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Reliance petroleum industry is one of the largest private sector company which is located
in Gujarat. It provides is different petroleum products such as petrol, naphtha etc.
The main experience in this site was astonishing capability is of people or employees to
manage the entire or rather vast project.
Organization on who is managed by systematic work department wise and automatic
The various Departments prevalent in the organization are :
Finance Department : include working capital, ratio analysis, acquisition of funds, product
costing, hydrocarbon accounting etc.
Material Management Department : include inventory control cell, receipt section, issue
section, scrap section material management
Human Resource Department : include centralized HR, de centralized HR, Recruitment ,
Selection, Training & Development , Performance Appraisal, Administration
Marketing Management : include marketing scenario, channel of distribution , target

A Research Work On RIL with the following Objectives :

Primary Objective :
1. Reasons for Delay in Payment to Vendors
2. The problems faced by the company due to the delay in payment at present and
may be facing in future.


Sr. No.





Theoretical Back Ground of the Study


Purchase Procedure


Purchase Order




Payment Overview


Procedure for Bank Guarantee


Objective of The Study


Research Methodology & Data Collection Method


Analysis & Interpretation of Data






Suggestion & Recommendations



Example of Bill

This report consists of the effects of Delay in Payment to vendors i.e. Financial Effect on
the Company due to Delay in Payment to Vendors.
Reliance Industry Limited ( RIL) is India`s largest private sector company on all major
financial parameters with gross turnover of Rs.74,418 crores ( US$17billion), Cash profit
of Rs.9,197 crores (US$ 2.1billion), Net Profit of Rs, 5,160 crores ( US$1.2 billion ), net
worth of Rs.34,452 crores ( US$7.9billion) and total assets of Rs. 71,157 crores ( US$
The Reliance Group founded by Dhirubhai H. Ambani ( 1932-2002) is India`s largest
business house with total revenues of over Rs.99,000 crores ( US$ 22.6billion) cash profit
of Rs. 12,500 crores ( US$2.8 billion) net profit of Rs.6,200 crores (US$1.4billion) and
exports of Rs.15,900 crores (US$3.6billion)
The Goup`s activities span exploration and production ( E&P) of oil and Gas, refining and
marketing , petrochemicals ( polyester, polymers, and intermediates) textiles, financial
services and insurance, power, telecom and infocom initiatives. The group exports its
products to more than 100 countries the world over. Reliance emerged as India`s Most
Admired Business House, for the third successive year in a TNS Mode Survey for 2003
Reliance Group revenue is equivalent to about 3.5% of India`s GDP, the Group contributes
nearly 10% of the country`s indirect tax revenues and over 6% of India`s exports. Reliance
is trusted by an investor family of over 3.1 million India`s largest, trust Reliance.
Reliance Industries Limited, Refinery division, Jamnagar is a petroleum refinery
company which needs several supporting facilities to support the production as well
as for the well going of the company like vehicles for the plying of employees, i.e.
transportation, timely supply of raw material for the support of production as well as
going of the offices in the company, capital goods ( machineries, equipments etc. )
whose payments are made through the cheques or DDs which are handled by the
office at Mumbai, but the primary paper works and the sorting of and placing of
order, purchase order receipt of goods are all done in Jamnagar.
Even through the entire activities of the Reliance Industries Limited. Refinery division is
fully integrated with the Help of SAP ( system applications, products in data processing )

and almost all dealing with vendors and payments are done through SAP. Although, it is a
foolproof integrated software program. However , there are reasons, which can be manual
or by default in the system integration or the programs. The main objective of this report is
to highlight the problems faced by the company or will be facing in future due to the delay
in payment to vendors as a result of human errors and system errors as well and its
solvencies as a whole.


The RIL follows very foolproof procedure for receipt of goods and payment to vendors.
But still there are loopholes, which make delay in payment to vendors. The following are
the procedure followed by the RIL, Refinery Division for the payment to vendors. The
vendors are the parties, which supply goods, & Services that are raw materials of semi
finished capital goods.
This case study includes the payment made in regard to the supply of goods & services
needed for the project & operations , its requirements, project systems and its functionality
as operated through SAP for contract payment.

