Purchasing process key steps – supplier payment
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Completing our step through the key steps of the purchasing process is the final activity – that of the supplier payment and the processing of the supplier invoice.
The invoice is a document (or electronic message) that conveys the charges being levied by the supplier and acts as a trigger to request payment (even if payment takes place sometime after the invoice arrives at the buying organization).
Typically the supplier will issue their invoice at one of the following three stages
1/ At the time that the goods ship
2/ Subsequent to the goods shipping but relating solely to that shipment/order
3/ Subsequent to the goods shipping and as part as a consolidated invoice (i.e. part of a single monthly invoice)
A fourth stage exists where the supplier may issue an invoice in advance of goods shipment – a pro-forma invoice such as this will typically be issued under the following circumstances
1/ The buying organization is new and does not have an account
2/ Credit problems necessitate payment before shipment.
Processing the invoice
Under usual circumstances, a three way match occurs between the:
• Invoice which should match the quantity delivered on the
• Goods in receipt Note which should match the cost / quantity on the
• Purchase Order
Processing
In many organizations this activity is automated (where the Order and Goods receipt note data is held electronically). However in many SME’s especially where finance and ordering systems are not integrated this three way verification/matching exercise will be carried out manually. Where it is carried out manually and there is substantial volumes of material being ordered this can add a considerable level of administration to the purchasing function (as it is often the purchasing function who are asked to approve / sign off the Invoice).
Payment terms
Most suppliers will dictate the payment terms i.e. when is the invoice due for payment from the date of submittal? Most organizations will pay their suppliers electronically – i.e. through a BACS payment
Electronic Invoicing & Purchase to Pay (P2P)
Traditional invoicing can be a very paper driven process–where matching does not occur electronically the level of overhead to administer the process can be considerable – as a result – many organizations are increasingly looking to use automated solutions whether through implementing Electronic Invoicing solutions, where an electronic message takes the place of the paper document, or through innovative use of procurement cards, in both cases the new solution removes paper from the process and automates many steps.
Invoicing – a forgotten part of the purchasing process
All too often when people document the purchasing process the payment element can be forgotten. The invoice process, however can be particularly bureaucratic and wasteful and represents a key improvement opportunity. As such when looking to map your procurement activity be sure to include supplier payments.