Question

Management report analysing the issues and provide recommendations to management.

You are the newly appointed Purchasing Manager for a global company. You are receiving increasing number of complaints from suppliers that the payment are late.

The suppliers are so upset that they are planning to stop supplying raw materials to the company which could result in a disruption to the supply chain. Upon investigation, you discovered that material and invoice are not received at the same time. There is a big issue in approving the supplier payment due to mistakes and verifying the PO, and goods receipt against the supplier invoice. External auditors has made recommendations that the company need to improve its purchasing and accounts payable process. The company is in the process of implementing SAP, and the consultants are recommending a 3-way match process. You need to: 1) Explain to your boss the process of 3-way match, and 2) Since material receipt and invoice receipt do not happen at the same time, you need to find out how SAP handles this in the accounting ledgers

Answer 1

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1. Explain to your boss the process of 3-way match.

The explanation about the process of three-way match:

Three-way match is an accounting technique used for payment verification to ensure that the invoice provided by a supplier is valid. This technique helps companies to match three integral documents which are invoice, purchase order, the reports of returns, payables, and accruals. This process ensures a global company that only the accounted and authorized purchases are compensated that ultimately prevents losses for the company that can occur due to carelessness and fraud.

Thus, this process reveals that the invoices provided by suppliers are in good order. Further, the accounts payable staff exercises the invoices for payment and this reduces the discrepancies.

2. Since material receipt and invoice receipt do not happen at the same time, you need to find out how SAP handles this in the accounting ledgers

SAP is a software that helps a business to incorporate its key business functions. It includes business processes such as sales, material management, logistics, quality management, finance, supply chain management, and corporate services.

Material receipt and invoice receipt are used to compare the amounts of goods with the related amounts on the invoices. They clear the unbilled payables accounts and purchases in transit. If they do not happen at the same time, price differences, payment differences, and exchange differences may occur.

SAP handles this in the ledgers of accounting by providing the accurate calculations about receipts. Then, it checks the accounting period of material and invoice receipts, whether they belong to the current period or past period or not. Then, it runs an adjustment process in order to recalculate the differences.