Purchase Department in RIL

Purchase Department, one of the important and department for any organizations whether
it is small of big organization. Organization cannot exist without Purchase Department.
Purchase Department will help the organization in satisfying the organization needs by
purchasing raw materials or any finished goods required for day today activities in the
organization for their further process in producing the product. Thus we can say that
Purchase Department plays an important role in an Organization. Purchase Department will
help other department by satisfying their needs and wants of goods and services required
by them.
Purchase Department will be the channel through which Supplier will come in contact with
the User party and thus it will play the role of mediator between the User party and the
Supplier. Purchase Department will provide the platform for other departments and thus it
will also help for the growth and development of an Organization. Purchase Department
will consult with all the suppliers of the raw material which is been required by the
department and will make inquiry and will ask for their tenders so that which is having the
least quotation in the tender will get the order from Organization and thus further
procedure will be done by Purchase Department. When goods are received by the
organization and after proper checking is over and if they does not satisfy with quality of
that product then goods would be send back to the supplier but if they say that goods is per
their requirement and also of a quality base than supplier will paid.

Purchase Department Functions

1. The purchasing system includes all the functions involved in the procurement of
material from the time a need or possible need it first know until the material is
received and approved for use. Types of activities, tasks and functions on a broad
scale include:2.

Vendor appraisal and evaluation

Contractor rate fixing.
Scrutiny of tenders for services.
Suppliers meet.
Inviting tenders for services.
Setting accounts after job
Identification of aspects, impacts and rating and hazards.
Impact rating.
The Purchasing Function can also be mention by the following way.

1. Buying the right Quality:The term quality, as used in the field of purchasing, carries a meaning quite different
from that usually associated with this word. In common usage, when the term quality is not
further modified, it refers to the excellent features of the subject. In purchasing, this term
refers to the suitability of a product for its intended use concern for safety features and the
useful life of products has introduced a requirement for reliability which today is often
used in conjunction with quality. Quality and reliability are often used interchangeably and
both are the concern of purchasing.
Purchasing managers are in an excellent position to contribute to company profits
in the area of quality. This is so because they can bring to bear their broad knowledge of
materials, markets, market trends and conditions and the reliability of sources of supply.

2. Buying the right Quantity:-

Frequently, as much as one half of a companys total expenditures is in the form of

inventories of raw materials, parts, and supplies. The purchasing department will be either
directly or indirectly involved in the control of this inventory.

3. Buying at the right Time:Proper buying involves buying to meet production schedules without loading
warehouses with inventory. It also involved buying judiciously so as to minimize the
unfavorable effects of price level changes. The need to meet production schedules is self a
buyer own companys production plans, but also an understanding of the lead time
requirements of the various alternative suppliers to produce and deliver orders placed with
Timing orders in connection with price changes involves study of the present
supply and demand situation in the market and forecasts of future conditions.

4. Buying at the Right Price:The right price is that price which is reasonable and fair to both the buyer and the
seller. Buyers personnel have always been insistent on paying a fair price for any item
bought. This insistence has been incorporated into the policy manuals and codes of
purchasing practice of most well run purchasing departments.
The right price is not necessary the lowest price. The lowest price may not provide
the proper quality for the intended purpose, or it may not secure the proper service from
suppliers. Even where it does meet these requirements, the lowest price may be offered for
buying a substantial quantity in advance of needs, thus reflecting added costs that do not
appear in the initial lowest price.
Basically, what purchasing executives do is to take a broad and objective view if their
company. They must determine which price, in combination with the quality features of the
product and the service aspects of the relationship with the supplier, will afford their
company the greatest ultimate value.

5. Buying from the right Source:The selection of the source of supply is the acid test of sound purchasing. A
purchaser may describe the quality of the desired product accurately and completely, may
establish the precise quantity needed, may estimate the exact price that will be demanded

and may clearly determine and specify the exact time and place of delivery. All this careful
planning can be jeopardized, or even nullified by a poor selection of a prospective supplier
some suppliers will not be capable of producing to the desired quality specifications, others
will not able to furnish the amounts needed at the time when they are needed, while still
others, who may be able to meet the quality and quantity requirements, will not sell at the
right price. The purchaser must find the supplier who will furnish the optimum
combination of these factors.

Receipt of the indent from the service Dept.
The purchase procedure starts with the issue of the purchase order to the vendor by the
procurement department, which takes lots of pain in getting the best available price from
the market. Confirmation from the stores for the availability of materials


Compare it with the material list & registered vendor list
Calling the bid + Tendering Procedure
Scrutiny of the Bids & Comparison
Finalising the L1 & Bid in terms of Price & Quality
Issue of Letter of Acceptance + P.O.
Material Gate
A/C ( IV = P.O. +GRN+ BILL)



1. Late Delivery
2. Defective Material
3. Defective Bill
4. Lack of Insufficient Documents
5. Damaged Material in Transit
6. Rejection due to Due to change in Durability, Quality & Quantity of the Material.
7. Rejections and Penalties due to not following the Rules & Regulation by the
Vendors like Not having the Vechile PUC, Driving License , Safety procedures not

Purchase order is a document which consist of
1. price & Quantity : the first & foremost part of PO is the price of the item to be
purchased & the quantity required
2. Scope of Supply : the scope of supply, what is included like material, labour
transport etc.
3. Delivery Date : this is most important part of a PO where the date of delivery is
mentioned for supply, which helps to make the supply schedule.

