PO Based Invoice are a Best Practice but are they Most Practical

Many in the P2P world agree that best practice is to create a purchase order before procuring goods and services…but…is that always the most practical?

If purchase orders are a best practice why do so many corporations pay invoices without purchase orders? It is not uncommon for major international corporations utilizing a strong ERP like SAP to have 50% or more non PO invoices. SAP provides an excellent tool set for the creation and approval of purchase orders. All of the benefits you would expect from a world class solution are there for the taking. So why not demand all invoices be PO based?

From a practical view, there is a point of diminishing return where the cost to create, approve and issue a purchase order is more than the cost of the goods being purchased. You may not want to create a PO to purchase a $5 book but at the same time, why would you purchase $5,000 in services without a purchase order?

In some companies, the purchase order is created only after the services have been rendered and the invoice received. The reason often given is that they don’t know the actual hours until the invoice is received. This scenario seems to only capture the budget reporting benefit of purchase orders. It is not considered practical to create the purchase order up front.

While processing 50% non po invoices is uncommon, I have worked with some companies where there is a corporate mandate that only selected invoices will be paid without a purchase. Tax payment, contributions and legal invoices are some that fit within the non po realm. In some companies as few as 5% of invoices are paid without a purchase order.

Is the acceptance of invoices without a purchase order always more practical or just easier? Most of us have “hated” filling out a purchase request at some point in our jobs. If ordering the $5 book without a purchase order is quick and easy, we tend to make larger purchases without a PO also. This can quickly become the norm. As companies tighten their budgets there seems to be a new commitment in P2P world to fully embrace the best practice of utilizing purchase orders. Is your company demanding the use of purchase orders…if not…should they?

For more on Accounts Payable Automation and Optimization see the SAP EcoHub for SAP Invoice Management by Open Text.