Monthly Archives

January 2018

3-way match

What is a 3-way match? How it can Help You Manage Finances?

By | Purchase Order Plus | No Comments

Managing finances and controlling their expenses is, for most companies, one of the hardest task they have to do. Many in fact, despite all the success in other areas such as finding loyal customers, having a great product and so on, fail simply because they were not in full control over their budget. This is why it’s necessary for a company to get a good grip on how it spends his money on procurement and using 3-way match is a practice that’s proven to work time and again.

What is 3-Way Match?

A 3-way match is a payment verification technique that validates that the invoice the supplier sent is genuine and matches the buyer’s purchase order and order/shipping receipt.

So, as you can already surmise, 3-way matching includes three documents that need to, well, match, before the buyer can make a payment for the goods he has received from the seller and pay their invoice.

These documents are:

  1. Invoice
  2. Purchase order
  3. Order receipts or slips

Let’s take a look at what part each of these play in a 3-way match:

  • Invoice

An invoice is a document sent from the supplier to the buyer and is basically a request to for the later to pay for the goods they have received from the former. The invoice must include the same information as the purchase order and if it doesn’t (need to check that), it can’t be valid. Beside this, the invoice also contains its own number, payment schedule, how much is the purchaser due to pay in total and contact information.

  • Purchase Order (PO)

A purchase order is a document sent from the buyer to the vendor in which they confirm an authorize a purchase certain goods, supplies or material and any related terms such as quantity and quality, delivery schedule, shipping address and so on.

  • Order receipts or slips

The final document in the 3-way match is the order receipt or slip. This document proves that both payment and delivery were made.  It contains information on the order shipment and as such, the seller will include it with the goods they are delivering to the buyer.

What are the Reasons to Use a 3-Way Match?

Although it may seem easy to match three documents in theory, in practice it’s not. Very often discrepancies and inconsistencies happen between a PO and invoice, PO and order receipt or between all three. As a result, businesses may end up paying more than what they ordered, invoices remain unpaid even though the vendor has shipped the goods or something else happens.

So the two most important reasons to use a 3-way match are:

  1. It helps business control finances and expenditures better.

By confirming that all three of these documents and their information match 100%, companies can prevent overexpenditure, double payment or simply paying for something they never received.

  1. It builds a better buyer-vendor relationship

In the end, purchasers and vendors need to get along, at least in business. It doesn’t help if there are always problems from one side or the other. A 3-way match almost ensures that there won’t be.

Conclusion

Not controlling if your purchase orders and invoices match is a sure way to lose money and cause some other problems. This is why a 3-way match is of such value for both the buyer and the vendor.

Do you use 3-way match? Let us know in the comments how it works for you. Also, don’t forget to subscribe your email for early access to our Purchase Order Plus software.

what is the procure to pay cycle

What is Procure to Pay Cycle? 14 P2P Cycle Steps Explained

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Last week we talked about procure to pay (P2P). We explained why it is important and useful for accounts professionals to adopt procure to pay systems and how this can help them run their businesses more effectively. We also touched a little on procure to pay cycle and said it consists of the following 14 steps:

  1. Identifying the requirement
  2. Authorizing the purchase order
  3. Approving the purchase order
  4. Procurement
  5. Identifying and vetting the suppliers
  6. Taking quotes from suppliers
  7. Negotiating terms with suppliers
  8. Selecting a supplier
  9. Confirming a purchase order
  10. Sending a shipment notice
  11. Receiving and inspecting the received goods
  12. Recording an invoice
  13. 3-Way match
  14. Paying the supplier for the goods they have delivered.

In this post, we will explain each of these 14 procure to pay cycle steps and what they mean.

Identifying the Requirement

Before a purchase can be made, there has to be a need or requirement for supplies, material or parts needed for the continuation of a business operation. This requirement can be identified by a worker directly on site, who notifies his immediate superior, who then creates and submits a purchase request to the manager.

Authorizing the Purchase Request

There are several factors that can affect and derail the authorization of a purchase request. For instance, it might need a higher level of authorization and be required to be sent to a senior level executive for approval or revision. Also, the purchase request might clash with the company’s or the department’s budget limit and this can cause it to be rejected or returned for revision.

Approving the Purchase Request

However, if all obstacles have been successfully surmounted and it has received an approval from the procurement officer, the request can then proceed to the the next step. In larger organizations this may be an inventory controller. He will look if the company already made similar requests earlier. Once the inventory controller is finished, the purchase request is sent to the procurement department. Keep in mind that in smaller organizations, these two may be the same person.

