What is Overcharging? 9 Things You Should Know

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When managing daily business expenses, you may one day notice a charge from an external vendor that is a tad (or a lot) higher than usual. In other cases, you may notice that you’ve been billed twice. It might be a mistake, but it may also be an instance of intentional overcharging.

As with any financial discrepancy, overcharging or overbilling can happen to any business and must be dealt with immediately, should it recur indefinitely. That’s why, below, we’ve compiled the top 9 things you need to know about overcharging.

This article will cover the following topics:

What should you do when businesses overcharge?
Is overcharging illegal?
What is overbilling and under-billing?
What causes overbilling and under-billing?
What is an overbilling scheme?
Is overbilling a federal offense?
What are some examples of overbilling?
Are there any laws that prevent overbilling?
How can you avoid overcharging?

1) What is overcharging and what should you do about it?

Overcharging, or overbilling, occurs when a business is charged too much or too often. When a business is overcharged, it’s natural to want to recuperate the funds. While a single instance may be a mistake, a simple correspondence may be a sufficient resolution strategy. On the other hand, recurring instances may indicate criminal intent, which could require a formal business dispute to resolve.

2) Is overcharging illegal?

It depends. In the case of vendor agreements with agreed-upon billing amounts, overcharging can constitute a breach of contract. This can lead to legal action. Alternatively, overcharging can be considered legal, or at least acceptable, in industries where payment can be slow, such as construction.

3) What is overbilling and under-billing?

Overbilling occurs when your business is billed for more than the agreed-upon amount. It can be intentional or unintentional. Conversely, under-billing occurs when your business is billed for less than the agreed-upon amount.

4) What causes overbilling and under-billing?

It depends. Overbilling or under-billing can result from human error or a software glitch on the part of the vendor. On the other hand, overbilling or under-billing can occur due to intentional fraud.

5) What is an overbilling scheme?

An overbilling scheme occurs when a business intentionally overbills its clients, usually multiple times, in order to make extra money. This is one of the most common variants of consumer fraud. Perpetrators often use false documents to support their inflated claims.

6) Is overbilling a federal offense?

Single instances of overbilling are often treated as private business matters. That said, overbilling as part of a clear pattern or scheme is subject to federal laws. Under the auspices of these laws, overcharging (as part of a scheme) very much constitutes a federal offense.

7) What are some examples of overbilling?

Examples of overbilling are dependent on the type of agreement:

In the case of labor, overbilling may occur when a consulting agency inflates the number of billable hours
In the case of suppliers, overbilling may occur when an equipment supplier bills you for tools you never received
In the case of contractors, overbilling may occur when a materials contractor’s invoice includes unexpected surcharges and hidden fees.

8) Are there any laws that prevent overbilling?

Yes, there are. When overcharging is suspected to be part of an ongoing scheme, lawyers can prosecute based on existing laws. Businesses found guilty of overcharging have been convicted under the RICO or False Claims acts.

9) How can you avoid overcharging?

Not long ago, overcharging was something to be dealt with after the fact. Thanks to the advent of spend management systems, it has become easy to avoid overcharging. At the forefront of this development is PayEm, which offers financial tech solutions that allow for budget management and planning with unmatched transparency.

Through PayEm’s platform, you can issue cards specific to individual vendors (or employees) that come embedded with strict spending limits. That way, if an overcharge occurs, the transaction will be declined, thus avoiding the issue altogether. To learn more about PayEm and its services, feel free to schedule a demo anytime.