Question

1. Explain why the Credit Department (which evaluates whether a Company should extend credit to a Customer) should not also be responsible for order processing and/or invoicing inside a Company? Be specific.

2. Explain why members of the Purchasing Department that commit and issue purchase orders to vendors on behalf of the Company should also not be responsible for processing and payment of invoices from vendors. Be specific in your answer. Who inside of the Company should be responsible for processing and paying vendor invoices?

3. Electronic payments, today, are a common way for one Company to pay another for goods or services received from a supplier. Many firms also set up automatic payments for certain monthly recurring payments to some suppliers, for example, for payment of monthly utility, telephone, Internet charges for essential services required by a firm. For electronic payments going through the Company’s monthly bank statement, what type of controls do you recommend that a firm implement to ensure that such payments are properly supported by vendor invoices? Be specific in your answer as to whom should do what every month.

Answer 1

1.

The order-to-cash (O2C) process is a defining part of a company’s success, and it also plays a big role in driving an organisation’s relationship with the customer. While many companies focus the bulk of their resources on the period up until the customer places an order, optimising the O2C process can yield remarkable benefits that ripple throughout a business.

The invoicing and accounts receivable functions carried out during O2C determine the company’s cash inflows. Delays in collection can complicate accounts payable, payroll, potential acquisitions, and other.

Credit Department issue invoice :

Whenever goods are sold in cash, a seller prepares a cash memo and records therein details of goods sold. This memo includes quantity, rate and total amount of goods sold, along with the date of transaction.

All cash transactions are recorded in the books of accounts on the basis of the cash memos.

A cash memo is prepared when goods are sold for cash.

Thus, a cash memo is given by a trader in the case of sale and it is received in the case of purchases.

Cash memos are used for cash purchases/sales in order to record the credit purchases/sales, an invoice or bills are prepared by the seller.

Responsible for placing customers on “credit hold” or “hold bookings” that are beyond normal
terms, which includes stopping shipment on orders to these customers. Monitor the “orders to ship report” and alert the shipping department when an order has been approved and released for shipping. Must contact the customer immediately and resolve credit issues in a timely manner so as not to reduce shipments.

Adjust the customer(s) credit limits as needed. Must assess customer accounts to determine if
and when the credit limits may be raised to allow higher shipping dollars. Must determine
credit worthiness in doing so.

Not particularly the credit department is responsible for issuing the invoices because records are to be kept by them for reference and future responses not only by them.

2.

A purchasing department needs to verify the purchase, ensure correct payment and deliver the payment within the agreed upon terms. Invoices should include the following information to help the vendor and purchaser track their expenses or inventory and update their financial records:

• Date the vendor created and sent the invoice.
• Contact information of both the vendor and the purchaser, particularly billing information and point of contact.
• Purchase details, including product or service details and pricing.
• Payment information.

1. Invoices associated with a company's internal request or purchase order (PO-based invoices) and

2. Invoices that do not have an associated request (non-PO invoices).

Above mentioned things are discussed under purchase department.

3.

Technology has long enabled the automation of invoice processing from arrival to post. This means that at arrival of the invoice, the same accounts payable clerk will only need to scan the invoice into an automation software. The automation software then converts the invoice's scanned image into a text-researchable document. The different fields on an invoice can also be defined into the software so that it remembers which fields it should capture and register into the ERP systems, for instance, the purchase amount, the quantity, the supplier name, the supplier code, and so on. The benefits of an automatic processing workflow may include reduced human error, on-demand reports, and data resilience. Most automation software today integrates into common organizational ERP systems such as SAP, Microsoft, and Oracle.

There could be some loopholes in the process , these loopholes are to be properly controlled.

The areas you need to control for proper implementation of invoice process are:

• Security issues. Sending invoices electronically comes with some risks that are not present with hard copy invoices. At Towne Mailer, our clients upload their invoices to us on a secure server before they are printed at our own location.
• Spam filters. An electronic invoice may be paid faster – if your client ever sees it. In some cases, email service providers marks invoices as spam, sending them to a folder than most users rarely look at. It can be difficult to know when your invoices are caught in spam filters and frustrating to communicate to clients how to alter their spam filters to allow your invoices through.
• Bookkeeping issues. Electronic invoices can make bookkeeping tasks harder for your clients and customers. Some may need to download the invoice or print the invoice for their records. Paper invoices can be filed quickly and easily.
• Offline customers. Especially in certain types of businesses, your clients or customers may not have access to their email from their home or may not even use an email account. Other customers may greatly prefer to receive a paper invoice. This may especially be true of senior customers or customers in rural locations.
• Fees. If your business uses a service to send electronic invoices, you will most likely need to pay the service a fee in the form of a small percentage of the payments you receive. These fees can add up quickly.

How to overcome and have proper control is explained here:

Many invoicing processes are still far from efficient. They needlessly create much more time, effort and money. But all this can be changed. The prerequisite is a completely digital process. It is important for the data not only to arrive “in some kind of digital form” (e.g. by e-mail or PDF): it has to be structured too. Only then can it be processed electronically without a hitch.

Above all, however, the entire process has to be taken into account. And this starts with the order. SupplyOn therefore continuously updates and enriches order data during order processing. It is crucial for the information from the preceding documents, shipping notifications and goods receipts, to also be included. After all, it is only together that they form the correct data basis for the invoice. Further sources of error can be eliminated by automatically pre-attributing the corresponding invoice fields based on this data.

All this ensures the correct purchase order reference, enables the invoice to be clearly attributed and accelerates processing, clearance and payment.

And if an automated compliance check is also integrated before the invoice is sent, the main sources of error are taken care of. This validation step ensures that the electronic invoice is not only correct in terms of content but also formally and in terms of tax law.