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.

Purchase order fulfillment – the suppliers step in the purchasing process

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Carrying on in our process series where we take a look at the key steps in the purchasing process we’ll now take a look at the suppliers side – that of Purchase Order Fulfillment.

Once the purchase order has been created and issued to the supplier – the supplier’s role – that of fulfilling order by providing the product and services, begins. From the supplier’s perspective this is very much administered as a sales order, after all they are selling their products to the company buying the products. This step in the purchasing process can broadly be segmented into four steps

1/ Order receipt and acknowledgement

The purchase order is received and usually processed into the company ERP/MRP system – the order will often need to be verified against an earlier quotation that’s has been previously issued to the buying company – common checks will include whether the price and lead time are still available.

Once the order has been verified then an order acknowledgement is typically sent back to the buying organization – this confirms that the order has been received and accepted – usually the delivery date is confirmed and any specific terms and conditions stated.

2/ Production of the goods and materials

After the order has been loaded the supplier will endeavor to fulfill the request – this will usually be achieved through one (or a combination) of the following methods

– Issue the parts from stock
– Manufacture the parts
– Procure the parts from another supplier or manufacturer

3/ Dispatch the goods

Once the required goods are available then they will be packed and dispatched. Accompanying the goods will be a dispatch/shipping note, which will indicate what is being sent, coupled with information pertaining to the order for example the order number or reference.

4/ Issue the invoice

Often at the same time that the goods have been sent the supplier will send an invoice, which is the effective “bill”, or “charge” for the goods. This may either accompany the goods or be sent separately.

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