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Finance Center of Excellence Page 1 Accounts Payable Process (Procure to Pay) Generic Training Document

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  • Finance Center of Excellence Page 1

    Accounts Payable Process (Procure to Pay)

    Generic Training Document

  • Finance Center of Excellence Page 2

    Table of Contents

    What is Accounts Payable? ___________________________________________ 4

    Why does Accounts Payable arise in the books of accounts? _________________ 4

    Accrual Method of Accounting ____________________________________________ 4

    Cash Method of Accounting ______________________________________________ 4

    Accounts Payable as a component of Working Capital ______________________ 5

    Working Capital Cycle _______________________________________________ 5

    Accounts Payable Department-Description & Functions _____________________ 6

    Importance of the Accounts Payable Department ________________________ 7

    Need for separate A/P Department ___________________________________ 7

    What is Accounts Payable (AP) process? ________________________________ 7

    Objectives of AP Process ___________________________________________ 7

    Procure to Pay Cycle ________________________________________________ 8

    Step 1: Pre-Purchase Activities ______________________________________ 8

    a) Identification of material to be purchased _________________________________ 8

    b) Preparation of Requisition (Indent) ______________________________________ 9

    C) Approval by respective department head ________________________________ 10

    Step 2: Procurement/Sourcing Activities ______________________________ 10

    What is a Purchase Order (PO)? __________________________________________ 12

    What is a Work Order (WO)? ____________________________________________ 12

    What information does the PO/WO contain? ________________________________ 12

    Types of Purchase Order _______________________________________________ 14

    PO Alteration ________________________________________________________ 15

    Step 3: Receiving Activities ________________________________________ 16

    What is a Packing Slip? ________________________________________________ 17

    What is a GRN (Goods Received Note)? ____________________________________ 17

    What do you mean by exceptions in receiving? ______________________________ 17

    Drop Shipment _______________________________________________________ 18

    Step 4: Payment Activities _________________________________________ 19

    Invoice Processing ____________________________________________________ 19

    What is an Invoice? ___________________________________________________ 19

    What details does an invoice contain? _____________________________________ 19

    What is Invoice Processing/Matching? _____________________________________ 21

    What are the different ways of matching? __________________________________ 21

    What is a tolerance limit (Invoice processing) _______________________________ 22

    What do you mean by Invoice on Hold? ____________________________________ 22

    What are the exceptions in invoice processing? ______________________________ 23

  • Finance Center of Excellence Page 3

    What is a Non PO Invoice? ______________________________________________ 23

    Invoice Receipt Modes _________________________________________________ 23

    Payment Disbursement/ Modes of Payment _________________________________ 25

    Payment on hold _____________________________________________________ 29

    Step 5: Post Payment Activities _____________________________________ 29

    a) Stop Payment _____________________________________________________ 29

    b) Voiding Check _____________________________________________________ 29

    c) Purchase Returns ___________________________________________________ 30

    d) Debit/Credit Memo __________________________________________________ 30

    Vendor Account Reconciliation _______________________________________ 30

    Monitoring of Accounts Payable ______________________________________ 31

    Accounts Payable Helpdesk __________________________________________ 31

    Recommended metrics for tracking efficiency of AP Process ________________ 31

    AP Business Metrics _______________________________________________ 32

    Key Risk indicators in AP Process _____________________________________ 33

    Self- Study Questions ______________________________________________ 34

  • Finance Center of Excellence Page 4

    What is Accounts Payable?

    Companies have to buy goods (raw materials, machinery, computers etc) and

    services for running their business. In most cases, companies do not pay the suppliers (also

    called a vendor) immediately after the purchase of goods and services. Instead, they get

    credit from the supplier, which means the supplier allows them to make payment after a

    period of time.

    So, the purchasing company owes money to the supplier from the date of the purchase till

    the date the payment is made. Money owed is called a liability and this liability for payment

    due on goods and services is called Accounts Payable.

    In simple terms, Money due to the supplier who has supplied goods on credit is called

    accounts payable. Accounts Payable is a liability to the company.

    Why does Accounts Payable arise in the books of accounts?

    There are two methods of accounting:

    Accrual Method of Accounting Cash Method of Accounting

    Accrual Method of Accounting

    The Accounts Payable arises in the books because of the accrual method of accounting. In a

    large number of commercial transactions, the buyer does not pay the seller at the time the

    sale happens. This is because the seller sells to the buyer on credit. However, the buyer and

    the seller record the transaction in their books of accounts even before the money is

    received. This method of accounting wherein the transactions are recorded when the

    sale happens but before money thereon is settled is called the accrual method of

    accounting.

    Cash Method of Accounting

    Cash method under which transactions are accounted for at the time of payment/

    receipt of money

    Accounts Payable arises in the books of

    accounts because of accrual method of

    accounting.

    AP is a liability to the company.

  • Finance Center of Excellence Page 5

    Accounts Payable as a component of Working Capital

    Working capital is the money invested by a company to carry out its day to day activities or

    more specifically, for financing the conversion of raw materials into finished goods. Among

    the most important items of working capital are levels of inventory, accounts receivable and

    accounts payable. Analysts look at these items for signs of a companys efficiency and

    financial strength. Thus it is essential for any company to manage its Accounts Payable to

    have a control on the working capital.

    Working capital is made up of: Current Assets

    Current liability

    Current assets are called gross working capital. Current assets- current liabilities is called net working

    capital.

    Working Capital Cycle

    Equity and loans are the main sources of cash for any business organization. Cash is then

    used to buy Inventory and also to pay many overhead charges. So the Accounts Payable

    includes payment for inventory purchased on credit basis and also the overhead. The

    inventory can take the form of raw

    Account Account Account Account

    PayablePayablePayablePayable

    Working capital is made up

    of Current assets and

    Current Liabilities &

    calculated as Current

    assets Current Liabilities

  • Finance Center of Excellence Page 6

    material, semi-finished goods (WIP) or finished goods. Then the goods will be sold either for

    cash or credit. If sold for credit it will lead to Accounts Receivable.

    Each component of working capital (namely inventory, receivables and payables) has two

    dimensionsTIMEand MONEY. When it comes to managing working

    capital TIME IS MONEY.

    If it is possible for the business to move faster around the cycle (e.g. collect the money due

    from the customers more quickly) or reduce the amount of money tied up (e.g. reduce the

    inventory levels), the business will generate more cash or it will need to borrow less money

    to fund working capital.

    As a consequence, business could reduce the cost of bank interest or will have additional

    free money available to support the sales growth or investment. Similarly, if it is possible to

    negotiate new terms with the suppliers e.g. get longer credit period or an increased credit

    limit; business can effectively create free finance to fund the future sales.

