Part 7 of a ten-part series that examines key operational aspects of the so-called “Purchase to Pay” value chain
by Independent Contributor, Peter Alkema – Head: Purchase to Pay at ABSA
Paper, paper, paper – still remains one of the most pervasive raw materials of the modern day office, which has still not been eradicated by the advent of modern technologies and supposedly integrated systems.
The same can be said for the supply chain between organisations – while the architecture exists to work ‘paperlessly’ the exchange of documents and originals is still a core aspect of most buying and selling transactions. The linking of certain documents in the purchase-to-pay value chain is the critical and auditable step towards the completion of the transaction. In this article we will describe the two main types of document matching, as well as the electronic and other implications of each of these methods.
Surprisingly enough (!) this comprises of a comparison of three documents that are produced during the purchase-to-pay value chain. These three documents are:
- The purchase order: This is the document (see part 5 and part 6) which is produced once a request for goods and / or services has been approved on the system. Usually it is the conversion of a shopping cart when the cost centre manager gives their approval.
- The goods receipt: This is the electronic document produced when the requestor indicates that the goods requested have been received in good order.
- The invoice: This is the vendor document that is submitted to the purchasing organisation requesting payment for goods and / or services delivered.
“Assuming the goods procured have been fully delivered, then the line items, header details, prices, quantity and vendor information can be compared on all three documents. In the case of a partial delivery, the goods receipt and invoice will match, and should constitute a portion of the original purchase order. Interestingly, many organisations rely on the vendor’s delivery note as the goods receipt, but, strictly speaking, this should only be a reference document, and the goods receipt is completed on the in-house purchasing system by the requester when they confirm that the goods have been delivered as required. When the request is for services, the goods receipt is quite critical and should be supported by detailed evidence that the service has been delivered as expected and committed to by the service provider”, Peter Alkema, Head: Purchase to Pay, ABSA, explained to SmartProcurement.
Often the goods receipt is handled slightly differently and is omitted in the form described above. One way of doing two-way matching is to compare the purchase order with the invoice and use some other means of confirming that the goods have been delivered and / or that the invoice is authorised for payment. Commonly this is called ‘invoice verification’ and would be the scanned invoice from the supplier sent to the requestor via a workflow system to confirm that the goods have been delivered and the invoice can be paid. This still provides the auditable track record that the electronic goods receipt offers. Very often either invoice verification, goods receipt or even the delivery note is not included in two-way matching, and thus as long as the invoice matches the purchase order, then it is paid. This may occur with trusted and regular suppliers and is by default the way that Extensible Markup Language (XML) and electronic invoicing (part 6) works.
Comments on both methods:
- Advantages of three-way matching:
- Zero tolerance confirmation that the purchase-to-pay process has worked correctly although it does not account for user error.
- Forces greater discipline, governance and control in the organisation.
- Disadvantages of three-way matching:
- Requires the requestor to remember to log-in, which is often the single biggest reason for delays and mix-ups with payments and deliveries.
- Advantages of two-way matching:
- If invoice verification is used, it is a process that triggers a response from the requestor, rather than relying on them logging in.
- Disadvantages of two-way matching:
- Less governance and control, creating greater opportunities for fraud and collusion.
Ultimately, as highlighted in previous articles, “the worse situation is where the invoice is the first document to be processed. This is a complete breakdown of purchasing governance and control, and if only the purchasing order is at least created beforehand, then this is more desirable. The golden rule is the more you can cross-check and compare elements and documents in the process, the more one can remove weaknesses and loop holes in the purchasing and payments department. Three-way matching is generally considered to be best practice in the pursuit of world-class operational procurement”, Alkema concluded.