Procurement

The next step in the procure to purchase cycle is the procurement itself. There are two ways this step can go.

a) If there were other requests like this one, then the company creates a  Call-Off with an existing supplier the company has a contract with.

b) If there are no similar requests, then the buyer looks for a new supplier.

Identifying and Vetting the Suppliers

There are several ways for a company to find a supplier for the materials it requires. This includes referrals, search databases, Internet search, etc. The buyer needs to carefully consider his options and select a few potential suppliers. The next step is to send each of them a request for proposal (RFP) or a quote.

Taking Quotes from Suppliers

Once the buyer sends out RFPs to potential suppliers, they need to prepare quotes and send them back to him. The buyer then needs to review them. This person will make the changes and send the quote back to the supplier and tell him if he agrees or not.

Negotiating Terms with Suppliers

If the buyer has approved the RFP and quote from the supplier, the two can proceed to negotiate the terms. This will include: payment terms, delivery terms, freight fees, insurance fees, quantity discount, quality and more.

Selecting a Supplier

Once the buyer has concluded negotiations with the potential suppliers and identified one he will do business with, he will award that supplier a contract and send him a purchase order (PO) for the items.

Confirming the Purchase Order

After the supplier receives the purchase order, he needs to send a confirmation to the buyer. The buyer then keeps this confirmation for future reference in his records. Earlier this was done on paper, with both the buyer and the supplier having several copies (for each department involved), but today all of this can be done via specialized software or email.

Sending a Shipment Notice

Following the confirmation of the PO, the supplier needs to send a shipment notice to the buyer, notifying them that the goods are on their way. This notice will typically include the shipment date, delivery location address, PO number, description of goods (number of packages, their weight…) and the name of the transporter, among other things.

Receiving and Inspecting the Goods

Once the buyer has received the goods, he will have to inspect it thoroughly to see if it matches the terms agreed with the vendor. At this stage, the buyer needs to check the condition and quantity of the items. The delivery staff will also compare the PO number to the one from the request and confirm the receipt.

Recording an Invoice

If the buyer has acknowledged that he has received the goods and has no complaints (he didn’t send anything back), the supplier will send him an invoice for payment. The invoice will contain the payment date, how much the buyer is to pay, PO number and other payment terms.

3-Way Match

The purchase order, invoice and any delivery documents need to go through revision and checking by the accounts payable department of the company to see if everything matches.

Paying the Supplier

This is the final step in the procure to pay cycle. If everything is okay and the invoice matches the purchase order and the delivery documents, the buyer issues a payment to the supplier according the the payment terms they’ve agreed upon.

Conclusion

And that is how the procure to pay cycle works! All 14 steps of the P2P cycle explained.

What do you think about the procure to pay cycle? Are you using it? Let us know in the comments below the post and don’t forget to sign up for early access to Purchase Order Plus and join our launch list today!

What is procure to pay

What is Procure to Pay? Why Does Your Business Need P2P?

By | Purchase Order Plus | No Comments

No one can say that the life of an accounts payable professional is an easy one. Balancing dozens, sometimes hundreds of different purchase orders and making sure they don’t mess anything up is a stressful job, but necessary if the company wants to keep its customers and shareholders happy and satisfied they are doing business with it.

Of course, the processing and PO systems are often wide apart. Sometimes sections of it are not even in the same building or even country. They could be on different continents.

To mitigate this problem, accounts payable professionals are using procure to pay systems to bring the accounts payable process and the supply management together. By doing this, you can ensure not only that your business runs more efficiently, but also the satisfaction from your shareholders and customers.

So what exactly is procure to pay? Why is it so important for your business to adopt it?

Procure to pay, or P2P, is a system of acquiring and managing raw materials that a company requires to manufacture its products or provide services. and of course, paying for these raw materials.

The procure to pay is am entire process. We’ll not get into the details of it here, but here are the basic steps that a P2P normally involves:

  1. Identifying the requirement
  2. Authorizing the purchase order
  3. Approving the purchase order
  4. Procurement
  5. Identifying and vetting the suppliers
  6. Taking quotes from suppliers
  7. Negotiating terms (payment, delivery schedule, etc) with suppliers
  8. Selecting a supplier
  9. Confirming a purchase order
  10. Sending a shipment notice
  11. Receiving and inspecting the received goods
  12. Recording an invoice
  13. 3-Way Match
  14. Paying the Supplier for the goods they have delivered

As you can see, there are quite a few steps (14 to be exact) in the procure to pay cycle, so we’ll leave their details for another time right now.