    Accounts Payable Department-Description & Functions

    All business organizations have to make payments to outside parties for day to day

    transactions. The accounts payable department acts as an intermediary between the

    suppliers and the departments of the company purchasing the goods. This department is

    authorized to make payments for the goods received or services rendered to the company.

    There may be some small sized companies where all the purchase related transactions are

    dealt with by one or two persons. Such an organization may not need an accounts payable

    department. However, as such an organization grows; it would set up an Accounts Payable

    Department.

    AP in its broader scope entails making payment to suppliers for raw material,

    suppliers of fixed assets and payments to employees on their travel expense (T&E)

    claims.

    Broadly, the activities carried out in the Accounts Payable Department can be summarized

    as follows:

    Matching the Invoice with Purchase Order & Goods Received Note (GRN)

    Verifying the invoice for its authenticity

    Check for necessary approvals in case of Non-PO based invoices

    Processing of invoices into the system

    Making payment to respective parties on the due dates

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    Importance of the Accounts Payable Department

    The basic function of the accounts payable department is to make accurate and timely

    payments to all suppliers. While the need for making accurate payments is intuitively

    clear, the need for timely payment should be understood from the strategic perspective.

    From the working capital cycle described earlier, it is clear that more the net current assets,

    greater is the requirement of working capital. This has a cost and so every company tries to

    minimize the working capital locked up in its operations. This can mathematically be done

    either by reducing investment in current assets or by increasing accounts payable. Thus

    there could be a temptation to delay payments to ones suppliers as much as possible to

    reduce working capital requirements.

    Now, as per modern management thinking, it is not two companies that compete with each

    other- it is two supply chains that compete. The cost, quality and timeliness of a

    companys products and services have a direct dependency on the performance of its

    suppliers and also the suppliers suppliers (i.e. its supply chain) The business success of

    any company hinges on making its supply chain more efficient and effective than that of its

    competitors. In such an environment, it becomes imperative to treat ones suppliers like

    ones partners. With concepts such as Just-In-Time manufacturing the need for

    partnering increases even further because the whole strategy of a company is dependent on

    the supplier and the company expects its suppliers to deliver much more than its

    traditional suppliers. The supplier is expected to deliver the right quality of products at the

    right place at the right time.

    Naturally, with the supplier as a strategic partner, it becomes necessary to treat him as one

    and make payments to him on due dates.

    Need for separate A/P Department

    Internal control practices suggest that people involved in purchasing transactions should not

    be involved in payment related activities. So the accounts payable department should be

    separate from the purchase department.

    What is Accounts Payable (AP) process?

    The AP process is a part of the Procure to Pay cycle (or P to P cycle). The P to P cycle

    starts with the identification of the need to buy goods and services and ends when payment

    is made to the suppliers.

    In this module, we are going to study the different players, documents and terms involved

    in this cycle.

    Objectives of AP Process

    Paying suppliers on time, but no earlier than necessary Taking discounts when prudent Preventing duplicate billing / invoice

  • Finance Center of Excellence Page 8

    Procure to Pay Cycle

    The following are the activities that form part of an end to end procure to pay cycle.

    These activities are described below in detail.

    Step 1: Pre-Purchase Activities

    These activities take place before the accounts payable department comes into picture.

    Given below is the brief summary of activities involved in Pre-Purchasing process.

    a) Identification of material to be purchased

    The items to be purchased are identified by the production department in coordination with

    the planning department. The quantity of goods required depends on the required

    production which again depends on the expected sale. The quantity will also be affected

    with the inventory policy of the company that deals with how much inventory quantity

    should be kept.

    Example:

    A company manufactures product X. It expects to manufacture & sell 20,000 units of X in

    the next month. Each unit of X requires one unit of Y as a raw material. The company has

    an existing inventory of 500 units of Y. As per the inventory policy, the company should

  • Finance Center of Excellence Page 9

    maintain an inventory equal to 5% of the next months sale. How many units of Y should

    the company order in the next month?

    Solution:

    Units of Y required on the basis of expected Production and sales in next month 20,000

    Add: Units of Y to be kept in stock as per inventory policy (5% of 20,000) 1,000 21,000

    Less: Existing inventory of Y 500 Units of Y to be ordered

    20,500

    b) Preparation of Requisition (Indent)

    A document raised by the production department (user department) requesting the

    purchase department to do the required purchase (of goods or services) is called an Indent.

    This is the starting point of any purchase.

    The indent consists of the following details:

    Description of the Item/Service Part Number (if applicable), this is a unique number that is allocated to each

    item. For example, Round table with glass top can be given a part number 020-555-1892. The part numbers are updated in the accounting software and help the company keep track of the stock on hand.

    Quantity Required of Material (Unit of Measurement (UOM) can be No., Kg, Ton, meters etc.)

    Approval from the Department Head Approvals from Finance Department (for budget)

    Example of an Indent

    Your company Logo Purchase Indent

    Indent # Department

    Date Location

    Sl. # Item Description UOM (Unit of Measure) Quantity

    Supplier Recommended Date required

    Specific Remarks

    Approvals Dept. Head Finance

  • Finance Center of Excellence Page 10

    C) Approval by respective department head

    This is an important activity in pre-purchase from the internal control point of view. The

    approver may exercise a few checks before approving a request.

    Step 2: Procurement/Sourcing Activities

    Purchase Department: Medium & large scale companies generally establish a separate

    department to facilitate purchases. The main function of the purchase department is to

    analyze the different suppliers available in the market on the basis of cost, quality and

    delivery and place orders on the best suppliers. The purchase department will have

    dedicated professionals working on the specialized process thereby reducing costs and

    increasing efficiency.

    Purchase department may follow two routes to decide upon the vendor on whom the order

    is to be placed.

    Route 1. Calling for quotations for items to be purchased

    Route 2. Placing the order with a predetermined vendor developed specially to

    supply that particular component to the company

    Route 1: Calling for Quotations

    a) Receiving Material Requisitions/Indent

    The approved indent is received by the procurement department based on which it

    initiates the process to make purchases from the market.

    b) Check for necessary Approvals

    It is the duty of procurement department to see that all the indents received from

    the respective departments have necessary approvals.

    c) Vendor Evaluation-Identify the suitable vendors

    Once the material requisitions/indent is received by the procurement department

    with proper approvals, they start listing / identifying available vendors in the market

    who deal in that particular material / service. This step is aimed at making a list of

    prospective vendors who are best in market in terms of quality, price and payment

    terms and delivery terms.

    d) Request for Quotations (RFQs)

    Once the list of prospective vendors is finalized, procurement department sends

    requests to prospective vendors for quotations for the goods/services to be supplied.

