Explore core accounts payable components

Completed

Accounts payable is money owed by a business to its suppliers shown as a liability on a company's balance sheet as short-term debt. For example, a restaurant might receive a shipment of food before the food is paid for. This debt is part of its trade payables.

Vendors

A company purchases goods and services from vendors. Each accounts payable transaction must be associated with a vendor. Use the Vendors page to create, maintain, and inquire about vendors.

Tip

Always enter as much data as possible when you set up a new vendor in Finance, because that data is used throughout the system for invoices, payments, and reports.

The base data automatically appears as the default for all transactions involving the vendor, but default information can always be changed if you need to override it.

Note

To learn more about creating vendors, access the corresponding link in the Summary unit at the end of this module.

Vendor invoices

To discuss vendor invoices, we must first examine where they fit in with the business processes for Accounts payable.

Diagram depicts business processes under accounts payable, including pay for product or service, prepay for product or service, pay expense or commission or salary, refund customers, and close account payable.

When ordering a product or service from a vendor, you need to create purchase requisitions, enter purchase agreements, and enter purchase orders. Then, as a part of Accounts payable, you will need to pay for the product or service. This involves receiving and entering invoices, generating and submitting vendor payments, and managing vendor settlements.

You can enter vendor invoices manually or receive them electronically through a data entity. After the invoices are entered or received, you can review and approve the invoices by using an invoice approval journal or the Vendor invoice page. You can use invoice matching, vendor invoice policies, and workflow to automate the review process so invoices that meet certain criteria are automatically approved, and the remaining invoices are flagged for review by an authorized user.

A vendor invoice from a purchase order is produced when products or services are received according to a purchase order placed with a vendor. The vendor invoice contains a header and one or more lines for items or services. A vendor invoice completes the cycle from purchase order to product receipt to vendor invoice.

Although some vendor invoices connect to a purchase order, vendor invoices can also contain lines that don't correspond to purchase order lines. You can also create vendor invoices that aren't associated with any purchase order. These vendor invoices might represent ongoing services, such as a utility bill. You don't have to reference a purchase order when you add an ongoing service.

There are several ways to enter a vendor invoice:

  • The vendor invoice register lets you quickly enter invoices that don't reference a purchase order so you can accrue the expense. By using the vendor invoice approval journal, you can select those invoices and post them to the vendor balance to reverse the accrual.
  • In a single step, the vendor invoice journal lets you quickly enter invoices that don't reference a purchase order.
  • Together with the vendor invoice pool, the vendor invoice register lets you quickly enter invoices to accrue the expense. You can open the associated purchase orders later to post the invoice against the expense account.
  • The Open vendor invoices and Pending vendor invoices pages let you create vendor invoices from confirmed purchase orders.

Purchase order

A purchase order (PO) is a document that represents an agreement with a vendor to buy goods or services. The document also helps keep track of product receipts made toward the order and, later, the accounting of vendor invoices the vendor bills toward the order.

The Purchase orders page contains an overview of the available orders and lets you modify those orders. When you open a PO, you can select the Header view, which contains information that is specified only one time for each PO, such as the vendor details. Alternatively, you can select the Lines view, where you can modify order lines. Typically, you will switch between these two views as you modify POs. Charges aren't listed directly on the Purchase orders page, but they are accessed via menus on the order header and lines.

There are many reports where you can view information about POs, product receipts, and vendor invoices. These reports are found in the Procurement and sourcing and Accounts payable modules.

The Purchase order preparation and Purchase order receipt and follow-up workspaces let you view lists of POs in the various states that they have progressed to. They also provide a summary of the actions that must be taken. The Purchase order preparation workspace is focused on PO creation and review, order processing through approval, and confirmation with the vendor. The Purchase order receipt and follow-up workspace is focused on processing the receipt of goods or services against POs. It includes lists that give insight into receipts that are overdue or that will soon be due for delivery by the supplier. These workspaces aren't used to perform the related receipt activities done in the warehouse. Those activities are performed by using pages in the Inventory management and Warehouse management modules. Processing vendor invoices should be done by using the Vendor invoice entry workspace, and payments should be done by using the Vendor payments workspace.

Note

To learn more about the various stages a PO goes through, access the corresponding links in the Summary unit at the end of this module.

Three-way matching policies

A “three-way match” refers to the three components (purchase order, receipt of goods, and supplier invoice) that must match within agreed-upon tolerance levels to ensure a proper and timely payment.

Let's examine a three-way matching example for item and vendor combination.

