diff --git a/packages/backend/src/payment-method/local/service.test.ts b/packages/backend/src/payment-method/local/service.test.ts
index 30130790f0..417e1eee24 100644
--- a/packages/backend/src/payment-method/local/service.test.ts
+++ b/packages/backend/src/payment-method/local/service.test.ts
@@ -16,7 +16,10 @@ import { AccountingService } from '../../accounting/service'
 import { truncateTables } from '../../tests/tableManager'
 import { createOutgoingPaymentWithReceiver } from '../../tests/outgoingPayment'
 import { OutgoingPayment } from '../../open_payments/payment/outgoing/model'
-import { IncomingPayment } from '../../open_payments/payment/incoming/model'
+import {
+  IncomingPayment,
+  IncomingPaymentState
+} from '../../open_payments/payment/incoming/model'
 import { IncomingPaymentService } from '../../open_payments/payment/incoming/service'
 import { errorToMessage, TransferError } from '../../accounting/errors'
 import { PaymentMethodHandlerError } from '../handler/errors'
@@ -451,6 +454,45 @@ describe('LocalPaymentService', (): void => {
       }
     })
 
+    test('throws error if incoming payment state is not pending', async (): Promise<void> => {
+      const { receiver, outgoingPayment } =
+        await createOutgoingPaymentWithReceiver(deps, {
+          sendingWalletAddress: walletAddressMap['USD'],
+          receivingWalletAddress: walletAddressMap['USD'],
+          method: 'ilp',
+          quoteOptions: {
+            debitAmount: {
+              value: 100n,
+              assetScale: walletAddressMap['USD'].asset.scale,
+              assetCode: walletAddressMap['USD'].asset.code
+            }
+          }
+        })
+
+      jest.spyOn(incomingPaymentService, 'get').mockResolvedValueOnce({
+        state: IncomingPaymentState.Processing
+      } as IncomingPayment)
+
+      expect.assertions(4)
+      try {
+        await localPaymentService.pay({
+          receiver,
+          outgoingPayment,
+          finalDebitAmount: 100n,
+          finalReceiveAmount: 100n
+        })
+      } catch (err) {
+        expect(err).toBeInstanceOf(PaymentMethodHandlerError)
+        expect((err as PaymentMethodHandlerError).message).toBe(
+          'Bad Incoming Payment State'
+        )
+        expect((err as PaymentMethodHandlerError).description).toBe(
+          `Incoming Payment state should be ${IncomingPaymentState.Pending}`
+        )
+        expect((err as PaymentMethodHandlerError).retryable).toBe(false)
+      }
+    })
+
     test('throws InsufficientBalance when balance is insufficient', async (): Promise<void> => {
       const { receiver, outgoingPayment } =
         await createOutgoingPaymentWithReceiver(deps, {
diff --git a/packages/backend/src/payment-method/local/service.ts b/packages/backend/src/payment-method/local/service.ts
index 11ce3584a1..598a520000 100644
--- a/packages/backend/src/payment-method/local/service.ts
+++ b/packages/backend/src/payment-method/local/service.ts
@@ -217,29 +217,31 @@ async function pay(
       retryable: false
     })
   }
+  if (incomingPayment.state !== IncomingPaymentState.Pending) {
+    throw new PaymentMethodHandlerError('Bad Incoming Payment State', {
+      description: `Incoming Payment state should be ${IncomingPaymentState.Pending}`,
+      retryable: false
+    })
+  }
 
-  // TODO: remove incoming state check? perhaps only applies ilp account middleware where its checking many different things
-  if (incomingPayment.state === IncomingPaymentState.Pending) {
-    try {
-      await deps.accountingService.createLiquidityAccount(
-        incomingPayment,
-        LiquidityAccountType.INCOMING
+  try {
+    await deps.accountingService.createLiquidityAccount(
+      incomingPayment,
+      LiquidityAccountType.INCOMING
+    )
+  } catch (err) {
+    if (!(err instanceof AccountAlreadyExistsError)) {
+      deps.logger.error(
+        { incomingPayment, err },
+        'Failed to create liquidity account for local incoming payment'
+      )
+      throw new PaymentMethodHandlerError(
+        'Received error during local payment',
+        {
+          description: 'Unknown error while trying to create liquidity account',
+          retryable: false
+        }
       )
-    } catch (err) {
-      if (!(err instanceof AccountAlreadyExistsError)) {
-        deps.logger.error(
-          { incomingPayment, err },
-          'Failed to create liquidity account for local incoming payment'
-        )
-        throw new PaymentMethodHandlerError(
-          'Received error during local payment',
-          {
-            description:
-              'Unknown error while trying to create liquidity account',
-            retryable: false
-          }
-        )
-      }
     }
   }