    Vendors are further short listed based on the quotations received. Typically as per

    business practice at least three quotations are asked for.

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    e) Negotiations

    After further short listing of vendors, the procurement department does necessary

    negotiations with regard to the most favorable price, quality of goods and acceptable

    credit terms etc, in the interests of the company.

    f) Selection of the Best Vendor

    Once the negotiations are over, the sourcing team prepares the final list of vendors

    who are ready to supply goods / services as per the negotiated terms, and this

    approved vendor list is maintained in the data base by the procurement department

    for future purchases.

    g) Supplier or Vendor Set-Up

    Once a new supplier has been identified and approved, that supplier needs to be first

    set-up in the companys records before transacting with him. Supplier set up is an activity through which the company assigns a unique code to

    identify that supplier. In all the future transactions with that supplier, the company

    uses this code (ID). Normally, the purchase department will send the list of newly approved suppliers to

    the person creating the ID. The supplier setup screen shows relevant details of this supplier such as

    Suppliers name Details of items that this supplies can supply

    Address of the supplier Bank details of the supplier Commercial terms agreed upon with this supplier (e.g. Credit period) Maximum amount of goods or services that can be purchased from the

    supplier

    The purchase department cannot raise a Purchase Order unless it has a valid supplier

    ID for the supplier.

    Note: A one time vendor is one from whom we make a purchase only once. A

    separate series of vendor ID will be used for one time vendors

    Route 2: Placing the order with a vendor developed specially for a component

    Rather than start searching for a vendor every time an indent is received, in many

    companies, the purchase department is expected to carry out a development of a team of

    vendors with whom a relationship of partnership is developed. Often the company actually

    helps such vendors in developing the product/ component. This approach enables the

  • Finance Center of Excellence Page 12

    company to have a guaranteed high quality source for the component thereby gives the

    company a competitive advantage in the market.

    What is a Purchase Order (PO)?

    A company has to enter into agreement/contracts with the supplier for procuring goods or

    services on the agreed terms. Such agreements/contracts are called purchase orders when

    the contract is for procurement of physical goods.

    Purchase orders are raised by the purchase department. These documents can also contain

    penalty clauses. Companies use different series of POs for raising orders on special types of

    vendors such as vendors for bulk purchases, imports and fixed assets. Although the format

    of purchase/work order used by various companies may differ, this document typically

    contains following details.

    What is a Work Order (WO)?

    If an order is raised to the supplier for procuring services it is called a works order.

    What information does the PO/WO contain?

    Companies use different series of POs for raising orders on special types of vendors such as

    vendors for bulk purchases, imports and fixed assets. Although the format of purchase/work

    order used by various companies may differ, this document typically contains following

    details.

    Name & address of the company issuing purchase/work order

    PO Number & Date- The computer will generate a unique number for every PO that

    is raised. This is called the PO number.

    Name/Address of the supplier

    Description of goods or services ordered. For example while buying furniture, the description can be Round table with glass top or six feet cupboard

    Part number (if applicable) to identify the specifications of the goods purchased

    Quantity ordered along with delivery schedule, if any

    Penalty clauses if applicable (Penalty could be levied for later delivery , poor quality of goods delivered etc)

    Delivery schedule: While placing an order with a supplier, the customer gives the delivery schedule. The delivery schedule gives details about dates on which the goods have to be delivered and will help the vendor plan for the goods well in advance.

    Example, A PO ordering for 50 round tables with glass tops could give the following delivery schedule: 3rd January 2008 20 units

    15th January 2008 10 units 31st January 2008 20 units

  • Finance Center of Excellence Page 13

    Price: The price should include relevant information on freight/ taxes/ insurance etc.

    Freight: It is the charges paid by the company for transporting the goods from the vendors factory to the companys factory or warehouse. The freight could be borne either by the supplier or the customer depending on the

    agreement.

    Tax: A tax is a financial charge or fee which is imposed by different state or central governments on sales transaction. The seller has to collect the tax

    from the customer on behalf of the government and then pay that money to the government.

    Insurance: There is always a risk that goods being sold could get damaged/ lost while in transit. It is a normal practice to insure the good while in transit. The insurance cost could be borne either by the supplier or the customer depending on the agreement.

    Bill To and Ship To Address: Various addresses of the customer and the supplier are mentioned on the PO.

    Bill to Address: The customers address to which the supplier has to send the invoice is called as Bill to address.

    Sold to Address: The customers address from which the purchase order has

    been raised is called the sold to address.

    Ship to Address: The customers address to which the goods ordered need to be shipped or sent by the supplier is called Ship to address. It is the point

    of delivery of the goods as specified in the purchase order. Ship to address would be the factory or warehouse of the customer

    Payment Terms: Payment terms are the terms and conditions on which payment will be made by the customer to the supplier.

    The main payment term is the due date of the payment. Payment terms often give

    an option to the purchasing company to pay the invoice before the due date and take

    a discount available for early payments.

    Some commonly used terminology used to communicate payments terms is as

    below:

    Net 30 This means the buyer must pay within 30 days of date of invoice 2/10 net 30 - This means the buyer must pay within 30 days of the date of

    invoice, but will receive a 2% discount on the invoice amount if they pay

    within 10 days 3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill is

    paid within 7 days after the end of the month 3/7 EOM net 30 - this means the buyer must pay within 30 days after end

    of month, but will receive a 3% discount if they pay within 7 days after the end of the month

    2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days

  • Finance Center of Excellence Page 14

    Other relevant information/ Terms & Conditions, if any

    Types of Purchase Order

    1. Standard Purchase Order: These are the most commonly used purchase order

    wherein the buyer knows all details pertaining to the goods and services to be

    purchased, such as cost, quantity, payment terms, delivery schedule etc. the

    supplier can execute the order without any further input from the customer.

    2. Blanket Purchase Order: A Blanket Purchase Order is a purchase order issued to a

    vendor from which specified purchases may be made for a specified period of time

    and for a specified dollar limit. When repeated purchases of the same type of supply

    item are expected, multiple Purchase Requisitions may be eliminated by submitting

    one Purchase Requisition to establish a Blanket Purchase Order. Blanket purchase

    orders are used when there is a need to repetitively purchase the same

    items from the same vendor and where delivery schedules have not been firmed

    up. The material ordered for is supplied in installments. A document called purchase

    order release is created as and when delivery is expected, specifying what to ship

    and where. When the ordered dollars have been purchased, a new purchase order

    must be raised.

    It is advantageous to the buyer because it allows him to fix up a rate for future

    purchase and gives him an assured source of supply.

    It is beneficial to the seller because it gives him assured volumes of business.

