Invoice Processing -MURALI KRISHNA

SESSION OBJECTIVES

At the end of today’s session, you will be able to:

Describe the process of Data Entry.

Identify the tasks performed in Data Entry.
Describe the important documents used in the AP process.
Describe the sub-process of System Edits and Controls.
Describe the various tasks performed under System Edits and
Controls.
FIRST
PART Documents
Important
Data Entry Sub-process
AP PROCESS: INVOICE
PROCESS

Computer Program: Computer Program: AP Processor

- Duplicate invoice audit - Sort invoices - Enter Supplier number
FIFO - compare address
Type of Invoice - enter key fields (inv #, date,
Due Date gross amount, discount, tax,
High Dollars shipping)
- match line items to PO
FIFO
Due Date
High Dollars

Vendor Maintenance Updates

Supervisor review of updates

AP PROCESS AND SUB-
PROCESSES
Vendor System Edits
Data Entry Payments Customer
Management and Controls Service

• Vendor Set Up • Invoice Keying  Quality Checks • Check Run • Customer Service
• Vendor Account • 3 Way Matching  Duplicate Checks • Wire Payment • Remittance for
• Maintenance • Coding for NonPO Supplier Statement • EFT Payments
• Internal Approvals Invoices.  Analysis
• Query
Management
Input Process Output
Invoices Is the invoice Yes Yes
received Sort, prepare Is the vendor

scan invoice No Set up system?

vendor
No
Is it
approv Matching
No
ed? Fix Matching Validation
Discrepancy
Ye Process
No Yes s Invoice
Duplicate
Check
Is Invoice R
No
Get Approval Duplicate? e
s
Yes ol
Delete v
Invoice e
No Contact Vendor/
Approved? Buyer
Email
Yes Phone
Fax
Mail
Rework
EXAMPLE

10 machines @ $12,100 are ordered

Confianza Office

I, at Confianza raise
the Purchase Order
SCENAR
IO
Goods are purchased on credit from
Goods are shipped to
XYZ Inc., the vendor
cONFIANZA

Confianza Office
creates a GRN on receipt of
goods
XYZ Inc. raises invoice payable after 45 days
Documents needed to pay
To pay a vendor, it is important that there are
three documents in possession:

 Purchase Order (P.O.)

 Acknowledgment for receipt of goods
and services (Goods Received
Note{GRN or
Receiver})
 Invoice

Standard documents required to honor payment!

PURCHASE ORDER
It is the request issued by a buyer to a vendor for goods or services.
(PO)
In most cases, purchases
will be made utilizing a PO. It is also referred to as a Customer Order.
Each PO is
assigned a PO number.
TYPES OF PO
Standard PO - A standard PO is a regular purchase order,
it represents buyer’s order to the supplier.

Blanket PO - A blanket PO is a committed amount for a specific date

range for specified goods and services.

Contract PO - A contract PO is a committed amount for a specific date

range for unspecified goods and services.

Planned PO - A Planned PO is created before one actually orders the goods

and services. It represents what one want to order from the supplier and
when to order it.
TYPES OF PO
Standard PO
Usage  One time buy of goods
and/or services
Creation  Requestor creates
Approval  Standard approval process
Notes  GE Corporate uses Standard
PO’s as blankets
 Causes workarounds and
loss of controllership
Contract PO
 Long term supplier commitment
with varying goods/services
 Buyer sets up original contract
based on requestor input
 Requestor creates Standard
PO’s as required using supplier
site defined in contract
 Standard approval process
 Does not require buyer
intervention
Blanket PO
 Long term commitment for a
fixed set of goods and/or
services
 Buyer sets up original blanket
based on requestor input
including predefined line items
and pricing
 Requestor creates releases and
selects from items from original
blanket PO
 Standard approval process
 Does not require buyer
intervention
 Must always use same line
items
GOODS RECEIVED NOTE
(GRN)
The purchaser of goods and services would issue a notification that the ordered goods and
services were indeed received. This is an acknowledgement of receipt of goods and services
and is known as a GRN.

 It indicates who received the purchase, when it was received, and whether all or a part of
the order was received.
 In the United States of America, GRN is also known as a ‘Receiver’.
 INVOI
An CE
invoice is a document that describes who has to be paid, what
has to be paid for, and the
amount due. It is provided by the vendor and is a mutual interest to
make prompt payment.

A typical invoice contains information like:

 Vendor address for payment

 Buyer's PO and the Vendor’s invoice number
 Vendor’s tax ID number or Data Universal Numbering System (DUNS)
 Date on which the invoice was recorded
 Date on which the goods were shipped
 Vendor’s billing and shipping addresses
 Terms of payment, including the due date and discount amount, if any
 Product information
 Shipping method and cost
TYPES OF
INVOICES
Broadly, there are two types of invoices:

•Paper Invoices: These are the invoices received by fax, courier, or

ordinary mail. These
invoices are scanned, mailed, or faxed to the
AP Processing team.

