An invoice is received from a vendor for goods or services supplied. The invoice total also includes freight and taxes. How does your Accounts Payable team address these costs?
This can be one of the most significant obstacles when implementing an Accounts Payable Workflow tool.
Although the provider of an automated AP Workflow tool can configure the system to address the posting of freight and tax amounts, they cannot do so without learning what the Company needs.
So, how does your Accounts Payable manage freight and taxes billed on invoices in the manual world? Does it depend on invoice categories and/or Purchase Order type?
Consider the following:
Are suppliers supposed to ship all product to the company using the payment option of “collect” so the company is billed by the carrier? If this is the case, freight should never be billed on an invoice from a vendor. In the existing manual process, what happens if the vendor does bill for freight?
- Is the invoice returned to the vendor for correction?
- Is the invoice sent to the purchaser for approval before the freight is paid?
- Does the AP Specialist process the invoice anyway? If so, where does the freight get allocated to?
Let’s assume the company does allow freight to be billed on goods and services invoices. Wait. Why would freight ever be billed on a services invoice? More on this later in the article.
If a PO is for the purchase of inventory, should sales taxes be paid if the vendor bills for them? This depends on where the company is located and the tax laws. Don’t rely on the system provider to know these rules.
If the company has different procedures to address freight and tax billed on goods and services invoices, are mistakes being made in the manual world?
Technology exists so identified procedures can be configured and applied within AP Workflow systems.
Let’s assume sales tax is not to be paid on inventory purchase. Once a system is correctly configured, here is what could happen within the tool.
- The PO details sent into the workflow system include an indicator that it is for inventory.
- The Goods Receipts are posted when product is received.
- The invoice is received; quantities and pricing are matched to the PO and GR.
- Sales tax is also billed on the invoice.
- This invoice is automatically routed to an Error bucket or task list for Accounts Payable to address.
- A revised invoice can be requested from the vendor.
- The original invoice can be “cancelled” within the workflow system so it is removed from the processing flow but is still retained within the records. Notes can be added to the record for audit purposes.
Here is an example of how freight costs billed on invoices could be addressed.
- Freight billed on an inventory PO invoice could be automatically allocated to an inbound freight GL account. Assuming invoiced quantities and pricing match the PO and receipts, no AP personnel would need to touch this invoice for it to be processed.
- If the PO is for a Non-Inventory purchase but the goods are consumed in a manufacturing process, the company may use the inbound freight GL account here as well.
- If the PO is for goods used by the back offices; marketing, legal, finance, etc., the amount of the freight may be added or allocated to the same GL coding used on the purchase order so the full expense of these purchases is charged to the same cost center and expense account.
- If the PO is for a Capital item, again, the freight expense may be charged to the same account number on the PO but an asset number may also need to be referenced on this transaction line.
- Finally, as mentioned earlier, what if freight is billed on a service related invoice? If the PO details loaded into the AP workflow system include an indicator that the PO is service related, a business rule could be configured so if freight is billed on any service related invoices, they are rejected automatically to an Error task list for Accounts Payable to address.
Freight and tax rules/procedures performed in the manual world, if clearly presented to the AP Workflow provider, can be set up within the Workflow tool. Invoices that will be matched to the Purchase Orders, the freight and/or tax allocated per the rules, then the invoice details can be uploaded into the company’s ERP. All without an Accounts Payable specialist being involved. Image if only exception invoices were presented to Accounts Payable.
Want to learn more? Contact New England Document Systems or CS Process Flows. They have the experience, and the resources to assist you; from answering your questions about available solutions to helping you to implement the right tool. Contact us to discuss just how much improvement you want to see in your Accounts Payable Operation.
This article is part of New England Document Systems’ partnership with industry experts. This contribution was written by Anne Wheeler of CS Process Flows, LLC. Anne is a Consultant and Project Manager specializing in Accounts Payable processes and systems.