CHAPTER 2: UNDERSTANDING YOUR B2B CUSTOMER’S PROCURE TO PAY PROCESS (P2P)
most AP departments do not process Acknowledgement Invoices. If an invoice number is not provided, AP will have to create an invoice number, called a dummy number. It is appropriately named since this can create duplicate payments, which also causes extra work for the AR department. 2. Terms to define when payment is due. This may be number one in importance to AR, since it directly correlates to being paid on time. Invoices will cite terms such as Net 30 (the most widely used), or a discount term like 2%10N30 (take two percent if paid in 10 days or pay full amount due in 30 days). But there is rarely a field that expresses the due date as an exact date: i.e., “Pay by June 30, xxxx.” When the invoice says N30, the question is: When does the clock start? An unspecified due date leaves it up to the payer to decide. Is the net 30 determined from the date of invoice, which is what you might expect, or 30 days from receipt of goods, or 30 days from a perfect three-way match? Do not leave it up to the customer’s interpretation. Tell the customer when you want the payment in your hands. Does the invoice say the invoice must be received by mm/dd/yyyy, or is it okay if the payment is mailed on the due date (or any interpretation of the due date)? 3. PO number: the PO number should be included on the invoice so AP can easily match the invoice to an approved PO, which provides the approval to pay the invoice. Note that “Bob” is not a PO number – do not use only the first name of the person that placed the order (there may be several employees named Bob in the customer’s organization). This happens quite often. 4. Remit to: Provide information on where to remit the payment. Provide bank account information for electronic payments. That may sound like a risk, but if the bank account is for deposit only, the bank will disallow any withdrawals. For paper check payments, provide a lockbox address to shorten the cycle time required to make the cash available. 5. Miscellaneous charges: On US invoices, list shipping and other miscellaneous charges as separate charges after the subtotal of items purchased. Many invoices have shipping as a line item. That causes AP to recalculate the invoice, which could cause payment errors. 6. Prepaid by credit card: If the invoice was paid via a credit card, the terms field should say “credit card” and the invoice should clearly indicate zero due. If this information is not provided, there is a high likelihood that the invoice will be paid again, causing extra work for the AR department. All this may require AR to work with the billing department. AR is responsible for collecting the dollars on the invoice, but rarely reviews the invoice to ensure that it provides the right information to the AP department.
2.5 DSO and DPO
Globally, organizations’ number-one goal regarding AR is a good Days Sales Outstanding (DSO). The AP Department’s (your customer) global goal is a good Days Payable Outstanding (DPO), subject to the financial needs of the company. Globally, these metrics are a gauge of how well AR is paid against their terms, and how well AP pays their invoices.
33
THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
Made with FlippingBook - Online catalogs