Why You Want to Automate Your Procure to Pay System?

What we want to bring your attention to is why you don’t want to do procure to pay manually or why you should stop doing things like that and switch to automated P2Ps.

Procurement can involve a ton of paperwork, invoices, purchase orders, emails, shipping notices. Keeping track of all that, ensuring that everything is in perfect order and that, finally, payments are made on time is a task that often requires a lot of time, money and an army of employees to make it happen.

And still, there’s a high chance that you could do something wrong. This is why it’s much better to simply make your procurement to pay system automated and make it faster, easier to follow, less expensive and, above all, more efficient.

The Biggest Benefit of Procure to Pay

But what are the benefits of procure to pay?

Well, for one, and this is probably the one most businesses are the most interested in, is that it will save you time, money and resources (including human ones, of course). Yes, it costs all of these to initiate it, which is why many organizations might be reluctant, but the advantages far outweigh the disadvantages. As a mater of fact, your question shouldn’t be “how can we afford P2P?” but rather “how can we not afford it?”

Conclusion

A lot can go wrong in procurement. Which is why you need to take every step necessary to keep things from falling apart and ensure that your organization goes through this process safe and sound every time they are procuring material and resources for its products and services. A good, automated procure to pay system is how you do it.

Do you have any question about procure to pay? Let us know in the comments below the post what you think and don’t forget to sign up for early access for Purchase Order Plus and receive updates about POP software.

what types of purchase orders do you need

What Different Types of Purchase Orders can You Use?

By | Purchase Order Plus | No Comments

A purchase order (PO) is a document that a buyer sends to the supplier together with an order request for the supplies, material or equipment his business needs. Once the the seller accepts it, the PO becomes a legally binding document for the two parties. If the buyer declines to pay the PO and has received the goods, the purchase order will protect the seller.

However, not all purchase orders are the same. Since companies have different requirements when procuring from their vendors, there are different types of purchase orders they can use.

There are four types of purchase orders:

  1. Standard PO
  2. Planned PO
  3. Contract PO
  4. Blanked PO

Each of these will be used by an organization depending on specific circumstances and needs, and especially its knowledge of details such as item quantity needed, price, payment terms, delivery schedule and so on.

In the following article, I will explain each of these four types of purchase orders and how they work.

Standard Purchase Order

Standard POs are the most common types of purchase orders. Here, the buyer already knows exactly what type of item does he need, its quantity, how much it costs, has agreed with the vendor about the payment terms and when it should be delivered.

For example, after analyzing its inventory and supplies, company X determines that it needs new toner cartridges for its  printers. In addition, company X also knows the amount and type of the cartridges it needs (all of its printers are of the same type). Finally, the price, payment terms and delivery schedule are also known. With that knowledge, company X creates a standard PO and it sends it to the seller (for example Hewlett-Packard) for acceptance.

Planned Purchase Order

A planned PO is used when the business knows the item, its quantity and price and the payment terms. What is not known, however, is the delivery date. In such case, the buyer only provides an approximate date to the seller (for example “between 1st and 15th in the month”).

For example, company X knows that it needs toner cartridges and, based on how much printers it has and how often they are used, it estimates that it will need 15,000 toner cartridges per year in the next 6 years. Based on this, instead of sending a standard PO every time it needs new cartridges, company X will send a planned PO to the vendor.

Contract Purchase Orders

In case the buyer doesn’t know or can’t anticipate the specific details about its order such as the item, quantity, price, delivery, etc. he will create a contract purchase order for a certain period of time, most often for a year.

For example, company X requires new cartridges for its printers. However, since it has different types of printers, laser and ink, it also needs different types of cartridges (toner and ink-jet). In addition, since the printers are used at different times and not always on the same quantity of paper (sometimes just one page, other times a sheet), company X will need cartridges at different times as well. If this is the case, it creates a contract purchase order.

Blanket Purchase Order

If you know what item you need, but not how much or when it needs to be delivered, you can create a blanket purchase order.

For example, company X requires 5,000 toner cartridges per year, but doesn’t know how much it needs per delivery or when the delivery dates should be. In this case, company X creates a blanket purchase order.

Conclusion

Knowing what types of purchase orders to use and when will help your business run much more effectively. Therefore, before creating a PO, be sure to analyze your inventory to determine the item, quantity, price, delivery schedule and as much as possible about the order.

Looking to create purchase orders on mobile with ease? Sign up for early access to Purchase Order Plus.