Taxes & Duties : the various Taxes & Duties like Sales Tax. Excise Duty, octroi
and if the Excise Duty is MODVAT able then the various documents required for

5. Payment Terms : the terms of payment after the goods reached the site e.g. 30 days
after the receipt of goods or invoice whichever is later.

6. LD ( Liquidity Damage ) Charges : this is applicable if the the goods are received
after delivery date.
7. Bank Guarantee : supplier has to give the guarantee for the material supplied by
him either in the form of Bank Guarantee or Cash.

The procurement department prepares the PO in the system. Once the PO is received , the
vendor code is generated with creation of the vendors master with Vendor Name, Code,
Address, Registration Numbers like Sales Tax Number, Custom Code Number, Service Tax
Registration Number, Permanent Account Number ( PAN) etc. which are already present in
the database of SAP.


As soon as the material is received at the site gate a Material Received Receipt ( MRR) is
generated and issued to the vendor, the Stores Department takes the receipt of the Material
and issue a Goods Received note ( GRN) from Project Material Managament System
( PMMS) and sends to the project acconts.

The Excise Department receives the Authenticated Excise Invoice duty prepared as per the
CENVAT rule 11 with proper ECC registration number, Material division code, Entry
number, RG book No. and enters in SAP system on the basis of MRR for taking the
MODVAT credit of the Excise. Similarly it takes a dump from SAP and uploads in PMS
system for invoice verification.

After receiving the GRN`s from stores the project accounts does purchse orders updation in
a separate of project Accounts and PMMS for GRN updation and then upload both the
dump to the system with an interface package called INFC which links all the necessary
This way the operating system gets the data updated with all the PO`s & GRN`s till date,
which links while entering the Indigenous Purchase Journal ( IPJ)

Subsequently the dispatch documents are received from the vendor, which includes the
following :
1. Buyers copy of the invoice / Excise Invoice
2. Lorry Receipt ( LR) if transported by road, Railway Receipt ( RR) by railways, Air
Way Bill ( AWB) by Air route, Bill of Lading ( BOL) by ship.
3. Test Certificate (TC) or inspection Certificate / Third Party Inspection / Factory
Acceptance Test ( FAT)

4. Insurance
5. Supporting for PAN number, Service Tax Registration number if not submitted
during vendor creation.

Once these required documents are received they are processed with respect to PO, GRN
and other supporting. The bills are processed based on the due date as per the purchase
order , which is normally 30 days from the receipt of the goods, or invoice, which is earlier.
While processing the purchase bills certain procedures has to be kept in mind which are
detailed as under.
1. the material receipt quantity in the invoice should match with the GRN quantity;
else the GRN quantity is taken as final receipt.
2. the receipt date of material should be within the due date as per purchase order else
Late Delivery Charges (LD) will be deducted @ mentioned in the PO, which
normally is based on the basis of per week i.e. say 0.5% or 15 per week upto a
maximum of 5% or 10%.

there is proper stamp on the LR/RR for the receipt of the material at the gate.

4. Bill of entry has been filed with payment of Custom Duty for foreign Purchase
5. Excise Document like Invoice should be proper and should not be a defective
excise document.
After processing the invoices these are entered in system and an IPJ is created. Once in a
week Bills Passing Voucher is Generated as per the Due Dates of the Payments to the party
and the proposal is sent to the Central Banking Division ( CBD) for preparation of Cheques
/ Demand Drafts for onward submission to the vendor. This way the purchase procedure
ad payment procedure cycle is completed.

As discussed above the purchase procedure for the projects, once the material is received at
the project site, the same has to be erected or commissioned. For this the contractors are
mobilized to complete the various jobs.

The contract cell after the service department starts the job for awarding the contractor. The
procedure is described in the brief here under.
Receipt of Contract Work Request from (CWR) from the service Dept.
Bids will be invited from the registers Vendor
Scrutiny of the Bids and Comparison
Finalizing the L1 & Bid in terms of Price & Quality
Issue of Letter of Acceptance + W.O.
A/C dept.
A/C ( IV = W.O. +Service Entry)


A work order is being in this regard specifying the various terms & conditions like the
price of the contract, time, Taxes, & Duties , Engineer in charge for that particular job etc.


