What are Payment Controls?

The AP department is responsible for making payments to suppliers, contractors, and other vendors—a complex process where much can go wrong. Implementing payment controls keeps errors at bay across the entire process: verifying the payment obligation, entering payment data, and the actual payment.

How do Payment Controls Work?

AP teams rely on a bevy of controls that span multiple steps within the payment process. Let’s review some of the main payment controls.

3-Way Matching

This payment control uses three key documents to make sure a business is paying the right vendor the right amount. The AP team reviews the following documents:

• Purchase Order (PO): The original order submitted to a vendor for goods or services.
• Invoice: The bill submitted by the vendor with the payment amount due.
• Goods Receipt Note (GRN): A document from the business to the vendor confirming the receipt of goods or services.

Verifying that information matches across all three documents prevents errors and fraud. Any discrepancies are flagged and should be resolved before a payment is made. This is how businesses avoid paying the wrong amount—or paying for something they never received.

Approval Control

Another popular payment control is approval control. Businesses can set up a hierarchy of approvals before a payment can be made to vendors or contractors. Most approval processes require multiple approvals from management, though the specifics may vary depending on the size and complexity of the business. Some approvals are done manually, while others use an automated system to streamline the process with electronic approvals.

Just like with 3-way matching, the approval payment control verifies that the right payment amount is made to the right vendor at the right time. This stops unauthorized payments for goods or services never received and prevents fraud.

Automated Checks

Some businesses automate check issuance to eliminate the risk of human error, limit the time involved in making payments, and reduce fraud. The automated check payment control automatically transfers pre-defined criteria from the AP system to a secure system to print and mail checks. Pre-defined criteria include vendor information, payment terms, and approved invoices.

Beyond reducing the manual labor of data entry and check printing, this payment control provides greater visibility over the payment process. An automated system means AP teams can generate reports, keep an eye on the status of payments, and track payment history.

Segregation of Duties

Another payment control option is to divide the responsibilities of the payment process across several individuals. Since no one person has total control over the payment process, businesses can reduce the possibility of unauthorized payments, fraud, and errors. Duties like entering invoices, reconciling bank statements, and issuing checks may be assigned to different people or departments to improve overall control and visibility into the payment process.

Payment controls are an essential part of running a business. In fact, even the government uses payment controls. We’ve discussed some of the biggest ones here, but AP teams may also use payment limits, cutoff procedures, obligation-to-pay verification, data entry controls, and other authorization measures to protect the business’s hard-earned money.