EVALUATED RECEIPT SETTLEMENT (STUDY OBJECTIVE 7)
In the mid-1990s, some companies, including those in the automotive industry, began implementing invoice-less matching systems for purchasing and paying vendors. For instance, General Electric Co. began using an invoiceless system for direct material purchases and wished to move other purchases to an invoiceless system. Changing document matching to an invoiceless system is more a process change than it is an application of new technology. However, the capability to achieve an invoiceless matching system is dependent on having extensive IT systems with online, purchase-related files. The simple explanation of an invoiceless match is that a comparison takes place by matching the purchase order with the goods received. If the PO matches the goods, payment is made to the vendor. This eliminates the need for the vendor to send an invoice, since payment is approved as soon goods are received (when they match a purchase order). Thus, it is an invoiceless system and is called evaluated receipt settlement (ERS). The ERS name signifies that the receipt of goods is carefully evaluated and, if it matches the purchase order, settlement of the obligation occurs through this system.
When the purchasing department initiates a purchasing process, a purchase order is entered in the online database of open orders. When goods arrive at the receiving dock, employees in the receiving department will check the online database for the purchase order that matches the vendor, part numbers, and quantities. This means that employees must be able to access online purchase orders immediately, while the delivery person is still at the receiving dock. Thus, extensive IT systems with online purchasing files are necessary. If there is no matching purchase order, the goods are refused and returned to the vendor. If there is a matching purchase order, receiving employees enter a receiving record into the online database and payment is processed according to the payment terms previously negotiated with the vendor.
THE REAL WORLD
The information that follows was excerpted from a large company's website for its vendors to see the company's policies about ERS. For this illustration, the name of the company has been changed to “Example Company,” but the other details are real. The list may give you a better understanding of how ERS works.
Example Company has implemented ERS—Evaluated Receipt Settlement. With ERS we will pay suppliers based upon the quantity we receive and our purchase order price. Invoices are no longer necessary.
Requirements:
- Example Company's purchase order, part number, prices, terms and shipping methods must be 100 percent accurate.
- Packing slips must be 100 percent accurate with correct items, part number, purchase order number, and correct quantities in the purchase order's unit of measure.
- Goods must be received accurately. Accordingly, packing slips must be clear and easy to read, with bar coded packing slips preferred.
- No invoices are to be received. Suppliers are to put the invoices on hold in their system.
- Charges for supplementary items such as set up, plating, drum charges, etc. must be included in the unit price of the item or must be added as an individual line item on the purchase order.
- Example Company requires the use of its preferred freight carrier. Example Company provides its carrier account numbers to its suppliers.
- The supplier's invoice number, packing slip number, or receipt date will be included on remittance advices. Example Company's standard transaction codes will be used on remittance advices.
- Suppliers must accept electronic fund transfers as payment.
- Specific questions concerning, orders, receivers, rejects, and payments should be directed to the Example Company buyer who placed the order.