CHAPTER 2: UNDERSTANDING YOUR B2B CUSTOMER’S PROCURE TO PAY PROCESS (P2P)
Evaluated Receipt Settlement (ERS) was designed in the automobile manufacturing industry for inventory-related purchases. There are other uses but most focus on inventory. The customer works with the supplier and all agree that the pricing, terms, and conditions in the customer’s purchase order constitute a legal contract. When goods are shipped and meticulously counted, the customer sets up payment based on the quantity received according to the PO price and sends the payment based on the PO terms. There is no invoice issued by the supplier to the customer. Cash application has to be able to match that payment against the correct open invoice. This best practice saves processing costs for both the customer and the supplier.
If there are miscellaneous charges like freight or pallet charges, these should either be reflected in the unit price or be billed separately once each quarter.
Shared Service Centers and Business Process Outsourcing: AP is under a lot of pressure from the CFO to reduce costs. Many are choosing to move to a Shared Service Center (SSC) while others are hiring a business partner—known as Business Process Outsourcing (BPO). Both strategies involve consolidation into a central specialized group that employs processing best practices. Both SSCs and BPOs may be one of three types: (1) On Shore, (2) near Shore, or (3) Off Shore. The initial advantage of an SSC or BPO has been, and continues to be, choosing a location for a company’s services where the cost of living is low. However, SSCs and BPOs also leverage automation and best-in-class technology to process high volumes. With a BPO, the customer reaps the benefits of the technology without bearing the cost, instead paying a set fee for the service. These strategies are being used by all industries and sizes of organizations, since even a small business can take advantage of using a BPO. If your customer is using an SSC or BPO, sending the invoice to their location is critical to being paid on time. Check Printing: In the U.S., check printing is still the leading method for making payments. Strides are being made to catch up with the rest of the world in making payments electronically, but there is still a good distance to go. Most businesses that print checks are only making payments once a week. This does reduce the cost of printing checks by consolidating the checks to one day. Some are even using their banks to process and send paper checks. However, it would benefit both parties if paper checks were replaced with electronic payments because it is both cheaper to send electronically and safer. Most payment fraud involves a paper check. Most customers are also putting the paper check in the mail the day it is due, and AR calculates this in their DSO. The best practice would be to state on the invoice that the payment method is electronic, provide your bank information, and indicate the date by which the money needs to be received.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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