What are payment controls?

Whether you’re an SMB or a large enterprise, payment controls can help mitigate risk for your accounts payable team. However, knowing where to start can be difficult. 

This page will explain everything you need to know. We’ll explain how payment controls work and how your business can implement eight different types, offering all the guidance your accounts payable department needs to streamline operations.

What are payment controls?

Payment controls are essential components of a company's payment operations, ensuring that accounts payable (AP) departments safeguard against financial losses stemming from fraud, late payment fees, and other discrepancies. Payment controls play a crucial role in maintaining the security, precision, and proper authorization of payments.

How do payment controls work?

First, you establish rules and control policies. Your set payment controls then oversee your transactions in real-time, promptly notifying or preventing unusual payments as per your established rules, ensuring they’re intercepted and stopped. You can also use digital technologies including payment orchestration platforms to support these processes.

In other words, AP teams implement various payment controls to ensure accurate and secure transactions. The most common methods include 3-way matching, approval controls, and segregation of duties. We’ll explain these methods in more detail further down the page.

The 3-way matching system verifies vendor payments by cross-referencing purchase orders, invoices, and goods receipt notes, flagging discrepancies before payment. 

Approval controls establish hierarchies for authorizing payments, and preventing unauthorized transactions, while automated checks streamline the process, reducing human error and providing better visibility. 

Segregation of duties divides responsibilities, minimizing the risk of fraud or errors. Also, measures like payment limits and data entry controls further protect your organization's finances. 

Why are payment controls important for accounts payable?

It’s predicted that in 2025 cybercrime will cost the world $10.5 trillion USD annually. With the increasing prevalence of security threats, companies of all sizes are susceptible.

This underscores the importance of establishing robust processes that empower your business to handle worst-case scenarios, such as attempts at internal or occupational fraud or the receipt of fraudulent vendor invoices.

Payment controls become even more critical when you consider how your AP department handles the intricate task of sending payments to suppliers, contractors, and various vendors. This AP process is prone to potential pitfalls. 

By incorporating payment controls, the entire procedure – including confirming the payment obligation, inputting payment details, and executing the actual payment – is effectively safeguarded against errors.

With payment controls, you also establish a framework of checks and balances within your AP team. This diversified approach to identifying potential errors promotes a culture of shared responsibility and naturally reduces the risk of both internal and external exposures.

Which payment controls should be implemented for merchants?

To help protect your business from fraud and financial loss, we recommend implementing these types of payment controls:

Invoice matching/3-way matching

This payment control relies on three crucial documents to ensure accurate vendor payments:

• Invoice: The bill from the vendor detailing the amount owed.
• Purchase order (PO): The initial request for goods or services sent to a vendor.
• Goods receipt note (GRN): Confirmation from your business to the vendor of goods or services received.

Confirming consistency across all three documents prevents errors and fraudulent payments, while all discrepancies are identified and must be addressed prior to making a payment, safeguarding your business from overpayment or paying for undelivered items.

Payment limits

A payment limit sets a maximum value for individual transactions or total transactions within a specific timeframe. These limits can be either permanent or temporary, helping to restrict potential fraudulent spending in the event of an account breach.

Bank reconciliation

A bank reconciliation statement is like a financial check-up for your company. It looks at the amount of cash listed on your company's official records and compares it to the amount recorded by the bank, which helps find out if any adjustments in accounting are necessary. 

You should do these checks regularly to make sure your records of cash are accurate, as it’s an essential tool for catching any signs of fraud or dishonest handling of cash. These days, automated reconciliation can make this even more accessible.

Approval controls

Approval control is a widely-used payment safeguard, helping your business establish a chain of approvals before making payments to vendors or contractors. This typically involves multiple levels of management approval, which may vary based on your company's size and complexity. Some approvals are manual, while others use automated systems for quicker electronic approvals.

Similar to 3-way matching, approval control ensures that the correct payment is sent to the right vendor at the appropriate time. This measure halts unauthorized payments for undelivered goods or services, effectively mitigating the risk of fraud.

Secure payment methods

Implementing the safest payment methods – such as Direct Debit, virtual credit cards, digital wallets, prepaid cards, and ACH payments – can help protect your business from cybercrime and the reputational damage that comes with it.

Secure online payment methods shield users' financial information during online transactions, leveraging safety features like encryption, two-factor authentication, privacy policies, and financial safeguards against unauthorized transactions. These measures help ensure a safe and protected online shopping experience.

Data encryption

Encryption is a method that converts data into a code to prevent unauthorized access, transforming plain text information like credit card numbers, into a jumbled format known as ciphertext, using encryption keys.

Data encryption dramatically minimizes the chances of data breaches and unauthorized access, ensuring ample data security. Meanwhile, if your business encrypts data, you’ll typically be perceived as more trustworthy, instilling confidence in customers regarding the security of their card information. 

Maintaining PCI DSS (Payment Card Industry Data Security Standards) compliance helps steer clear of potential fines or penalties, while also providing a framework for implementing additional security measures. This comprehensive approach should help foster a security-conscious culture within your organization.

Automation 

Automated checks can minimize the chances of human error, speed up the payment process, and mitigate fraud risks. This payment control automatically transfers predetermined details from the AP system to a secure platform for check printing and mailing. These pre-established criteria encompass vendor specifics, payment terms, and approved invoices.

As well as streamlining data entry and check production, this payment control increases transparency in the payment workflow, empowering AP teams to generate reports, monitor payment statuses, and maintain a comprehensive payment history.

Straight-through processing (STP) is a fully automated procedure carried out exclusively through electronic transfers, without the need for manual intervention. It’s commonly used in tasks like payment processing and handling securities trades.  

With STP, your business can focus on other high-value tasks instead of basic data entry thanks to the automated workflow.

Segregation of duties

One of the most effective ways to safeguard your business is to divide the responsibility of the payment process among different employees. If one person has complete control over the entire payment process, your business is at higher risk of fraud, human error, and unauthorized payments. Segregating duties minimizes this risk.

For example, you can assign duties like entering invoices, bank reconciliation, and issuing checks to different people or departments to give your business more control and better transparency in the payment process.

Enhance your payment controls with Checkout.com

With Checkout.com, it’s never been easier to mitigate fraud, reduce human error, and automate payment controls. Still unsure? Don’t worry, we’ve a proven track record in our case studies.

As part of our payment processing tool, we offer numerous integrated features and secure payment methods to help your business set payment controls and create benchmarks for future performance. That’s part of what you’ll get from a modern payments partner like Checkout.com.

Talk to our sales team for more information on how we can help your business enhance payment controls and fight fraud today.