    3. Contract Purchase Order: A contract PO is created with suppliers who agree on

    specific terms and conditions such as payment terms, discounts allowed without

    indicating the goods and services that will be purchased. This will be used for

    purchasing from a supplier from whom we can buy a large variety of items.

    Buyer can later issue standard purchase orders for specific items required to be

    purchased giving a reference of the contract agreement. This saves a lot of time in

    negotiations while raising subsequent specific POs on such a supplier.

    4. Planned Purchase Order: It is a long-term agreement where the buyer has

    committed to buy items or services from a single source. The buyer must

    specify tentative delivery schedules and all details of goods or services that are to be

    purchased, including quantities and estimated cost. Even in this case a purchase

    order release will be raised to initiate delivery.

    Planned purchase orders help in reducing the inventory and costs throughout the

    supply chain. In the absence of planned POs, the supplier would have to hold the

    inventory on behalf of a customer especially in situations where the buyer is a JIT

    manufacturer. This is because, the supplier will be penalized if he is not able to

    supply to a JIT manufacturer on time and so is forced to maintain an inventory.

    Because of a planned PO, the supplier has good visibility on the delivery schedules

  • Finance Center of Excellence Page 15

    and he can manage his own inventories more effectively thereby making the whole

    supply chain efficient.

    Types of goods/services purchased

    A broad classification of the goods/ services from procurement angle is: o Inventory/ Raw Materials o Capital Items o Operating Expenses

    o Miscellaneous Items. Comparison in Brief:

    Category

    Criteria

    Inventory/ Raw

    Materials

    Capital Items

    Operating

    Expenses

    Misc.

    Frequency of

    Occurrence

    High Low High High

    Definition An unprocessed

    natural resource or

    product used in

    manufacturing e.g.

    Leather for Shoes,

    wood & steel for

    furniture, Aluminum

    for Aircrafts.

    Goods, such as

    machinery, used in

    the production of

    commodities.

    These are used in

    manufacturing the

    products in which

    organization deals.

    Expenses that arise

    during the ordinary

    course of running a

    business e.g.

    research and

    development,

    power, water,

    repairs &

    maintenance of

    machinery etc.

    Expenses that

    support the

    operations of the

    business e.g.

    publicity, training

    etc.

    A/P to Look For

    Tax charged by Vendor. Invoices may be short paid

    by issuing a tax exemption certificate to the

    vendor.

    Depending on companys process, Invoices are

    supported by user departments confirmation of the

    installation of capital items.

    If expenses are ordered by way of Purchase/work Order, the treatment is similar to processing P.O. based invoices.

    If the expenses which are paid as a Non-PO and extra care should be taken in processing these invoices. One has to

    look for Approvals for processing these invoices.

    PO Alteration

    Alteration is modification of the purchase order issued to the vendor.

    Why PO Alteration?

    If the vendor rejects a PO If the vendor wants the PO to be issued with some modifications

  • Finance Center of Excellence Page 16

    If the sourcing department notices errors in PO; e.g. PO raised on the wrong vendor

    name, giving insufficient information on PO etc.

    Solution:

    Fresh PO is issued, cancelling the old PO

    Original PO is modified and re-issued

    Copy of a Purchase Order:

    PURCHASE ORDER

    [Your Company Name] [Your Company Slogan]

    PO # [100] Date:

    [Street Address], [City, ST ZIP Code] Phone [000.000.0000]

    Fax [000.000.0000] [e-mail]

    SUPPLIER

    [NAME] [COMPANY NAME] [STREET ADDRESS]

    [CITY, ST ZIP CODE] [PHONE] CUSTOMER ID [ABC12345]

    SHIP TO

    [NAME] [COMPANY NAME] [STREET ADDRESS]

    [CITY, ST ZIP CODE] [PHONE] CUSTOMER ID [ABC12345]

    SHIPPING METHOD Checkers Signature DELIVERY DATE

    Qty. Item # Description Job Unit price Line total

    Terms & Condition: Subtotal

    Sales Tax

    Total

    Authorized by Date

    Step 3: Receiving Activities

    The supplier will ship the goods to the customer as per the specifications of the PO. The

    receiving department (also called as store) in the customers organization receives the

    goods and checks whether the goods received are of the required quantity and quality as

    per the PO.

  • Finance Center of Excellence Page 17

    What is a Packing Slip?

    The goods are received at the dock along with a packing slip from the supplier. A packing

    slip is a document prepared by the supplier that lists down the actual description and

    quantities of material being loaded on the truck.

    The packing slip will also have a PO reference.

    The people on the dock will check the packing slip with the PO.

    What is a GRN (Goods Received Note)?

    The receiving department of the customer prepares a document called GRN (Goods

    Received Note) as soon as it receives the goods. The GRN has many columns, e.g., item

    description, quantity received, quantity accepted, quantity rejected and remarks columns to

    be filled up. These columns will be filled at different stages of the receiving process.

    As soon as the goods are received, the description and quantity received columns of the

    GRN will be filled.

    The goods then go through an initial round of quality and other checks. Goods can be

    rejected if they do not pass the quality and other checks. Other checks include checking for

    late delivery, wrong description etc. If any of the goods do not pass these quality or other

    checks, they will be rejected and the Accepted and Rejected columns in the GRN will be

    filled.

    Format of GRN

    Goods Received Note

    Supplier: GRN #:

    Supplier Account #: GRN Date:

    Delivery note #:

    Delivery note date:

    Carrier: Checker:

    Order # Description Quantity

    Received

    Quantity

    Accepted

    Quantity Rejected

    if damaged

    What do you mean by exceptions in receiving?

    Often, quantities received are different from those ordered. Companies set tolerance limits to decide whether or not a particular shipment should be accepted when the quantities differ. If the shipment is within the tolerance limit, it will be accepted.

  • Finance Center of Excellence Page 18

    Companies can have policies to set the tolerance limit. For example it will give the

    instruction to the receiving department saying, if the shipment is + or Qty. 2, accept the shipment. In that case if the goods ordered are Qty 4 and received is Qty 6, the company will still accept the shipment because it is within the tolerance limit set by the company. But if the quantity received is 8, it will not be accepted as it is outside the tolerance limit.

    Drop Shipment

    Drop shipment is a product delivery method in which the customer receives the product

    directly from the manufacturer but, of course through the retailer or seller. The retailer acts

    as a middleman between manufacturer and customer.

    The activities involved in receiving are:

    Quality Checks:

    Once goods are received from the vendor, these are checked for quality. Only after meeting

    the requisite quality standards, are the goods certified and accepted.