1. Certification Required
2. Proper Documents not Received
3. Service Tax Document Defective or not received
4. Late Submission from EIC
5. Any faults or delay in the verification of the abstract sheet or a Measurement Sheet.
6. Service Entry may be Mismatch
7. The B.G. condition not Fulfilled by the Vendor


Reasons :
1. Not able to attend due to volume of work
2. Faulty workmanship

Work Order is a document , which consist of instruction, Terms & Conditions and lot other
things which has to be followed by the contractor while performance of the contract within
the legal framework and all the rules & regulation as regards the duties. Taxes and rules
followed by law of the land. A brief of main points of the WO is mentioned as under,
1. Price Clause : the total price of the contract and the abstract of the same.
2. Scope of Work : what will be the scope of work that the contractor will perform
3. Duration Of Contract : the time period within the contractor has to finish the job.
Otherwise under the clause Penalty for delay, LD charges will be deducted for the
4. Payment Terms : the terms of payment, as to by which date the payment has to be
released, by cheques or DD, charges will be borne by whom.
5. Validity of Prices, Taxes & Duties : Whether the contract is inclusive of all the
taxes & duties as applicable or it has to be paid separately.
6. Retention Clause : Retention of the portion of contract towards the defect liability
period, against the Bank Guarantee.
7. Labour, Laws, Safety & Other Terms & Conditions : all these are mentioned as per
the laws of the land.

Closure of Contract : before the contract is over the closure of the contract is to be
submitted with the declaration that all the terms & conditions related to the
contract, any recoveries , Free Material Issued, Gate Passes etc. has to be given.

9. Special Condition of the Contract : If there are any special clauses specifically for
this contract then it has clearly mentioned.
10. General Conditions of the Contract : If some Dispute arises then even General
Conditions of the contract is referred with special condition for the contract, which
are formed with some logics with general rule of land.
Once the work is received contractor mobilizes the resources like, manpower , equipment
and other required tools and tackles for doing the job. Once the work is started the bills are
received at regular intervals which are called the running accounts bills ( RA Bills) to get
the cash flow going for the contractor to do the ongoing job, these are being raised before
the final completion & submission of final bill.
These RA Bill are duly certified by the engineer in charge of the particular site/ contract/
work on progress and sent to the Project Accounts after certification.

The Bills are processed at project accounts as per the well-laid procedure, which are
described here under :
1. the bills are verified with the supporting like Abstract Sheet, Measurement Sheet,
Certification of the EIC.
2. Any recoveries towards the material issued by the owner like tools, & tackles
cement, diesel etc. is made.
3. Any deduction or additions like TDS, Service Tax, LD and mobilization Advances
are made.
4. the detailed scrutiny of the bills with respect to the previous bills.
The vendor master record is created with all the details for the vendors and the bills as
processed and entered. Certain bills are related to specific companies, as Reliance is a
group of industries , separate codes are used for different companies.
After processing of the bills the BLOCK is released for making the payment . in SAP the
payments are processed and are released only after due date authorization by the approving
authority. The Blocks, which are generally used by the Project Accounts, are as Under.


Free for Payment
Skip Account
Blocked for Payment
Clarification Required
Pending for Doc.
Retention as per P.O.
Penalties as per P.O.
Penalties as per P.O.
Management instructions
Proper Doc. Not Received
BG not received
Modvat Doc. Not Received
Invoice Verification

While releasing the payment these blocks should be clear and payment proposal run is
given and sent to CBD section for preparation of cheques/ DDs as per the due dates of the
contractors Payment.

Maintenance of Bank Guarantees

Once the payment is made to the party the owner holds the retention money from the
various bills towards the guarantee for the Defect Liability period or party furnishes the

bank guarantee on the Rs.100/- Stamp paper ( As per the norms of the Indian Stamp Act).
From the schedule nationalized banks for the required amounts as per the terms of the PO.
All the BGs are being maintained both for the purchase as well as contracts on regular
basis with strict monitoring as these are nothing but money/ cash. These are being extended
if the validity period of the BG is over before the date of expiry of the Defect Liability
As soon as the Defect Liability period is over for that job and after the receipt of the
satisfactory performance report from the service department the BG is returned back to the
bank stating that no claim is there against the contract, but if there is any claim, then the
BG is encashed before the validity period.

