Problem Invoice: Post or Return to Supplier

I was recent ask by a client when they should send a problem invoice back to the supplier or should they continue to process the invoice.

Variables to Consider

There are several variables that should be considered when making the decision. For this discussion the first variable assumption will be that the corporation has implement SAP as their core system of record. You must also consider if the invoice input channel is paper or electronic. If you are digitizing the paper invoice, you should consider if you want to scan and create an image before returning or return before imaging.

Manual Process

If you process invoices manually, returning the invoice may seem like the simple approach but keep in mind you must keep some record (typically a spreadsheet) that the invoice was received and returned. If you have already received the goods and / or services, you must still ensure proper accounting for the liability regardless of the invoice.

Automated Process

If you have optimized your Accounts Payable processing utilizing a solution such as SAP Invoice Management, the decision shifts to a best practice of processing the invoice to the point of problem detection and review of problem. This optimization allows for fast analysis. Often the invoice is correct and the resolution requires changing the transactional data such as goods receipt. In other situations, it is more relevant to possibly short pay the invoice and if required to issue a debit memorandum.

Audit Consideration

Even if the resolution is to return the invoice to the sender, processing to the failure point and then sending the invoice back creates a strong audit trail related to the original source document. This audit is often needed for disputed payments.

Returning the Invoice

One major consideration with most vendor master files is the correspondence information includes only the contact information required to purchase from the vendor. If you are returning the invoice, it is the vendor Accounts Receivable department that requires notification. The usually prompts the question …“do I have to update thousands of vendor masters”? The answer is typically no. You would only update the vendors that you do the majority of business with and / or those you know have historically sent problem invoices. After that, you utilize reporting metrics to observe when a trend evolves and update the vendor master at that time.

One last decision is whether to include the original paper invoice or an imaging of the original invoice when communication with the supplier that you will not be processing the invoice. If electronic or if OCR is used for paper invoices, sufficient invoice meta data can be included in the notification email. If the meta data has not been captured, then it typically would improve the process by attaching a copy of the invoice. Being able to return an image not only reduces cost but also provides effective control for the Accounts Payable processing.

So…to return or not to return…that is the question…and as with most complicated business processes the answer is “it depends on the circumstance”.

See SAP EcoHub for more information on SAP Invoice Management