There are many procurement documents that cross a buyer’s (physical or virtual) desk. The sequence in which these documents are exchanged is key in ensuring an efficient transaction for both the buying and selling organizations.
Here is the proper sequence for the exchange of these documents:
- Request for Quote/Proposal (from buyer to seller)
- Quote/Proposal (from seller to buyer)
- Purchase Order (from buyer to seller)
- Invoice (from seller to buyer)
- Payment (from buyer to seller)
Pretty simple, right?
It should be. But, in my work, I deal with a lot of procurement professionals. And you’d be surprised how many unnecessarily deviate from this sequence and make the purchase/sale transaction so much harder than it needs to be.
It’s not that they mean to mess things up. In fact, they may be perfectly executing a bad process. So, if the process is bad, bad results naturally follow, no matter how well you executed the process.
Here are some examples of some common headaches when there are weaknesses in the procurement document exchange process…
Asking For An Invoice So You Can Create A Purchase Order
In a sales position, I’ve had procurement professionals say “send me an invoice so that I can create a purchase order.” This is backwards. By its very nature, an invoice is a document that formally bills a customer for goods shipped or services performed. When an invoice is created in a sales organization’s system, it represents money owed for a sale made. It will show up on the sales organization’s accounts receivable account on its financial statements. Some sales organizations’ systems won’t even let them create an invoice without entering a customer’s purchase order number. This is problematic when the buying organization changes its mind (that never happens, right? (-; ). A buying organization’s purchase order creation process should not require an invoice. I could see a quote or proposal being required, but never an invoice.
Routinely Accepting Invoices That Do Not Have Corresponding Purchase Orders
A process that enables “maverick buying” – and even fraud – is one in which a supplier’s invoice can be paid without there being a corresponding purchase order in the system. It enables end users to go around the procurement department, buy what they want to buy – even if doing so violates a procurement policy or exclusivity agreement, and still get the supplier paid. They will submit invoices with travel and expense reports or disbursement request forms and the accounts payable department cuts the check. This circumvents checks and balances built into the procurement process and usually results in unnecessarily high costs. Sure, you need to be able to get payments made in emergency situations where involving the procurement department may take too long. But those instances should be few and far between and processes should be set up to avoid and eliminate abuse.
Allowing Suppliers’ Acknowledgements To Drag You Into The “Battle of the Forms”
Sometimes, between the purchase order and the invoice, suppliers will send you “Order Acknowledgements.” You may be happy to know that the supplier has received your order. And you may take comfort in seeing the supplier promise a delivery date that meets your needs. But, these acknowledgements often have terms and conditions in them, too. These terms and conditions may conflict with your purchase order terms and conditions. And, believe it or not, these terms and conditions may obliterate some of the protections that you thought your purchase order terms and conditions would provide to your organization. Sorting out which terms and conditions prevail in situations where there is both a purchase order and an acknowledgement is called the “Battle of the Forms.” The “Battle of the Forms” is covered in our online course, “Mastering Purchasing Fundamentals.” The Battle can be “won” in a variety of ways, such as submitting the last form or having very precise language in your purchase order. However, there are two things that every procurement department should do to ensure that it does not unnecessarily lose the Battle of the Forms: train every single procurement team member on the Battle of the Forms and consult with your organization’s in-house legal counsel on the best way to address the Battle of the Forms in your procurement documents and processes.
See, exchanging procurement documents to complete a well-done purchase/sale transaction isn’t as easy as it sounds. But it doesn’t have to routinely cause headaches, either. Set up your processes to enforce the proper sequence for exchanging procurement documents and use your new awareness of the common headaches to avoid them.