Accounts Payable User Guide

Accounts Payable

It is the responsibility of the accounts payable team to clear the debts owed to others. P2P
comprises of several teams such as Procurement, Invoice Processing, Vendor Management,
Queries Team, AP Customer service, Payments, Cashier and Reconciliation.

P2P means Procurement to pay.

The process cycle goes like this.

The buyer will be raising the purchase order to the supplier. The supplier in turns sends the
goods to the warehouse. The warehouse staffs will be checking the goods receipt with the
delivery Chelan. Once checking is being completed, the receipt details will be updated by
warehouse team in the respective system. The invoice will be sent by supplier to AP end by
Vendor Portal, EDI upload or invoice will be sent through hard copies to PO boxes or
through mails to scanning team or AP contacts.

The AP contacts will process the invoice and match to the receipts that are being updated
both in Invoice and PO. If there is any discrepancy in the price or quantity the AP will block
the invoice and send it to the buyer for clarification. Once the resolution is provided by the
buyer then the AP will be processing the same for payment.

If the bill to address or other details are not provided by them then the AP can reject the same
to supplier.

The payments team will be pulling the invoices to payment and send the funding request to
treasury team. Once the funds in available the validated payment file will be sent to treasury
team for making the payments.

The treasury will be reconciling the payments made in ERP with the bank account and keep
the payments team posted on the void or rejection, refund entries that needs to be booked.

The reconciliation will be carried out by the AP end on the vendor reconciliation.

When the PO is raised, the journal entry should be

Inventory A/C DR
To Inventory Control A/C

While processing the invoice, the entry should be,

Inventory Control A/C DR

To Vendor Liability A/C

While making the payment, the entry should be,

Vendor Liability A/C DR

To Payment Control A/C
While Cashier team releasing the payment, the entry should be,

Payment Control A/C DR

To Cash/Bank A/C

The above said Journal entries are basic entries in Accounts Payable process.

Holds

After processing the invoice, either the invoice should be moved to validated status or Hold
Status.

If the invoice is in validated status then it means the invoice is ready for payment.

If the invoice is in Hold status then it means that invoice needs to be analyzed before moving
for a payment. There are several types of holds such as Price Hold, Qty Hold, Qty ordered
hold, Qty Received hold, Price ordered hold, PO over billed, etc.

Invoice would be cleared for payment only when these holds are cleared.

Payment Team

Payment team would prepare the Cash forecasting for the next three months based upon the
average for the last three months and open invoices processed in the system. This will help
the cashier’s team to allocate the funds accordingly.

Payment Team also prepares the Funding Statement which comprises of number of
payments, Currencies, mode of payments (EFT or ACH, Wire transfer, Check) which again
would help the cashier team to make the payment.

Cashier Team

Cashier team would raise the funds and release the payments as per the funding statement
provided by the Payment Team.

Reconciliation

Payment team would reconcile the number of payments made by comparing the report from
Cashier Team. This is to ensure that all the payments are cleared.

Cashier team would perform the reconciliation activity by comparing with the Bank
Statement.

This is just to ensure that all the payments are cleared without rejections. Sometimes, the
payment might have been void. In this case, we need to reprocess that particular request in
the immediate pay run.
Sometimes, we might have received the refund from the suppliers. In this case, the refund
should be applied to the appropriate Original invoice to knock off the credit.

Non-PO Invoice

Non-Po invoices are processed against the GL Code, Project ID and Business Unit.

The requirement for processing Non-Po invoice is Approval matrix and the relevant
documents.

Based on the Amount or project, we need to get the approval prior making the payment.

Accruals

During the month end, Accruals JV’s are passed. This is one of the most important steps in
AP process.

Accruals are nothing but passing JE’s for unaccounted expenses during that particular month.
We need to reverse the accruals once again to open the unaccounted expenses.

Accrued Commission A/C DR

To Commission A/C

Commission A/C DR
To Commission Received A/C

SOX Compliance

Expansion of SOX is Sarbines Oxylen. The work should be done based upon the documents
that are being followed as per SOX. There are level 1, level 2, level 3 documents which
means the SOP’s, SIPOC’s and work instruction which is being followed for each process and
if there is any changes in the process is being done then it has to be captured in the SOP.
These documents will help us in the certification during the SOX or Internal Audit.