•Paperless Invoices: In case the invoice is not received by a mail,

fax, or courier, they are electronically transmitted.

Note: If vendors have opted for paperless invoices, paper invoices are not
accepted!!!
TYPES OF PAPERLESS
INVOICES
Web Invoices

EDI

Benefits are:

 Increased discount capture rate

 Reduced rework
 Less transaction cost
 More efficient payment performance to suppliers
WEB
INVOICES
Works on a web based application
Displays invoice information and payment status online
Allows electronic creation and submission of invoices

Pros:

 Eliminates matching errors

 Faster payment (Waiting time for invoice to be received does not exist)
 Reduced error rate (No mistakes due to manual keying of invoices)
 Reduces supplier queries to sourcing

Cons:

 Requires manual input by suppliers

 Gives room for duplicate work by suppliers
E
DI
Exchange of standard business documents in electronic format
Provides a translation channel through which invoice date can be
exchanged between the buyer and the suppliers

Pros:

Accurate transactions
Faster payment (Waiting time for invoice to be received does not exist)
Able to handle a large number of transactions automatically.

Cons:

Occasional data errors

There are fixed and variable costs associated with EDI
Does not reduce matching problems due to pricing, line reference, etc.
INVOICE - LESS
PAYMENTS
Evaluated Receipt Settlement (ERS)

 Triggered on receipt of a product/service

 Suppliers need not send paper or electronic invoices for received
materials
 Establishes a match between the receipt information and the PO
information
 Used only for PO-backed supplies

P-card (Purchasing Card)

 Controls tailored for cardholder and company specific policies

 Cardholders receive monthly statements to reconcile charges
 Monthly spending limits defined
ERS: PROS AND
CONS
PROs

 Eliminates matching errors

 Facilitates faster payment
 Reduces error rate
 Eliminates the need of invoice

Cons

 Requires a robust receiving process

 Suppliers may have trouble reconciling payments without invoice
numbers on remittances
 Can be used only if a Purchase Order is raised
P-CARD: PROS AND CONS
PROs

 Allows procurement of low value, small dollar purchases by end

user
 Elimina
tes
creatio
n of
purcha
se
orders
for low
value
purcha
ses
 Substa
CHECKING IF THE INVOICE IS
PO-BASED
Input

and Key invoice

scan invoice
Invoices PO based?
received
PO BASED
INVOICE
Remit To
Address

Part Number Total Invoice

Amount
NON PO BASED
INVOICE

Invoice
Date and
Approval Number

Remit to
address

Account Code

Amount
due
HAS THE VENDOR BEEN
SET UP?
Input

Sort, prepare
and Is the invoice Yes
Is the vendor
Invoices scan invoice PO based?
received system?

No

Is
it approved?
MATCHING
VALIDATION
Input

and Key invoice

scan invoice
set up in AP
Invoices PO based? system?
received
No
Set up
vendor

Matching
Validation
3 WAY MATCHING
GRN PO Invoice

•The three documents that must be matched are the

invoice, the PO, and the receiving document.
•It is the reconciliation of materials received (GRN) with
PO Price , Quantity, and Invoices
•For most organizations, a successful three-way match
process is
•fundamental to making accurate payments.
3 WAY MATCHING:
EXAMPLE
ABC Company ordered for three refrigerators [Single Door Model 56B] from P&G Inc. each
costing $850. two refrigerators of the same part and price were received by them and
goods were invoiced for the total amount of $1700 for 2 quantities.

Order Quantity: 3
Unit Price: $850
Extended Price: $2550
Part Number: 238- 7

Received and Invoiced

Quantity: 2
Unit Price: $850
Extended Price: $1700
Part Number: 238- 7
3 WAY MATCHING: EXAMPLE
Let’s see how it works…
B Causes
• Price Incorrect Causes
A • Qty Incorrect
• Incorrect Calculation
C • Invoiced Prior To Receipt
• Lost In Receiving
• Not Entered In System

 PO ABC Co. Invoice

From:
 Receiver
To: ABD Co.
391 Wilson Rd 193 Wilson Rd
Stanford, TX 43234 Stanford, TX 43234
Item Description Price Qty Total Item Description Price Qty Total Item Description Qty

