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

Mostly Harmless, Part XI

Previous Post

In the last post, the invoice was defined as well as some of the associated data requirements. This post will address the associated challenges with invoice processing, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution that was flexible and efficient in its processing of invoices.

Common Challenges

  • Purchase Order Partitioning

    The line items on the invoice can relate to one or more purchase orders … but which items go with which purchase orders? If an invoice is for a large shipment of hundreds of line items, this can be a challenge.

  • Billing Validation

    Were all of the items ordered? Were they received in acceptable condition? Are they at contracted or otherwise agreed to rates? Do any discounts apply? Are there early payment discounts to be taken advantage of?

  • Duplicate Detection

    Is this invoice unique? Is each line item a unique billing against received goods?

Best Practices

  • Automatic Acceptance / Import

    The system should be capable of automatically receiving invoices from suppliers and automatically accepting them (conditionally) if no reason for automatic rejection is found.

  • Automatic Uniqueness Validation

    The system should automatically match each line item of the invoice against the indicated and/or outstanding purchase orders and automatically reject the invoice if it, or any part of it, is determined to be a duplicate of an already submitted, and (conditionally) accepted, invoice. This notice should automatically be sent to the supplier, along with the reason for rejection.

  • Automatic m-Way Matching

    As soon as an invoice is received, it should be matched against any and all relevant goods receipts, purchase orders, and contracts to make sure that all goods were ordered, received, and billed at contracted rates. If unacceptable errors are found, the invoice should be automatically rejected. If only minor (billing) errors are found, the invoice should be accepted with modifications. If one or more items are under dispute, the invoice should be conditionally accepted and a note made that it can not be paid automatically until the dispute is resolved and that manual intervention will be required if this resolution does not occur before the due date. If one or more line items can’t be matched, the invoice needs to be flagged for manual review.

Potential Benefits

  • Reduced Overspending

    Automatic uniqueness validation insures that duplicate payments are not made, automatic m-way matching prevents overpayments, and automatic flagging of invoices under disputes prevents payments for unacceptable merchandise.

  • Faster Payments

    Invoices that are determined to be problem free can be queued for payments according to the payment terms. Automatic payments can prevent interest charges or reduced goodwill on the part of the supplier.

  • Greater Savings

    The prevention of duplicate payments, overpayments, and payments for goods not yet accepted, the ability to take advantage of early payment discounts, and increased supplier goodwill all contribute to greater savings.

Once the invoices are accepted, it is time for final reconciliation of (conditionally) accepted invoices and invoices that are marked for manual reconciliation (due to one or more problems that are not cause for automatic rejection), which is the subject of the next post.

Next Post: Reconciliation, Part I

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