Final Bill and Closure of the Contract :

The most important part of the contract is passing of the final bill as we can have many RA
bills. But as soon as the Contract is completed the Contractor, which is attached to the
closure of the contract, submits a final bill. This closure of the contract is the basis of the
final release of the claim of the Contractor and closing the contract. In this there has to be
all the recoveries which will be effected including recovery towards the free issue of the
materials to Contractors , Diesel issued , Recovery of employee passes not submitted, any
other material recovery towards tools and tackles , safety equipments etc.
This closure of the contract is duly submitted by EIC. This closure is also attached with
certification and clearance from safety department for safety measures like entry passes,
safety equipments etc. HR Department , for statutory clearance like payment of salaries. PF
and all other concerned After fulfillment of this closure in complete sense the final
payment is related to the Contractor.

Payment Overview :
The Categories are :
1. Payment to contractors with work order ( WO) / payment to contractors with rate,
2. Payment to other sales and Administrative Expenses without WO/PO on direct
payment request.
Payment to Contractors with work order (WO) / Payment to contractors with rate contract.

Contracts are created for materials or services when creating a contract there are two
1. Value, where the contract is considered complete when release orders totaling the
total value of contract have been created.
2. quantity , where the contract is considered complete when release orders totaling
the total quantity has been created.
Within RELIANCE , the preferred method will be a value contract, when the contract
value has been reached any further orders created with reference to the contract will
receive an error message indicating that the contract has exceeded the value. Quantity
contracts could be used where assured supplies are required for a target quantity over a
specified period.
Procedure followed at accounts for processing payments :
A. Scroll Incoming Invoices : This business process covers the scrolling of vendors
invoices at Reliance sites and forwarding the same to the respective Certification or
Accounts Payable Department. Vendor invoice are received at centralized Reliance
scrolling departments. These are logged and acknowledgement is handed or
forwarded to the vendor. When the invoices are logged in SAP, a unique scroll
number for each invoice is generated. This enables the monitoring of the invoice
status through various stages, until settlement of the invoice.
The following are the possible processing stages through which an invoice may pass
1. Scrolled : invoice have been scrolled in SAP and are pending further action from
the relevant EIC.
2. Pending Certification : Scrolled invoices are pending further action from the
certification department
3. Certification Complete : scrolled invoice have been certified by the certification
Department and are pending further action from the relevant accounts payable
4. Passed by Accounts : Scrolled invoice have been fully verified and posted for
payment by the relevant accounts payable user department.
5. Adjusted / Paid : Scrolled invoices have been paid or adjusted.

B. Verify / Process vendor invoices for Services :

For every service rendered by a vendor, the service receiver creates a service entry in
system. Based upon the SAP service and vendor codes, the service can be called of
from an outline agreement / Purchase Order, wherein the quantity and rates for the
service are maintained. The service entry created by service receiver will be accepted
with various levels of release authorization. Invoice verification for services relies upon
a process of matching a vendor`s invoice within an acceptable service entry. An
invoice for service is ready for processing once all required certification and
clarification are listed. For verification the operating codes are used, the invoice is then
posted and automatically blocked.
Blocking the invoice means that the accounting entries are posted, but that a payment
block prevents payment until the invoice is released. Invoices can also be blocked for
retention . An additional line item is created in the document as a vendor credit for the
amount to be retained. Blocking for retention can be due to following :
1. Non Receipt of bank guarantee
2. Retention as per work order
C. Advance Payments
Advance Payments to vendors are partial payment made before receipt of any materials
or services. Down payments are triggered upon receipt of a Performa invoice from a
vendor or upon request from the procurement department. The purchase order or
contract must allow for advances to be made to the relevant vendor for a down payment
to proceed. In some cases , the vendor will require advance payment for material or
services which may not be mentioned in the PO as a special request, in such event the
vendors perform invoice must be certified by the Certification Department, before any
further processing can proceed.
A down payment is a payment made to vendor before the goods or services to which
the payment relates have been received. Because no liability exists for the goods at the
time of raising the down payment , it is recorded as a prepayment in the balance sheet.
Down payments are considered a special GL transaction and the down payment is
recorded in a different reconciliation account other than normally used for creditors.
Accordingly vendor down payment has the follow steps :
1. Request the vendor down payment
2. Post the down payment to the vendor
3. Clear the vendor down payment
4. Reverse the vendor down payment request

