are dealing with legitimate customers and not imposters or fraudsters.
4. Monitor payment activity
Regularly monitoring payment activity is an essential part of reducing risk in your payments cycle. This includes tracking invoices, payments, and reconciliations to ensure that everything is in order. Additionally, you should regularly review your payment processes to identify any discrepancies or issues.
By monitoring payment activity, you can quickly spot any issues and take action to resolve them before they become larger problems. It can also help you identify areas where you can improve your payment processes and reduce the risk of future issues.
5. Educate employees
Finally, educating employees is an essential part of reducing risk in your payments cycle. This includes training employees on your payment processes, internal controls, and fraud prevention techniques so they become part of your Accounts Payable function’s overall defence.
You can go a step further and create a team of Certified Masterfile Fraud Prevention Specialists. This will help ensure everyone understands their role in the payment process, and are aware of potential risks and how to prevent them.
Conclusion
Reducing risk in your payments cycle is an ongoing process that requires constant vigilance and attention to detail. By implementing strong internal controls, using secure payment methods, verifying customer information, monitoring payment activity, and educating employees, you can reduce the risk of fraud, errors, and other issues in your payments cycle.
Ultimately, this can help protect your business from financial losses and ensure that your payment processes run smoothly and efficiently.
For more information about managing risks and reducing fraud, check out our specialist Certification Program, Certified Masterfile Fraud Prevention Specialist.