GRNI (Goods Received but not invoiced)

 Positive Receipt > 180 days

 Negative Receipt > 60 days

Positive Receipt

Positive Receipts are those where the Receipts are made but invoices not processed. The
Receipts might be a Genuine Receipt or Duplicate Receipt.

We need to instruct the Materials Team or the Buyer/Requestor to cancel the Duplicate
Receipt.
To identify the positive receipt, first we need to get the statement from the supplier and then
we need to start doing reconciliation.

This should be done by first sorting the High value supplier. Sometimes, the invoice might be
available in Supplier statement but not in our system. In this case, we need to get the invoice
copies and then process the invoice against the receipt.

After doing all the reconciliation, if still there is any genuine receipt available in our books
then that should be transferred to Reserve A/C which in turn reflects in our P&L and B/S.
Transferring to Reserve A/C should be done only when the 100% reconciliation is
completed.

Negative Receipt

Negative Receipts are those where we have returned the invoices back to the supplier. In this
case we should get the Credit Memo from the supplier to knock off the Negative Receipt or
we should get the approval from the management to cancel the unpaid original invoice.

Rule

100% Reconciliation should be done for all the vendors

First 6 months – 80% Reconciliation should be completed

Next 6 months – 20% Reconciliation should be completed

Value of Challenge – 90 Days

The Blocked invoice (Invoices which are all in Hold status) should be cleared within 90 days.
Either we should move the invoice for payment by solving the queries or it should be
cancelled by obtaining the proper approval.

Debit Balances – 60 Days

The possible way of having debit balances in our books are:

Duplicate Payment (or) failed to record the refund
The value of Credit might be more than the Original Invoice

We need to recover the duplicate payment made to the supplier within 60 days. If the value
of Credit is more than we need to approach the supplier to understand if there are any future
invoices to offset the invoice. If there is no other future invoice, then we should get the
refund from the supplier.

The important point to be noted while processing the Credit memo is the terms should be
Immediate, the pay group and the site should be same as the Original Invoice.

We need to have a look in other Business unit as well if the Invoice is not available in the
particular business unit to setoff the credit. If the invoice is available then we need to remove
the invoice from the Business unit and that should be reprocessed in the Business Unit where
the Credit is available.

AP Questions

1) How many ways to match a invoice?

There are 2 kinds of matching the invoice.

1. Two way match i.e. Invoice should be checked with PO. IR = PO. The PO in the
invoice should be matched with the PO in ERP.
2. Three way match i.e. Invoice should be checked with PO and GR. IR = PO = GR.
The PO in the invoice should be matched with the PO in ERP with the Goods Receipt
details as well to match the same.

2) Kinds of Purchase order?

Materials based Purchase order and Service based Purchase order.

3) What are the payment methods?

There are three kinds of payment methods

1. ACH -- Automated clearing house – will be cleared in 48 hours.

2. WIRE -- Online transit of amount within banks – will be cleared with in
24 hours.
3. CHECK -- Printed Material in support of transaction – will be cleared
within 5 to 7 days.

4) Explain SOX?

Expansion of SOX is Sarbines Oxylen. The work should be done based upon the documents
that are being followed as per SOX. There are level 1, level 2, level 3 documents which
means the SOP’s, SIPOC’s and work instruction which is being followed for each process and
if there is any changes in the process is being done then it has to be captured in the SOP.
These documents will help us in the certification during the SOX or Internal Audit.

We are following the below sox activities in Flex.

1. zero positive receipts greater than 180 days

2. zero negative receipts greater than 60 days
3. zero challenge invoices greater than 90 days
4. Zero debits balances greater than 60 days.
5. 80% vendor reconciliation in first 6 months and 100% in next 6 months.

5) Explain Debit Memo?

The debit memo is the internal credit note that is being raised by the site to process against
the RMA’s. The debit memo can be treated as credit note if the same was provided from the
supplier end. This is basically to deduct the return of materials or any price or quantity
discrepancy.

6) How many ways to avoid duplicate payment?

The duplicate payment can be avoided by having the Quality check in the invoice processing.

Validating twice the payment file before it gets paid.

Reconciling the supplier accounts on regular basis.

7) What are things to be check in payment validation file?

The supplier code, supplier name, invoice amount and invoice numbers.
The bank account to which it get paid.

8)What is root cause to increase debit balance?

1. The invoice gets paid twice. The same invoice would have processed with different
invoice number.( one with invoice number, one with some other reference number in the
invoice which was scanned again). This will be due to typo error and both will be paid to
supplier’s end to increase the debit balance.
2. The credit note is being left out by processing payment of invoices without offsetting with
credit note.
3. The payment is being made and not composed. This will make the invoice gets pulled up
in the next payment run to get paid again.

