CHAPTER 2: UNDERSTANDING YOUR B2B CUSTOMER’S PROCURE TO PAY PROCESS (P2P)
The non-PO workflow shows a standard non-PO process. There are many variations in this process since many issues can surface during it. The result is that it can be almost impossible for the customer to pay the invoice on time. The main problem is that AP is the last to know there is a debt. This kind of situation is typical when people in companies work in silos. An individual just working on what hits his or her desk, fixes the issues, and moves on to the next transaction, without understanding the broader context and impact of other steps in the process. Changing the way AP and AR work is not easy since the process involves so many people in various departments and everyone is already busy—barely keeping up with their work as organizations try to do more with less. To really make an impact, AR should look at the entire process and see where changes can be made to ensure that invoices get into the right hands to get paid on time.
Here are a few suggestions:
Influence the sales department to ask for a purchase order number when they take the order, and explain the benefits for the customer. PO has budget approval and AP is notified of debt; not having a PO number is at the core of why invoices are paid late. The Customer Master file specialist should validate that the bill-to address provided by the customer is in fact the Accounts Payable address. This will ensure that AP will receive the invoice immediately, whether the purchase is made with a PO or not (especially when so many AP departments are not in the same locations as all their various ship to addresses). Provide an electronic invoice rather than a paper invoice to AP.
2.3 PO Purchases
There is a distinct difference between a non-PO purchase and a purchase with a PO. A PO is a contract to purchase and approval to pay for the goods or service obtained before the purchase, thereby facilitating AP in making payment on time. Payment could be delayed if the PO, receipt, and invoice don’t match. This match process is known as a three-way match and generally provides swift approval for payment. But when there are exceptions, or a discrepancy in the match, organizations in non-VAT countries may short pay the invoice. Then, when the supplier receives the payment, cash application will create a debit memo, which initiates the process of proving whether the short payment due to the discrepancy is valid or not. Organizations in a VAT country, however, will not pay the invoice until the supplier issues a credit to clear the incorrect invoice and re-issues a new invoice. Most of the time, the customer is usually right. Cash application and AR deduction staff are impacted by this process and should track which deductions occur the most and work with the appropriate staff members to design a new process to eliminate these errors. Invoices processed by AP for inventory-related purchases nearly always have a purchase order and are given the utmost attention. Best-in-class companies also require most non-inventory purchases to be made on a PO. There is a very distinct difference in the amount of time it takes AP to process a payment for a non-PO purchase versus a purchase with a PO.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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