1 Bolt $2.00 5 $10.00 1 Bolt $3.00 6 $18.00 1 Bolt 0

Total $10.00 Total $18.00

Reasons why the invoice will not get paid

D Causes
• Change In Price
• Miscommunication
E Causes
• Any Line Priced Incorrectly
• Quantity For Any Line Incorrect
• Incorrect Calculation
A Different vendor name
B Invoice Amt is > PO line Amt
C Invoice Qty > Rec. Qty
D Invoice Price > Order Price
E Total Inv Amt > Total PO
Amt.
2 WAY
MATCHING
Reconciliation of materials received with PO Price & Quantity is
known as 2 Way match
Also known as Evaluated Receipt
Settlement(ERS) GRN-----PO

There will be no invoice generated in case of two matching, ERS,

receiving itself means invoicing.
2 WAY MATCHING
EXAMPLE
Bar Code Label
Receipt
Part Number Building Number
PO Item Qty Shipment
Number

Quantity Purchase Order

Shipment Number PO Item Generated Invoice

PO Item Qty Shipment PO
Stockroom & Bin INSP Number Price

Receiving is equivalent to Invoicing

BAR CODE LABEL

Each Receipt Must Capture:

 PO Number
 Release Number
 Part number
 Line Number
 Quantity
 Shipment Number*

This number becomes the

supplier’s invoice number.

If there is a Release Number it will show up next to the PO Number!

VALIDATION

Input

and Key invoice

scan invoice
set up in AP
Invoices PO based? system?
received
No
Set up
vendor

Fix Matching No Matching

Discrepancy Validation

Yes Process
Duplicate Invoice
Check
APPROVALS FOR NON-PO INVOICES

Input

and
Key invoice
PO based? set up in AP
Invoices
received
No
Set up
No
vendor
Is it approved?
Yes
Fix Matching Matching
No ancy
Discrep Validation

Process
Duplicate
Invoice
Check
REQUEST APPROVALS

Input

and Key invoice

PO based? set up in AP
Invoices
received
No
Set up
No
vendor
No Is it approved?
Yes
Yes Fix Matching Matching
No ancy
Discrep Validation
Proces
Duplicate Invoice
Get Approval
Check
PROCESS
INVOICES
Input

and Key invoice

PO based? set up in AP
Invoices
received
No
Set up
No
vendor
No Is it approved?

Yes Fix Matching Matching

No ancy
Discrep Validation
Ye Process
Duplicate s Invoice
Get Approval
Check
Is Invoice No
Duplicate?
Resolve
No
Approved?
Yes
Delete
Yes Invoice Email
Phone
Fax
Contact Vendor/ Mail
Buyer
 Data Entry System Edits
and Controls

 Invoice Keying  Quality Checks

 3 Way Matching  Duplicate Checks
 Coding for NonPO Invoices.  Supplier Statement
 Query Management  Analysis

Input Process Output

Invoices Is the invoice Yes Yes
received Sort, prepare Is the vendor

scan invoice No Set up system?

vendor
No
Is it
approv Matchin
No
ed? Fix Matching g
Discrepancy Validatio
n Process
No Yes Invoice
Duplicate Ye
Check s
No Resolv
Get Approval e
Is Invoice
Duplicate?
Delete
Yes Invoice Email
Phone
No Contact Vendor/ Fax
Approved? Buyer Mail

Yes
INVOICE
HOLDS
A HOLD indicates that the vendor’s payments are being held.

Reasons for an invoice on HOLD:

Invoice awaits clarification

Customer puts the vendor on HOLD
Pay warrant
Tax levy
Audit
Other reasons

An invoice put on hold gets processed but not paid!

 Accumulated credit balance in vendor accounts.
 Have a legal litigation
CASE: PARTNERSHIP BETWEEN AP AND GL TEAMS
FOR MORE
INTELLIGENCE
Summary / Theory IN NON PO INVOICE PROCESSING
Partnership between AP and GL team is required to have correct cost codes for non PO invoices. All the Non POs should have a cost
code approved by the GL team

Procedure
Option 1: Approver will put the GL on the invoice while Approving the same
Step 1 – Invoice without any PO no. comes in Workflow. It has Cost code stamped / written on it with approval (Attach the invoice that
needs to be processed)
Step 2 – Process it as normal Non PO invoice

Option 2: Processing team has a list of GL codes to be put duly approved by GL team.
Step 1 – Invoice without any PO no. comes in Workflow. It does not have Cost code stamped / written on it with
approval (Attach the invoice that needs to be processed)
Step 2 – Agent has a list of expenses and the applicable cost codes duly approved by AP manager and GL team.
(Attach an example of list). Check the expense type from invoice and get the cost code from the list
Step 3 - Process it as normal Non PO invoice

Option 3: No list is given

Step 1 – Invoice without any PO # comes in Workflow. It does not have Cost code stamped / written on it with approval
(Attach the invoice that needs to be processed)
Step 2 – Agent does not have any background for the type of expenditure. So he confirms the Cost code from AP manager / GL
team.
Step 3 - Process it as normal Non PO invoice