When automating accounts payable it is critical to understand the difference between a PO and non PO invoice.
Purchase orders (POs) and invoices are commonly confused in finance terms. This is because both communicate payment terms and payment amount.
So let’s clear up any confusion:
Invoices are a request for payment for services rendered or goods provided.
And vendor invoices can be divided into two types: PO invoices and non-PO invoices.
To fully understand the difference between PO invoices and non-PO invoices we must first explore the difference between PO and non-PO purchasing of goods and services.
And then we can discuss how CoreIntegrator’s solutions automate the processing of PO invoices as well as non PO invoices to make your AP team 500 times more efficient.
The PO Purchasing Process
Well run businesses operate under solid business plans. These plans include budgets that assume predictability of costs. Business leaders know what the business will need to purchase in order to turn a profit, so they budget for those goods and services.
When it’s time to purchase those goods or services, someone familiar with the purchase submits a purchase requisition based on the business plan, budget and price quotes they’ve received from vendors. Typically the purchase requisition goes through an approval process.
After the purchase requisition is approved, the business produces a purchase order that can be provided to the vendor that has been awarded the business.
This PO is an official commercial document issued by a buyer who is committing to pay the seller for a specific product or service that will be delivered in the future.
A good PO will include:
- Products or services to be purchased
- Quantity being purchased
- Product or service names, SKUs, or model numbers
- Price per unit
- Delivery date
- Delivery location
- Billing address
- Payment terms, including any early pay discounts
The seller receives the buyer’s PO and either confirms that the company can fill the order or tells the buyer the order cannot be completed and the PO is cancelled.
If the order can be filled, the seller begins producing and/or preparing the order for shipment, or scheduling necessary resources to provide the ordered services.
Next, the order is shipped – or service is provided. The PO number is placed on the packing list or services receipt so the buyer knows which products have arrived or services have been delivered.
Advantages of the PO Purchase Process
The PO purchase process provides improved accuracy in both inventory and financial management. And it allows for better planning and budgeting, since funds need to be available before a PO is issued.
It also allows for faster delivery since POs help vendors schedule production and/or delivery when the buyer needs it.
POs also give buyers the advantage of placing an order without immediate upfront payment. At the same time, they allow sellers to provide their customers credit without risk, since the buyer must pay for the products or services once they have been delivered.
POs can be as rigid or flexible as the vendor and customer want. For example, a PO can cover only a one-time purchase, or a blanket PO can allow the customer to buy products or services on an ongoing basis until a predefined maximum limit is reached.
PO Invoices and Approvals
The PO purchasing process is well planned out, thorough and structured. So the PO invoice and approval process can be too.
Once the buyer’s order is shipped or service is provided the seller invoices for the order using the PO number so that it can easily be matched with the delivery information. This is called a PO invoice.
In reality, A PO is basically a pre-approved PO invoice. The purchase, supplier and amount was approved as part of the PO purchase process leading up to the purchase order. So a PO invoice should look almost identical to the PO itself.
Because of this pre-approval process, a PO invoice can typically be processed without further approvals. As long as all the PO invoice details match the information on the purchase order as well as the goods receipt there should be no need for further manual review or approval a PO invoice.
And if a discrepancy between the PO and PO invoice is identified in the matching process, the invoice will be sent to the buyer for review and action.
Automating PO Invoice Processing
So the key to automating PO invoice processing is all about PO matching.
The details should be the same on the PO, the packing slip/receipt and the PO invoice.
Matching the PO to the PO Invoice alone is called 2-way matching. Matching the PO to the PO invoice and the packing slip or receipt is called 3-way matching.
The 3-way matching method is more efficient because it can identify any discrepancies in the three critical PO purchasing documents: purchase orders, order receipts/packing slips, and invoices. 3-way matching of PO invoices saves businesses from overspending or paying for an item that they did not receive.
With so many details to review, 3-way matching can be a tedious process if done manually.
But CoreIntegrator Enterprise for enterprise-sized companies as well as A/P One AP automation for small and medium sized companies provide automated PO matching. Our systems can automatically compare the three critical PO documents and highlight any discrepancies between them.
Once matched, PO invoices can be pushed to an ERP or accounting system for payment.
Or you can use CoreIntegrator’s OnPay Solution to automatically make electronic payments by check, ACH or wire transfer. This saves somewhere between $2 and $4 for each manual check you currently cut. So the savings add up fast.
Or, even better, why not use virtual credit cards and receive a 1% rebate on every payment you make!? That’s right, suddenly your AP department will be ADDING to your organization’s bottom line every time they pay a bill!
This brings massive efficiency to processing PO invoices, freeing your AP staff up to save your company money!
