Procure-to-Invoice: How to Master the Process — Part 3

The Procure-to-Invoice process leverages the executed contract to generate a purchase requisition and/or purchase order for the scope required, receives the scope of that purchase order, and receive an invoice from the supplier for the goods or services procured.

 

Generate a purchase requisition and/or purchase order for the scope required

Companies differ in their process to issue to a Purchase Order (PO). Some require the creation of a Purchase Requisition (PR) over a certain dollar threshold to support an audit trail while other companies go straight to a PO.

Regardless, a Purchase Requisition is typically initiated by a requisitioner within the business for needed goods or services and begins the formal request for procurement. While this document is utilized for supporting the organization’s needs, it is an internal document and is not legally binding between the parties in the supply chain.

The Purchase Order is issued to a seller and describes the types, quantities, and agreed prices of the goods and/or services being requested. Once accepted by the seller, the PO becomes a contractual obligation between the buyer and the seller.

 

Receives the scope of that purchase order

The receipt of goods and services look different in the Procure-to-Invoice process. A seller will leverage the details of the Purchase Order to deliver goods and services. Let’s look at the similarities and differences between Goods and Services.

 

Goods:

A seller will collect the goods required to meet the Purchase Order details and prepare them to be shipped to the buyer. The seller will typically work with logistics companies to deliver the goods to the seller based on an agreed timeline.

Once the goods arrive at the buyer’s warehouse or defined location, employees should see a few documents before accepting the shipment:

1. Bill of Lading: This document is issued by the shipper as agreement acknowledging the receipt of the goods for shipment. This document acts as a proof of ownership on international shipments and is used as a shipment receipt once it arrives at its destination.
2. Packing List: This document defines the list of goods that are included in the shipment and provides key details such as good type, quantity, and other details based on the method of shipment.
3. Commercial Invoice: this document includes complete details of the sales transaction and is used in international shipments for clearance through Customs.

Other documents, such as a certificate of origin, may also be required based on the origin/destination and method of shipment.

Employees from the buying organization will perform a count of the goods received and validate that it meets the required levels of quality and specification before accepting the good from the shipper. If everything checks out, the goods are received and a Goods Receipt is issued. Typically performed electronically, a Goods Receipt is a document that serves as a confirmation that the goods were received to the warehouse or location of delivery.

 

Services:

A supplier will work with the buyer to schedule the services based on the Statement of Work (SOW) and Purchase Order. The purchase of services can last months and even years and are often billed monthly or weekly based on the terms in the contractual agreement, SOW, or PO.

Once the work begins, Timesheets are used as documentation showing various Labor, Equipment, and Material resources used each day on the job. Timesheets can be either paper or electronic and often require the signature of the buyer’s employee overseeing the work to validate that resources were present.

Validating that resources were present for the job can be challenging when comparing those times to the Timesheet presented by the supplier. Leveraging information from a Proof of Presence or Access Control System can help in the validation that labor resources were present during the hours communicated on the timesheet. The timesheet acts as the receipt of services during the invoicing process.

Before we get to the invoicing process, let’s take the concept of validation one step further. Organizations can leverage systems like Track to not only leverage proof of presence details for actual hours worked by contracting personnel, but can apply the contractual terms and conditions automatically to reduce leakage and increase visibility and transparency between the buyer and supplier. This drives more confidence between both parties that accrued work will be paid based on the contractual terms and conditions.

 

Receive an invoice from the supplier for the goods or services procured

When an invoice is received from a seller or supplier, buyers perform a validation that the goods or services were received before payment. In part 4 in this series, we will discuss the Invoice-to-Pay Process further; however, we will go into two concept now: Three-Way and Two-Way Match.

• Three-Way Match: Typically used for goods purchases, the buyer compares the request from the Purchase Order with the quantity and price listed on the Goods Receipt and the Invoice. If all three match up, then the invoice can be paid. If there are discrepancies between the three documents, then it would require manual intervention to review and dispute the invoice. This Three-Way match process can be automated through Enterprise Resource Planning (ERP) systems.
• Two-Way Match: Two-Way matches looks at only two documents: the Purchase Order and the Invoice. This is used more in services where the timesheet described above is used as a backup to the invoice. While this method can be used for validation for goods purchases, it can drive increased risk for higher dollar values. As a result, it is often limited to dollar values where the trade-off between potential overpayment and ability to obtain discounts on payment term are realized.