    Acceptance of Goods:

    After meeting the quality standards the goods shipped by the vendor are accepted by the

    receiving department. After accepting the goods, a document called Goods Received

    Note (GRN) is created at the inward stores. It shows the quantity of goods received and

    quantity of goods accepted after passing the quality test.

    Wholesaler

    Or

    Manufacturer

    End User

    (Ship-to

    Destination)

    Invoice

    Shipment of Products

    Only

    Purchase Order

    PO

    Invoice

    Retailer

  • Finance Center of Excellence Page 19

    Inspection Report:

    If the items being purchased are of a technical nature, the items may have to undergo a

    thorough technical test. On passing these tests, the quality department will prepare an

    inspection report which will be used as a document for a four way test (described later in

    the notes)

    Rejection of Goods:

    If the goods shipped by the vendor do not meet the specified quality standards or if there is

    any other issue with the goods (e.g. late delivery, wrong description), those goods can

    be rejected and sent back to the vendor by the stores department.

    Goods Returned:

    There may be a case where in the vendor would have shipped the goods beyond the

    quantity mentioned on the purchase order. In such cases the receiving department may

    return those excess goods to the vendor. Even in situations wherein out of a lot only few

    units are defective, those defective units can be returned back to the vendor by the

    procurement department.

    Step 4: Payment Activities

    After goods are received and accepted, it is an obligation of the company to pay its vendors.

    Lets look at the set of activities for making payment to vendors:

    Invoice Processing

    Once the ordered goods are dispatched, the supplier will send a copy of invoice for payment

    to the customer. Sometimes, the invoice may be received along with the goods and

    sometimes it could be received before or after the receipt of the goods.

    What is an Invoice?

    An invoice is a document raised by a supplier on a customer demanding payment against

    the goods supplied or services rendered. It contains the details of products, quantities and

    agreed prices for products or services which the supplier has supplied or provided to the

    buyer. An invoice indicates that, unless paid in advance, payment is due by the buyer to the

    seller. Invoices are often called bills.

    What details does an invoice contain?

    Invoice number and date

    Invoice Number: It is a number or combination of numbers and characters that uniquely identifies an invoice within the system. It is generated automatically by the system to avoid duplication of numbers.

    Invoice Date: It is the date on which the invoice is created.

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    Purchase order number

    Tax ID number

    TIN (Tax Identification Number): It is a unique number assigned by the tax department to business entities for the purpose of identification.

    All entities must have Tax ID to file the tax returns.

    Bill to, "sold to", ship to addresses and "remit to" addresses Remit to address: The suppliers address to which the customer is asked

    to send the payment is called the Remit to address

    Terms of payment including due date, discount due date and discount amount

    Due date: It is the date on which a particular invoice becomes payable. For example, an invoice may carry due date as 1st January 2008. That means, that invoice should be paid on or before that date.

    Cash Discount (Early payment discount): It is a reduction allowed on the invoice price to the customer for making an early payment of the invoice. The word early means before the due date.

    Line-item: When more than one item is sold against one invoice, each of those items has to be separately mentioned on the invoice. Since each of these items will be shown on a separate line on the invoice, it is called a line item. Each line will have

    details of description, quantity and price of the relevant item.

    Shipping method and cost: Shipping can be by road, air, sea or rail. The name of the carrier / transporter will also be specified. The cost of shipping, if to be borne by the

    customer will also be added as a separate line item in the invoice.

    Total number of items and sum of amount due: This summarizes the total amount to

    be paid to the supplier.

    Format of an Invoice:

    [Your Company Name]

    [Your Company Slogan]

    [Street Address]

    [City, ST ZIP Code]

    Phone [509.555.0190] Fax [509.555.0191]

    INVOICE

    INVOICE #

    DATE:

    TO:

    [Name]

    [Company Name]

    [Street Address]

    [City, ST ZIP Code]

    [Phone]

    SHIP TO:

    [Name]

    [Company Name]

    [Street Address]

    [City, ST ZIP Code]

    [Phone]

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    COMMENTS OR SPECIAL INSTRUCTIONS:

    SALESPERSON P.O.

    NUMBER REQUISITIONER

    SHIPPED

    VIA POINT TERMS

    Due on

    receipt

    QUANTITY DESCRIPTION UNIT

    PRICE TOTAL

    SUBTOTAL

    SALES TAX

    SHIPPING &

    HANDLING

    TOTAL DUE

    Make all cheque payable to [Your Company Name]

    If you have any questions concerning this invoice, contact [Name, phone, e-mail]

    Thank you for your business!

    What is Invoice Processing/Matching?

    Before making the payment on an invoice, it is necessary to check whether or not the

    invoice is in order. There is a need to match the invoice with other relevant documents, i.e.

    PO and the GRN in order to ensure that the goods received have been ordered by the

    company (Source Document PO) and have been received and approved (Source

    Document GRN). If the documents match, payment is to be made to the supplier, else the

    case has to be investigated and resolved.

    What are the different ways of matching?

    It is possible to carry matching in various ways. These are called two way matching, three

    way matching and four way matching.

    a) Two Way Match

    It is the process of verifying the purchase order information with the invoice information. The PO and Invoice should match within the acceptable tolerance limit to make the

    payment. AP department does the following tests in case of a two way matching Is Invoice price=Purchase order price?

    Is Quantity billed=Quantity ordered?

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    b) Three Way Match

    It is the process of verifying whether the purchase order, invoice and receiving information (Goods Received Note) matches within the acceptable tolerance limit or not. In three way match, typically, quantity and price as per PO with quantity and price as per invoice and quantity received as per the GRN are compared. The following criterion is used by the AP

    department. Is Invoice price=Purchase order price?

    Is Quantity billed=Quantity ordered?

    Is Quantity billed=Quantity received?

    c) Four Way Match

    It is a process of verifying whether the PO, invoice, GRN and also the acceptance report (Inspection Report) matches within acceptable tolerance limit or not. This would be done in

    case of material that is of a technical in nature and which has a strict quality requirement. The following criterion is used by the AP department.

    Is Invoice price=Purchase order price?

    Is Quantity billed=Quantity ordered?

    Is Quantity billed=Quantity received?

    Is Quantity billed=Quantity accepted?

    After an invoice has been processed and found to be OK for payment, the same is entered

    into the accounting system through the accounts payable sub ledger. Any deviation required

    from the normal invoice processing procedure is called an exception and every exception

    needs to be properly researched and authorized.

    What is a tolerance limit (Invoice processing)

    Sometimes, there could be minor differences in the invoiced amount and the amount as

    calculated as per the PO. In such cases, many companies have a policy that the full

    payment as per the invoice should be made provided the difference between the two

    amounts is not more than a specified dollar amount. This is called the tolerance limit for

    invoice processing.

