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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.
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.
The business produces a purchase order (PO) after the purchase requisition is approved. The business provides the purchase order to the vendor awarded the business.
This PO is an official commercial document. It is 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:
The name of the products or services
Quantity
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. It confirms that the company can fill the order. Or it tells the buyer that it cannot complete the order - in which case the PO is cancelled.
The seller then produces and/or prepares the order for shipment. Or it schedules the necessary resources to provide the ordered services.
Next, it ships the order - or provides the service. The seller places the PO number on the packing list or services receipt. This is so the buyer knows which products have arrived or services have been delivered.
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
You match contract expenses against the terms of the contract rather than a PO. This necessitates more involved non PO invoice procedures and approval process.
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.
And with AP automation in place, your company will save time and money and be prepared for future disasters!