9) How to clear the debit balances.

1. The AP contact should get in touch with the supplier for the debit balances and
get the confirmation mail to offset the debits with future invoices other wise get
the refund from the supplier.
2. If the supplier is not refunding or providing the future invoices, follow up with
them to get confirmation to offset with other regions if any open invoices are
available.
3. If supplier is not responding, directly offset with the future invoices of other sites
with the three levels of follow up mail sent to supplier.
4. If the supplier is not responding for more than 1 year or the debit balance in the
books is more than 1 year, work with the site finance on the GL code to write off
the same in the books.
5. If the amount is more, then the company can file a case on them to retrieve the
amount from the supplier by having all the valid documents, i.e. bank statement,
check copy or payment proofs.

10) Difference between invoice and debit memo?

Invoice is raised once the supplier raises the purchase order. This will be sent to AP end for
processing the payment to invoice. Debit memo is provided in the 5th question.

11) Cash Request and Cash Forecast.

The cash request is being sent 72 hours before to the treasury team for them to make
availability of funds on the payment date. The cash forecast is being done on the open
invoices report which is being pulled till the payment run date. The forecast for the quarter
will be done based upon the average of last quarter.

The funding request should be submitted by the payments team to the treasury. Once the
treasury confirms the funding request, then the payments to the respective bank accounts
should be sent to treasury end by payments team.

12) What is P2P?

P2P means Procurement to pay.

The process cycle goes like this.

The buyer will be raising the purchase order to the supplier. The supplier in turns sends the
goods to the warehouse. The warehouse staffs will be checking the goods receipt with the
delivery Chelan. Once checking is being completed, the receipt details will be updated by
warehouse team in the respective ERP’s. The invoice will be sent by supplier to AP end by
Vendor Portal, EDI upload or invoice will be sent through hard copies to PO boxes or
through mails to scanning team or AP contacts.

The AP contacts will process the invoice and match to the receipts that are being updated
both in Invoice and PO. If there is any discrepancy in the price or quantity the AP will block
the invoice and send it to the buyer for clarification. Once the resolution is provided by the
buyer then the AP will be processing the same for payment.
If the bill to address or other details are not provided by them then the AP can reject the same
to supplier.

The payments team will be pulling the invoices to payment and send the funding request to
treasury team. Once the funds in available the validated payment file will be sent to treasury
team for making the payments.

The treasury will be reconciling the payments made in ERP with the bank account and keep
the payments team posted on the void or rejection, refund entries that needs to be booked.

The reconciliation will be carried out by the AP end on the vendor reconciliation.

Below is the Journal Entries for your reference.

At the time of purchasing or receiving. (Procurement Team)

Inventory A\c Dr.

Inventory Control A\c.

At the time of invoice processing. (Invoice processing Team)

Inventory control a\c Dr.

Vendor Liability A\c

At the time of payment (Payments team)

Vendor Liability A\c Dr.

To Payment control A\c.

At the time of releasing the payment. (Cash Management Team)

Payment control A\c Dr.

Cash\Bank A\c.

13) What is the Blanket PO?

The buyer will raise one purchase order at one time where in all the receipts and line items
will be accounted in that blanket PO. The PO line items and receipts can be extended in this
type of blanket PO.

14) What is the usage of ERP.

ERP means Entrepreneurial Resource Planning. The transactions will be accounted in the
books which will be monitored and worked upon in a system for which the companies are
going for ERP’s. This will help us to have the control in the work and report can be provided
at any time for the management to review and work upon in the decisions.
The various ERP’s are SAP, Oracle, JD Edwards, 4th Shift, and Baan.

15) What are the necessities of account codes instead of entries?

The chart of accounts will be provided in each company to have the transactions accounted
based upon the cost centers and profit centers. This will help the management to pull the
reports or view the costs based upon the account codes. This will provide the consolidated
report for the management during the evaluation of Trading, P& L and Balance sheet
preparation and review.
What is Accrual Entry?

Accrual entry is the entry to record an unaccounted expense in current month books of
accounts to ensure creating a provision for accounting in subsequent month, this is an auto
reversal entry, which need to be revised on first day of subsequent month ...

Accrual Ledger control A/c Dr

To Purchase Ledger Control A/c