D. Recover Outstanding Advances :

If any down payments have been made to vendor, SAP issues a message that a down
payment exists. SAP does not enforce adjustment where an existing down payment
requires adjustment against an invoice, a manual transfer posting is necessary to clear
the down payment with reference to the invoice. The clearing of the down payment
must occur immediately after invoice verification.
Allocate down payment to the specific invoice with which is to be cleared. SAP notes
the document number of the invoice in the line item of the down payment. The
payment program subtracts the down payment only when the corresponding invoice is
paid. Down payment can be partially cleared. This occurs when a down payment is
cleared with several invoice that are paid at different time. In such cases the down
payment amount must be cleared manually.
E. Post TDS
The tax deduction as source ( TDS )on processed invoice is not deducted at the time
of invoice verification. As result of this , it is essential that the post
withholding ,
Tax transaction are executed.
F. Release Invoices :
Releasing invoice makes payment available for vendor invoices. This is a necessary
function in account payable in order to facilities payment processing .
G. Date Updation :
updation involves two specific system tasks that update the baseline date
calculation and the average due date calculation for payment to vendors.
H Process Manual Payments :
Processing payments involves clearing open items from a vendor account. After
processing the open items including cheques and bills of exchange, SAP posts a
clearing document post a partial or residual payment when the full amount still requires
payment. The manual payment in this business process fulfills the requirements for
immediate payment to vendors. Other such manual payments include statutory dues.
I Processing Automatic Payments :
Processing Payments involves clearing the open items for a vendor account. After
processing the open items including cheques and bills of exchange, SAP posts clearing
documents . A partial or residual payment can be posted.

The automatic payment program enables the processing of a large number of vendors /
customers payments at once. After defining payment parameters, create a payment
proposal. The payment proposal contains details of the vendors / customers requiring
payments and the invoices for payment. Edit the payment proposal and where
necessary , block individual payments. After editing the payment proposal schedule the
payment run. Scheduling the payment run posts payments for all unblocked line items
on the payment proposals. SAP updates accounts . the automatic payment begins after
the payment printing.
Procedures for Bank Guarantee
The main aim of collecting the bank guarantee from vendors is to have an assurance of
vendors for the supply of goods and services, this include both quality and quantity
There are for types of Banks Guarantee given by vendors :

Performance BG
Advance BG
Retention BG
Corporate BG


Checklist to ensure that BG is as per order, following detail is checked :

BG Should be issued by approved bank.

Claiming date should be six months after validity date.
BG should be on a 100 rupees Non judicial stamp paper
In case of Corporate BG, a copy of Board Resolution and common seal of the
company should be affixed.

Reference of WO /PO for determination of :

1. BG value
2. BG validity date
3. BG type
It should be covered with bank confirmation letter.

Scrolling : once BG is found OK, following details are entered into the system for


BG Opening Date
BG expiry Date
Claim Date
Bank Name & Branch address
BG No.

A unique number is given by system, which is used for future correspondence & further
reference of BG.
Approval : once scrolling is over, BG will be sent for system approval to procurement /
contract cell ( P/C Cell). P / C cell will give approval after verifying the contents of BG.
Status of BG : there are various status for BG available is SAP which are as follows :

document has been created

BG sent for approval
BG sent to bank for confirmation
Document ready and available for use BG released etc.

Expiry of BG : every month a list of BG which are going to expire next month is generated
and after it is sent to engineer in charge ( EIC) for his remarks with a copy to P/C cell. In
case of advance BG , the accountant verifies whether the advances for fully recovered of
Extension of BG : if the EIC does not give clearance, a letter is sent for extension of BG.
Party is also informed about the extension. Incase of advance BG, if any amount is
outstanding letter will be sent to the guarantee issuing bank asking them to extend the BG.
Release of BG : if EIC gives the clearance, BG is sent to P/C cell and a release note is
prepared. The original copy of BG is given to the party and the bank is also informed about
the release of BG. Incase of advance BG, if the amount given in advance is recovered, the
BG i.e. released.
In certain instances, Goods or services are purchased without a purchase order. Usually this
is for items such as power or telephone charges. Some low value items can be purchased
without a purchase order.

There is no material / service GRN created ; payments are based on certified invoices copy
only. In such cases the expenditure is directly debited to the GL account with the cost
center reference.