    What do you mean by Invoice on Hold?

    A company may not pay all the invoices which have come for the payment. Such invoices

    are said to be invoice on hold. The payment against such an invoice will be made only after

    the hold on the invoice is removed. Some of the reasons for keeping an invoice on hold are:

    Missing invoice number or PO number

    Invoice is not clear i.e. it cannot be read because of damage, print quality etc.

    Wrong or incorrect PO number mentioned on the invoice

    Supplier address on the invoice is different from that on the database address

    Unit price in PO is different from the unit price of invoice (difference is more than the

    tolerance limit)

    Quantity in the invoice is different from quantity mentioned on the PO and GRN

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    What are the exceptions in invoice processing?

    Sometimes, although the invoice does not match, a decision is taken to make payment

    against that invoice. Any such deviation from the normal invoice processing procedure is

    called an exception. Exceptions apply to both PO and Non PO based invoices. Examples of

    exceptions are:

    Making full payment against an invoice when the quantity received and invoiced is

    more than the quantity ordered

    Making payment against a Non PO invoice when invoice has not been authorized by

    the approver but a oral confirmation has been received

    Rate variation between PO and invoice

    Process Overview:

    What is a Non PO Invoice?

    Non PO invoices are the invoices issued for utility bills such as Rental charges, Water bills,

    Telephone bills, Electricity charges. They are also used in case of services where no WO is

    raised.

    While making payment against Non PO invoices, approval from designated authority is

    very important. This is so because, unlike in a PO invoice, there is no prior approval of the

    expenditure. That is why these invoices are sent for approval before payment. Since there is

    no PO for these invoices, no matching is carried out. They are paid on the basis of the

    approval of the authorized person.

    Invoice Receipt Modes

    Company can receive the invoices in different modes. It depends upon the working

    functionalities and nature of company. It can be broadly classified under following

    categories:

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    Paper Invoice: Invoices received through fax or courier. Typically majority of the

    invoices processed by the AP department will be paper invoices.

    Web Based Invoice: Compared to a paper invoices a web based invoices is the

    more advanced way of receiving the invoices from the vendor.

    Under this method, vendors are given the user Id and password to access the

    companys website so that they can create the invoices online and submit it for the

    payments directly. This allows them to view even their payment status.

    Advantages:

    o Reduction in manual work for the customer

    o Much faster compared to traditional invoice

    o Risk of loss and damage to invoice is eliminated

    Disadvantages:

    o Results in duplicate data entry for the supplier. The supplier would prepare an

    invoice for his own accounting purpose, and he would have to feed the

    information second time in the clients data website.

    Electronic Data Interchange (EDI)

    EDI is a way of transferring the business organization having disparate ERPs in a

    computer readable format with a minimum human intervention. Its a form of E-

    commerce.

    EDI is a standard format for exchanging business data. In EDI, the computer-to-

    computer exchange of structured information takes place by agreed message

    standards, from one computer application to another by electronic means and with a

    minimum of human intervention. Its a form of E-commerce.

    In common usage, EDI is understood to mean specific interchange methods agreed

    upon by national or international standards bodies for the transfer of business

    transaction data, with one typical application being the automated purchase of goods

    and services. The examples of such applications are EDIFACT, X12, EANCOM, IATA

    etc.

    Organizations that send or receive documents from each other are referred to as

    "trading partners" in EDI terminology. The trading partners agree on the specific

    information to be transmitted and how it should be used.

    Advantages:

    o It saves time and cost to a significant extent

    o Reduced paper handling

    o Ensures the accuracy of the information

    o Reduced error from manual intervention

    Disadvantages:

    o High set up cost

    o Requires the entire business process change

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    Payment Disbursement/ Modes of Payment

    Once the invoices are processed it will be sent for the payment. Payment can be effected in

    one or more of the following ways. The mode of payment is agreed upon at the time of the

    contract

    Check Payment:

    Check is a negotiable instrument drawn on a bank for making payment to a specified supplier.

    Checks are the most common mode of payment

    Check run:

    Check run process is a program which is run periodically to print all the checks that

    are due for payment during that period.

    Frequency of check runs depends upon the business policies. It can be daily, once or

    twice a week, once in two weeks or so. Some time special check runs are there to

    pay urgent\past due Invoices.

    Note Payments will be made on the run date immediately after the due date. If

    cash discount is available on an invoice, payment can be made on the last date on

    which discount is available. In exceptional cases, payment can be expedited if a

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    special request is made by the vendor and the case is approved by authorized

    persons.

    After the check run process, the checks are mailed to the Remit To address of the

    vendors.

    Electronic Fund Transfer (EFT):

    Electronic Funds Transfer (EFT) is a system of transferring money from one bank

    account directly to another without any paper money changing hands. In other

    words EFT includes any transfer of a fund that is initiated by electronic means, such

    as an electronic terminal, telephone, computer, ATM or magnetic tape.

    The term is used for a number of different concepts:

    cardholder-initiated transactions, where a cardholder makes use of a payment

    card

    electronic payments by businesses, including salary payments

    electronic check (or cheque) clearing

    Different types of EFTs can be:

    Card based EFT: EFT can be initiated by a card holder when a payment card such

    as debit card or credit card is used.

    Benefits:

    Allows all the type of the payment automatically

    Eliminates the need to write checks

    Saves the time and money on postages and mailing checks

    Ensures the timely payment

    Provides security and confidentiality for all the payments

    Wire Transfer:

    A wire transfer is an electronic transfer of funds. Here transfer of funds takes place

    from customers bank account to the vendors bank account electronically.

    It is used for both domestic and international transfer of funds where no cash or

    cheque exchange is involved, but the account balance is directly transferred from

    one bank to other.

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    The co-operative society, Society for Worldwide Interbank Financial

    Telecommunications (S.W.I.F.T.) operates a world wide net to facilitate the

    transfer of financial messages. By means of these messages banks can exchange

    data for transfer of funds between different financial institutions.

    For this, vendor should choose wire transfer as the mode of payment and also

    provide their banking details at the time of setup.

    ACH (Automated Clearing House):

    The Automated Clearing House (ACH) is an electronic banking network operating

    system. ACH processes a large number of debit and credit transactions. ACH needs

    an operator to act on behalf of payer and payee and the operator acts as a clearing

    house.

    In all ACH transactions instructions flow from an originating depository financial

    institution (ODFI) to a receiving depository financial institutions (RDFI) through an operator. If the ODFI sends funds, it is credit transaction. Examples of credit payment transaction include payroll direct deposit, dividend and interest payment, corporate payments to vendors etc. If the ODFI requests funds, it is a debit

    transaction and funds flow in the opposite direction. Examples include collection of insurance premium, mortgage and loan payments etc.