Summary: Ken is the controller at the corporate headquarters of a legal entity named Fabrikam. Ken decides that all invoices based on purchase orders should be matched with purchase order lines (two-way matching). Cassie is the bookkeeper at the Malaysia division of Fabrikam. She specifies that selected items ordered from certain vendors in Malaysia should be matched with both the purchase order lines and product receipt lines (three-way matching). She can also override the matching policy to a higher level of matching for specific purchase orders.

The volume and amounts are small, and there have been problems with delivery from some vendors in Malaysia. For these reasons, Cassie sets the level of control for certain item and vendor combinations procured in Malaysia to three-way matching.

The invoice matching policies in this example help people in the following roles meet these goals:

  • Ken is the controller for the Fabrikam enterprise. He can help the people in his organization identify and correct problems with ordering, receiving, and paying for items (goods and services) from vendors.
  • Cassie is the bookkeeper for the Malaysia division of Fabrikam. She can enforce corporate policy and make sure invoices are paid only after they are matched with purchase order lines and product receipts that represent the receipt of goods and services. She can also increase the level of control to three-way matching for specific items to control operational costs.

Prerequisites

  • Ken sets the matching policy at the legal entity level to Two-way matching.
  • Ken sets the Match price totals field for the legal entity to Percentage and enters 10% as the tolerance percentage.
  • Ken sets the unit price tolerance for all items to 2%.
  • Cassie sets the matching policy at the item and vendor combination level for item PH2500 – Computer and vendor Contoso to Three-way matching.
  • Alicia, a purchase order clerk at the Malaysia division of Fabrikam, issues purchase orders to Contoso to supply three items, as shown in the following table. When she creates the purchase order, she overrides the matching policy for the wireless mouse to be three-way matching instead of two-way matching.

Item number

Quantity

Unit price

Net amount

Matching policy (default entry)

Matching policy (on the purchase order line)

PH2500 – Computer

2

2,500.00

5,000.00

Three-way matching

Three-way matching

MM01 – Wireless Mouse

2

40.00

80.00

Two-way matching

Three-way matching

USB Drive

200

10.00

2,000.00

Two-way matching

Two-way matching

Scenario

  1. The items arrive. Sammy, a worker in the receiving department of the Malaysia division of Fabrikam, is interrupted and does not post the product receipt immediately.

  2. April, the accounts payable coordinator at Fabrikam, enters and verifies the invoice submitted by Contoso. She verifies the following information:

    • For items that require three-way matching, the quantity on the invoice line matches the quantity that was received. The received quantity is indicated on the product receipt that is matched to the invoice.

    • For items that require two-way or three-way matching, the prices on the invoice line are within the tolerances defined in the application. This includes the following types of price matching:

      • Net unit price matching – The net unit price on the invoice line matches the net unit price on the purchase order line, within the tolerance percentage. In this example, the net unit price tolerance is +2%.
      • Price totals matching – The net amount on the invoice line matches the net amount on the purchase order line, within the tolerance percentage, amount, or percentage and amount. In this example, the price totals matching tolerance is +10%.

The paper invoice from Contoso contains the following information:

Item

Quantity

Unit price

Net amount

PH2500 – Computer

2

2,500.00

5,000.00

MM01 – Wireless Mouse

2

41.00

82.00

USB Drive

200

10.05

2,010.00

Total invoice

7,092.00

The invoice line includes the following information.

Item number

Quantity

Unit price

Line net amount

Matching policy

Product receipt quantity match

Price match

Price total match

PH2500 – Computer

2

2,500.00

5,000.00

Three-way matching

Failed

Passed

Passed

MM01 – Wireless Mouse

2

41.00

82.00

Three-way matching

Failed

Failed

Passed

USB Drive

200

10.05

2010.00

Two-way matching

Passed

Passed

Note

Note the following items:

  • For the PH2500 – Computer line, the Product receipt quantity match column has a warning icon, because the invoice line is not matched to a product receipt.
  • For the MM01 – Wireless Mouse line, the Product receipt quantity match column has a warning icon, because the invoice line is not matched to a product receipt. The Unit price match column has a warning icon, because the 2% net unit price tolerance is exceeded.
  • For the USB Drive line, the Product receipt quantity match column is blank, because two-way matching does not match invoice line and product receipt line quantities.

If approval is required for invoices to be posted with invoice matching discrepancies, the Approve posting with matching discrepancies toggle on the Invoice matching details page must be selected before the invoice can be posted with price matching errors and quantity matching errors. If approval is not required, invoice processing can continue if there are no other posting errors.

Note

To learn more about three-way matching policies, access the corresponding link in the Summary unit at the end of the module.