Following are various types of payments :


to government authorities for duties, taxes, certification fees etc.

local purchase
training / seminar expenses
horticulture related expenses repair & maintenance exp. Procurement of seed,
fertilizers etc.
5. hotel / tour expenses
6. Certification fees Payable to authorized institutions etc.
7. Telephone / electricity bills
8. Repairs & maintenance expenses
9. Consultant / advocate fees.
10. Donations


The Objective behind the studying the topic financial effects on the company due to
delay in payment to vendors is :

Primary Objective : ( some of the reasons of delay )

1. Reasons for delay in payment to vendors
2. the problems faced by the company due to the delay in payment at present and may
be facing in future

Different Types of Research Methodology were adopted to reach to a particular conclusion
like :
1. Qualitative Research Methodology
2. Explorative Research
3. Descriptive Research


Primary Data Collection :
Primary data collection by direct approach with the officials of the company and
understanding their process and procedures in payment and receipt of goods.
Secondary Data Collection :
1. Secondary data collection was through following medias like

Annual Reports
Books form Library


1. Mismatch Of Invoice and the Purchase Order

Comparison of purchase order details with invoice details may generate a mismatch
of certain items like material cost, freight, tax and other charges and it may be due
to the following :
a. The unit price listed on the invoice is different than the price on the
purchase order or contract.
b. The invoice total exceeds the amount of the contract or purchase order
c. Name of the company may differ from the purchase order to the invoice
d. Misplacing of bills
The mismatch of both the documents will make delay in payments to vendors, as it may
need further inspection in terms of that particular invoice the price. The whole payment
process of the company in through the fully integrates system SAP which will reject the
payment to be made because already the system contains all the details about the purchase
order, when a mismatch is found in any aspect of the purchase order and invoice. A higher
claim in the invoice will be rejected but a lower claim compared to the purchase order will
be entertained.

2. Delay in Certification :
A delay in certification of the goods supplied or delays in certification of the
logbook for the services ( Vehicles) provided :
1. Goods have been damaged, have not been received or the vehicle has run or been
used for extra hour or for the purpose for which it has not been mentioned in the
contract, or for the purpose for which it has not been completed.
2. Goods may be provided of inferior quality than mentioned in purchase order.

3. The invoice contains items that were not present in the purchase order.
4. There is no purchase order number or contractor number or the vendor code listed
on the invoice.
5. There is an overage or shortage on the items shipped ( a credit memo or a
purchase order change notice will be required this can be a very time
consuming process)
6. Necessary papers related to the goods supply are missing ( mostly in the case of
foreign shipments)
7. The engineer who has to certify the particular goods may be on tour / absent
( lack of perfection by the substituted one)

3. Delay in Invoice Submission or Resubmission :

In case of project vendor if the vendor takes time in submission or in resubmission
of invoice the payment is also delayed to the vendor. And in case of operation
purchases especially in regard to the vehicle hiring the payment are done on end of
every month in that case if the submission delays the payment will also be delayed
until the date of submission of the invoice with certified log book.

4. GRN Pending :
The GRN Pending occurs due to the reasons like,
a. Non availability of Test Certificate / Inspection Note ( internal reports)
b. Unapproved or delayed in approval of log books ( in case of service like
vehicles etc.)
c. Inferior quality of goods.
d. Quantity supplied differs from the quantity in purchase order.
Absents of Information In Invoice or GRN :
Registration Number Like ,
a. Sales Tax Number
b. Excise Number
c. Customer Code Number
d. Service Registration Number
e. Permanent Account Number ( PAN)




Invoice Is Not Sent To The Address Listed On The

Purchase Order Or Contract
Sometimes it may happen that the vendors may send their invoice to wrong company
i.e. The Reliance Group have many company under it and the payment are through a
single mode through the Mumbai office and the local payments to the Jamnagar
vendors may mention wrong name of the company of even he may send the invoice
in wrong office instead of Mumbai office of the receipt of payment which may lead
to delay in payment to vendors.

B. Lack Of Updation :
Sometimes it happens that the official or employees of the company who is
responsible may not be informed about the changes in the purchase order details or
account numbers which may delay the payment like the vendor may change his mode
of payment from E-Payment to E-cheques for his convenience, as the payment are
done through the Mumbai office the changes are informed to the Mumbai office and
not to the Jamnagar office. But as the primary job of payment is done at Jamnagar
office they may not be aware of the changes which will lead to the lack of timely
payment to vendors. It is updated in a day or two but still a one- day delay can cause
delay in payment.

C. Error In The System :

Sometimes it happens that the system may not be accepting the entries, may be by
default, like if the vendor has supplied goods from his sister concerns but the work
order make be for his main concern so as the entry may not match the system will
not allow for the payment, which will take a pretty long time for the payment to
vendors as the payment can not be made until the system will not accept the entry or
even in case of mismatch of purchase order and invoice the system may show an

D. Delay In Certain Departments Like Excise Department :

The invoice are send to the particular department to check the validity, at times it may
occur that the department may delay or take more days for certifying the invoice
which delays the submission of the invoice to the company.