    Direct Deposit:

    Direct Deposit is the electronic transfer of a payment from one account to another

    account without any paper document. Another name for direct deposit is GIRO.

    Direct deposit differs from check payment. A check is given to the payee who

    deposits the same in his or her bank; but in case of direct deposit, the payer gives

    instructions to his bank. The bank on receiving the instruction from the payer,

    transfers the funds into payees account directly.

    The instruction could be for one payment or for recurring payments. E.g. a company

    can give an instruction to bank to directly transfer $ 1000 to the account of a lessor

    who has leased office premises to the company or a transfer of funds from the

    company payroll account to the personal savings accounts of the employees.

    Advantages:

    o There are no cheque to be lost or stolen

    o Payment reach the account the day cheque is issued

    o Helps avoiding the cheque to be bounced because the deposit is direct and on

    time

    o It can save the trips to the bank and also avoid the long lines at tellers or

    ATMs.

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    P-Card:

    P-card refers to a purchasing card. It is an enhanced credit card issued by a banking

    company and given by a business entity to its employees. Authorized personnel can

    make small purchases of goods & services using P-card. P-cards can only be used by

    the individuals named on the card.

    After the individual makes purchases using the P-card, the issuing authority gets the

    information on the purchase made & sends the bill to the company. Once the

    company receives the bill from the issuing authority, it will verify the purchases

    made and the payment will be sent directly to the bank.

    Advantages:

    o Significantly reduces paperwork and processing time

    o Allows the card holder to purchase required goods and services quickly

    o Improves the supplier relations due to faster payments

    o Provides improved control over accounting and purchasing

    Evaluated Receipt Settlement:

    Evaluated Receipt Settlement (ERS) is a procedure for the automatic

    settlement of invoices. ERS is a business process between trading partners that

    conduct commerce without invoices.

    In an ERS transaction, the supplier ships goods based upon an Advance Shipping

    Notice (ASN), and the purchaser, upon receipt, confirms the existence of a

    corresponding purchase order or contract, verifies the identity and quantity of the

    goods, and then pays the supplier.

    How does it work?

    In ERS the purchaser will have an agreement with the supplier stating supplier will

    not create invoice for ordering transactions, but purchaser will post the payment

    directly based on the information contained in purchase orders and services entries.

    A list or catalogue of products and prices is sent by the supplier to its purchaser on

    regular intervals. A purchaser using the pricing information sent by the supplier

    places an order. Usually a purchase order specifying quantity, product type, price,

    freight, tax, etc. is generated. A supplier acknowledges the order by sending an ASN

    to the purchaser. The supplier ships the goods with an itemized bill of lading or

    packing slip which references the purchase order or contract number. The purchaser

    matches the goods receipt to the purchase order, or contract to validate accuracy.

    Now instead of waiting for suppliers invoice the purchaser calculates payment based

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    on price information stored in their computer or from the catalogue sent by the

    suppliers. The payment is made either by electronic funds transfer (EFT) or check.

    Advantages:

    o Purchasing transactions are closed more quickly

    o Communication errors are avoided

    o No price and quantity variances in invoice verification

    o Elimination of non-value-added work like reconciliation

    Payment on hold

    Sometimes a company decides not to make a payment to a supplier even though the

    invoice has matched. In such situations the payment is said to be kept on hold. Some of

    the reasons for keeping payment on hold are as follows:

    Inadequate funds To adjust against money due from the supplier, if any.

    The hold can be released on a subsequent date based on fund availability and issue

    resolution.

    Step 5: Post Payment Activities

    If it is realized out after making the payment to a vendor that money has been paid to wrong party, or it was a duplicate payment made by mistake, it can be corrected in one of the following ways:

    a) Stop Payment

    Stop payment means issuing the instructions to the banker not to honor a

    particular check. This can be done only if the check is not yet cashed by the vendor. Check

    should be stopped for payment in the following situations:

    If the check is cut to the vendor and has not reached or misplaced or still in transit When the check is cut to a wrong vendor Value in the check is not correct Check was sent to a wrong mailing address

    If the duplicate invoice has been released New vendor remit to address has not been updated in the database Any other reason warranting the stop payment

    b) Voiding Check

    Voiding the check can only be done when customers are in the possession of the physical

    copy of the check. This will be done only when the checks are mailed to the vendor and the

    same has been returned back to customer or when checks sent mailed to vendors have

    returned undelivered.

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    c) Purchase Returns

    When the purchases are made by the company, there will be instances when the goods are

    returned back to the vendor for the following reasons:

    If the goods supplied are not up to the quality as agreed ; or If the goods are defective; or There is an excess supply

    In all these situations, a credit note is raised by the vendor to reverse the purchases and

    the AP team collects the funds paid to them. If it is regular vendor doing business

    continuously, then the amount due can be adjusted with the future invoice payments for

    that vendor.

    d) Debit/Credit Memo

    Debit & credit memos are the documents that communicate formally to the vendor that the

    company has done adjustments during the pay transactions.

    Debit Memo: It is a document raised on the vendor indicating that the vendor owes the

    specified amount to the company. Reasons can be wrong/duplicate payments made to

    vendors.

    Credit Memo: It is a document indicating the amount owed by the business to the vendor.

    Reason can be late payment charges due to the vendor, etc.

    Vendor Account Reconciliation

    The balance for amount payable to the Supplier in the customers book should always match

    with the balance of amount receivable from the customer in the suppliers book because

    both of them records all the transactions occurred between them in their books of accounts.

    But in some cases, the difference or variance can arise. This difference can arise due to one

    or more of the following reasons.

    Invoice raised by vendor not received or invoice received but not recorded in our

    books Invoice is in issue log for clarification Payment made to vendor but not recorded in his books / Payment made to wrong

    party Goods not received or damaged at transit but Invoice received from vendor Goods returned back to vendor, not acknowledged by them Purchase order was cancelled after invoice was raised by vendor

    Reconciliation team will compare our records with vendors statement and research on the difference based on the items not matching on both the sides.

    Over and above the vendor account reconciliation, we also have to carry out a Sub-ledger / GL reconciliation for reconciling total accounts payable liability appearing in the GL with total of amounts due to each supplier as per sub ledger.

  • Finance Center of Excellence Page 31

    Monitoring of Accounts Payable

    There are some indicators with which company can monitor the accounts payable. One among them is

    DPO (Days Payable Outstanding)

    DPO is an indicator of how long a company is taking to pay its trade creditors. It is an

    operating ratio that helps the company to evaluate how well a business is managing its payable. The lower the ratio the quicker the business pays its liabilities.