Watch this brief video to see how CoreIntegrator Enterprise automates the entire procure to pay process:
The Non PO Purchasing Process
Non-PO purchases are the result of spend outside a regulated procurement process. This type of invoice is often called an expense invoice.
Non-PO payments can also be the result of contracted products or services.
PO purchasing is a business best practice. But POs don’t make sense for smaller purchases, regular expenses, or legally contracted services.
Payment for goods, supplies, or equipment under a certain dollar limit, for example, make for poor candidates for PO purchasing. The small amounts involved don’t justify all the effort involved in the PO process.
Business/travel related expenses and conference fees with proper substantiation also require a different approach to payments or reimbursements.
State, local or federal taxes, permits and/or license fees are another category of non-PO expenses. As are refunds.
And while it’s useful to think of POs as ‘mini-contracts,’ POs do not become legally binding until the seller accepts them. A proper contract, on the other hand, is a legal document from the beginning as soon as both parties sign it.
So while contracted purchases are similar to PO purchases, contracted invoice processing and approval are handled differently from PO invoices.
Contracted purchases might include:
- Building leases
- Facility maintenance and cleaning
- Utilities (e.g., water, sewer, electricity, etc.)
- Consulting services
- Legal services (attorney fees)
- Advertising expenditures
- Trade show expenses
Contract expenses must be matched against the terms of the contract rather than a PO. This necessitates more involved non PO invoice procedures and approval process.
Non PO Invoices and Approvals
Unlike a PO invoice, a non-PO invoice will not be pre-approved in a purchase order.
Therefore, non-PO invoices need to go through an invoice approval process within the buying organization before being paid.
Typically, the AP team will apply the appropriate accounting codes to non-PO invoices and identify the invoice approver(s) based on the information on the invoice to the best of their knowledge.
This can be a complex process. And if done manually, this process is fraught with potential for errors. Internal approval hierarchies can be based on location, invoice amount, invoice type, cost center or any other criteria. Based on these criteria they will need to go through multiple approval steps in the internal hierarchy.
Once all the necessary approvals have been obtained, the invoice comes back to accounts payable for final booking and payment.
Automating Non PO Invoice Processing
The key to automating non PO invoice process is three-fold: automating data entry, automating invoice approvals, and automating electronic payments.
Automating Invoice Data Entry
Data entry is the most tedious, time consuming and error-prone aspect of processing non-PO invoices. Automating non-PO invoice data entry saves time, money and embarrassment.
And CoreIntegrator’s Verified Data Capture Service not only automatically captures invoice data, but that data is then verified by up to four humans, providing near 100% accuracy of invoice data.
Whether you select CoreIntegrator’s A/P One AP automation solution designed for small to midsize companies or our Enterprise solution designed for large corporations or organizations, you can use the CoreIntegrator Data Capture Service to automatically enter and verify key AP invoice data into your system.
Smart AP uses key and learned values to automatically complete data fields based past entries. It’s an autocomplete function that learns as you enter data. Plus it completes the fields that can not be populated by Optical Character Recognition (OCR) technology, including GL coding, approval paths and invoice descriptions.
After you enter data on a recurring invoice like rent payments or utility bills only one time, Smart AP remembers your entries and will pre-populate everything the next time that invoice arrives. So the more data you enter, the less data entry you have to do!
Automating Invoice Approvals
Invoice approvals are the biggest choke point of manually processing non-PO invoices.
Paper invoices need approval cover sheets and have to be passed around the office. They get lost, forgotten, thrown away and potentially ignored when approvers are traveling.
While invoice approvers like to keep track of their numbers and vendors, they want to do so as quickly as possible.
With AP automation they can.
They will be able to see an image of actual invoices from anywhere in the world and approve them with a single click, even from home or on a mobile device.
Our AP automation solutions also gives approvers immediate insight into an invoice status for those awkward moments when managers, salespeople or executives are talking to impatient vendors who want to know when they will get paid.
Automating Electronic Payments
Once approved, as with PO invoices, non-PO invoices are automatically pushed to an ERP or accounting system for payment.
Or you can use CoreIntegrator’s OnPay Solution to automatically make electronic payments by check, ACH or wire transfer.
But we recommend implementing automated virtual credit cards to receive a 1% rebate on every payment you make.
Watch this brief video to see how A/P One for small and medium sized businesses automates the entire procure to pay process:
Bottom Line – The Difference Between a PO and Non PO Invoice
Successful companies process both PO invoices and non PO invoices every day.
But they are fundamentally different and require different workflows. This can lead to complicated and time consuming efforts.
But whatever your company’s invoice process is, AP automation from CoreIntegrator simplifies and automates both PO invoice processing and non PO invoice processing.
Contact us today and let us show you how!