A Hitchhiker’s Guide to e-Procurement: Invoices, Part I

Mostly Harmless, Part X

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A (sales) invoice is a commercial document issued by a seller to a buyer that indicates the products, quantities, and prices for products and services the seller has provided to the buyer. An invoice indicates that the buyer must pay the seller according to payment terms. While the purchase order is the most important document to the buyer, as it outlines what the buyer is willing to buy (and at what price), an invoice is the most important document to the seller, as it represents money due to the supplier for goods and services rendered.

An invoice is generally the result of a purchase order, but the relationship is not necessarily one-to-one. A supplier might fulfill an order with multiple shipments (especially if some items are not immediately available) and invoice after each shipment, indicating that there can be many invoices corresponding to one purchase order. In addition, a supplier might fulfill multiple purchase orders at once, if the orders were small (and the supplier is responsible for all shipping charges over an agreed amount), indicating that there can be many purchase orders corresponding to one invoice.

Like a purchase order, an invoice must contain a significant amount of information, including items delivered, associated SKUs, billing rates, adjusted rates, reasons for adjustments, corresponding purchase order(s), corresponding goods receipt(s) (if available), invoice date, delivery dates, unique identifiers, taxes, tax codes (state vs. federal vs. VAT etc.), descriptions, billing address, payment address, contacts (for disputes), and payment terms.

In addition, it must contain any information required for m-way matching, to insure that only the items that were ordered and delivered are paid for, and only at contracted rates, and adjusted rate calculations if line-item or global discounts apply (because a volume threshold was reached, because the buyer opted to pay early to take advantage of an early payment discount, or because the supplier agreed to a discount to resolve a dispute).

Furthermore, just like the goods receipt must be representable in a universal (e.g. XML) format that can be accepted by all of the systems that require it, so must the invoice, as the buyer may need to return the invoice to the supplier after adjustments (subject to contract terms and/or agreements that resulted from a dispute resolution) are made.

Thus, when a buyer is evaluating an e-Procurement system, extra attention must be paid to the invoicing capability as it not only has to support m-way matching (with contracts, purchase orders, and goods receipts), but support revisions and automated communications with the supplier. Some of these topics will be addressed in more detail in the next post.

Next Post: Invoices, Part I

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