    How to calculate DPO?

    DPO= (Accounts Payable X 365)/Average Credit Purchases

    Effective management of DPO is major challenge since it directly impacts the working capital efficiency.

    Accounts Payable Helpdesk

    After the goods have been supplied by vendors, vendors are sometimes interested to know:

    Whether goods dispatched have been received;

    Whether invoice for goods supplied has been received;

    Whether payment has been processed as per agreed terms;

    What is the likely date of payment disbursement

    Are there any disconnect on the invoice; etc

    To answer all such questions, medium and big organizations generally set up an accounts payable helpdesk, which is the front face to vendors to address their queries as mentioned above.

    Since accounts payable helpdesk is a front-end function, it allows a relatively smooth environment to the people who do the back-end process. In the organizations that have accounts payable helpdesk functional, vendors are discouraged to contact end user,

    purchase department or finance department for payment status queries.

    The source of information for accounts payable helpdesk is the ERP system on which real-time updated information about transactions with vendors is always available. Typically,

    accounts payable helpdesk functions as an incoming call center.

    Recommended metrics for tracking efficiency of AP Process

    Metrics Metrics definition Measurement Indicative

    SLAs*

    Remarks

    Accuracy % Accuracy {fatal} =

    (1 (No. of defective

    Manual

    (Sampling to

    95 to 98% The Quality of

    transaction is

  • Finance Center of Excellence Page 32

    transactions/ No. of

    transactions

    audited)) * 100

    begin with)

    Automated

    100% (As

    process

    matures and

    as per

    possibility of

    automation)

    usually separated

    into Fatal and

    Non fatal errors.

    Fatal is mandatory. Accuracy {non-fatal}

    = (1

    (No. of defective

    transactions / No. of

    transactions

    audited)) * 100

    95 to 98%

    Productivity (No. of transactions

    processed within the

    measurement period

    / No. of transactions

    (target) to be

    processed within the

    measurement

    period)*100

    Workflow tool

    (100% data)

    95 to 98%

    TAT (Turn

    Around Time)

    for Invoice

    processing /

    Supplier Query

    response

    (No. of transactions

    processed on time

    within the

    measurement period

    / No. of transactions

    to be processed

    within the

    measurement

    period)*100

    Workflow tool

    (100% data)

    95 to 98%

    AP Business Metrics

    Metrics Metrics definition

    Days Payables

    Outstanding

    (Average AP*365 days)/ Average Credit

    Purchases

    Discount earned The percent of discount earned ($) against

    available

    Write-off The dollar value of vendor debt written off

    Duplicate payments Duplicate payments (volume / $ value)

    All metrics need to be converted into targets after thorough historical analysis of client data

    and after base-lining for three months.

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    In most of the situations client will have business metrics to evaluate effectiveness of AP

    process. During outsourcing process effectiveness metrics becomes important; however client may have less visibility about these metrics and data to support. Sometimes client may not insist or agree for addition of process metrics as a part of SLAs.

    Process metrics are essential to be part of managing the operation as they are directly related to the business metrics. There are multiple definitions for a single metrics, it is essential to follow unified definitions as they are validated for appropriateness.

    In scenarios where client does not agree for addition of process metrics as a part of formal SLAs, process metrics have to be tracked as internal SLAs.

    Key Risk indicators in AP Process

    Vendor Master Creation and Maintenance -

    New master creation without approval as a percentage of total vendor base

    Number of duplicates in the vendor master

    Raising Purchase Requisitions

    Purchase requisitions (indents) raised outside the sanctioned budget limit and

    without approval

    Requisitions are not linked to item details as mapped to suppliers in the supplier

    setup

    Invoice Processing

    Number of duplicate invoices posted

    Payment Processing-

    Total amount spent on late fees and interest charges

    Amount of pre-payment discounts lost/pre-payment discounts not taken

    Total amount lost through duplicate payments

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    Self- Study Questions

    1. What is Accounts Payable?

    2. What are the two methods of accounting?

    3. What are the different functions of Accounts Payable department?

    4. How do you calculate the net working capital?

    5. Which department prepares the Indent?

    6. What are the two routes in procurement the purchase department can follow to

    decide on which vendor the order need to be placed?

    7. What is a purchase order and what are the different types of purchase order? What

    information does a Purchase Order contain?

    8. Who is a one time vendor?

    9. What is vendor set up? What are all the details required during the vendor set up

    activity?

    10. What is drop shipment?

    11. What is a packing slip? Who prepares the packing slip?

    12. What do you mean by invoice processing? What are the different types of matching

    which is available during invoice processing?

    13. What is a Non PO Invoice? Which check is more important while making the payment

    against the Non PO invoice?

    14. Name the different ways in which payment can be made to the supplier?

    15. What is a P-card? How does it works?

    16. What are the different ways in which invoice can be received?

    17. What is DPO? How do you calculate DPO?

    18. What are the different reasons for which the invoice can be kept on hold?

    19. What are the situations in which stop payment instruction can be issued to the

    banker?

    20. What is credit memo? Name the reason for raising the credit memo.

    21. What are the objectives of AP process?

    22. What are the activities that form part of procure to pay cycle?

    23. What is an indent and which department prepares it?

    24. What details are mentioned in an indent?

    25. What is supplier setup?

    26. What is the difference between Purchase Order and Work Order?

    27. Define the following terms Freight, Insurance and Taxes

    28. What do the following represent Bill to address, Ship to address and Sold to

    address

    29. What are some of the commonly used payment terms?

    30. Explain the unique features of these Purchase orders Standard PO, Blanket PO,

    Contract PO and Planned PO.

    31. What are some of the reasons why Purchase orders are altered?

    32. What is a packing slip?

    33. What is a Goods Received Note (GRN)?

    34. What is an Inspection Report?

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    35. What do you mean by exceptions in receiving?

    36. What is an invoice? What details does an invoice contain?

    37. What are the different ways of matching invoices?

    38. What is a tolerance limit with respect to Invoice Processing?

    39. What do you mean by Invoice on hold?

    40. What are the exceptions in invoice processing?

    41. What is a Non-PO invoice?

    42. What are the different modes of receiving invoices?

    43. What are the different modes of payment?

    44. What is Electronic Fund Transfer (EFT)? What are the 2 common categories of EFT?

    45. What is a P-Card? What are its advantages?

    46. Explain how the evaluated receipt settlement system works?

    47. What could be some of the reasons for keeping payments on hold?

    48. Explain some of the ways in which duplicate payments made can be corrected.

    49. What is vendor account reconciliation?

    50. What are some of the issues addressed by AP Helpdesk?