Less Educated Vendors

( Vehicle Drivers Like Truck, Bus, Car, Crane, JCB`s etc.)

As may vendors are less educated and the all and most of the company`s papers are in
English language, that reduces the capability of the vendors to deal with the company
officials of in filling of the forms or purchase order or log books. This affects the vendors
in timely filling and submission of the invoices and logbooks.
The implication at present of the company and also some implications, which may arise in
future too.

Effects On Company :
1. Increase In Creditors :
The amount of creditors in the company accounts increase as a result of delay in
payment to vendors. Which affect the companies, reputation for having any further

2. Effects On Working Capital :

As the Percentage of creditors increase it brings a noticeable effect on the working capital,
which may also lead to negative which shows an inefficiency of the company to meet
current assets are less than current liabilities.

3. Effects On The Liquidity Of The Company :

The liquidity ratio refers to the liability of the firms to meet is obligations in the short run
usually 1 year. A higher amount of creditor in the company financial statement will affect
the liquidity of the firm in future, even though at present the company is financially sound.

4. Effects On Cash Flow

In cash flow the fund may get blocked as the amount is arranged periodically thought the
requisite made by the account department / purchase department. All the funds may get
blocked, as it is not provided to the respective vendors on time and the case any lie down
in the bank itself without generating any income, it cannot even generate interest because it
is blocked in the current account.

5. Effects On The Acquisition Of Funds.

A delay in payment to vendor will result in the accumulation of cash in the current account,
which will show an unpleasing on the company`s current asset and current liability. And as
the purchase and account department has to place the cash budget every week and every
month for a particular month for a particular week or month and idle case in the current
accounts and more creditors will show liabilities of the company which are not paid off
will show an unhealthy accounts which will effect the companies financial statement even
though it gets nullified in the balance sheet but it will brig ii- effect on the calculation of
liquidity ratio and working capital may even go negative.

6. Effects On Goodwill

Late payment in the company account will create a wrong impression of the company`s
goodwill as the working capital of the company may even go negative.

Conclusion :
The RIL have a very sound financial Position but due to some of above mentioned reason
delayed in payment is occur which can be solved by taking some of measure so all the
problems related to the payments can be solved and effective system of payment can be
build. So it will be useful for the company and also to the vendors in Transaction Process.
Some of the Recommendations and Suggestions are given which may help to company and
also to vendors in smooth Transaction Process.

Limitation Of the Study :

1. Time factor is the one of the main limitation in the Study. Because of the short
duration of the project all function of the organization cannot be covered properly.
2. Management Trainees are not allowed to go through all the financial matters of the
company because of confidentiality purpose.


1. Invoice Are Should Be Processed Within 25 Days Of Receipt in the
Site department of engineer in charge are requested to approve all payments on line
( integrated system with in the site ). Once the on-line approval is done, the payment is
generated , this will help in avoiding the delay due to the misplace of bils. The payment
can be delayed if the integrated system faces any problem in assessing the invoice and in
matching it with the purchase order.


Make the vendor aware of the causes or reasons of delay in the payment in advance so the
mistakes can be taken care of and rectified on time. Which will reduce the time in approval
or acceptance of the GRN on time i.e. before the completion period of payment.


When two or more people are trained for the same job, through job rotation then they can
help in completion of the certification if one is on tour or absent or busy for some reasons
or to reduce the burden on the single EIC.

Time management is necessary as the bills are to be processed with in 30 days of receipt of
goods or correct invoice which ever is later. The standard time ( no maximum or minimum
time) assumed for the preparation of 7 days inspection, 7days GRN ,7 Days accounts these
days differ goods to services. If any one department delays, then the whole chain are
delayed as they will take their respective time for the completion of their particular work,
So management of time is necessary i.e. like adjusting the processing of the bills with the
chain by proper communication and understanding, and a delay in one department can be
adjusted by the time to be taken in other department.


1. Regular meeting at the concerned level with the outstanding invoices ; there is need
of regular communication between the company and the excise department are
necessary in order to process the bills as fast as possible, for this it requires good
relation and also there is a need of mutual understanding between the two i.e. the
accounts department of the company and the excise department here is the role of
public gets highlighted.
2. clearing of long outstanding bill with mutual understanding in case to case basis,
sometimes it may happen that the certain bells are only held back by the department
for this there is a need of case to case analysis of each bills outstanding wit the
excise department.
This will help the vendors ( drivers like truck, bus, car or crane etc.) who are less educated,
to complete the formalities of the company for the submission of logbooks. These vendors
form a small part of total vendors till all rate to be taken care of.