The fundamental aim of Accounts Payable is to ensure that vendors are paid for the goods or services they have provided at the agreed price. If this happens then good relationships can be maintained with your vendors who in turn pass on discounts and incentives. In an ideal world suppliers would always send invoices which exactly match the PO and goods receipt. However, in reality this is not always the case.

SAP has well evolved logic for catching these invoice discrepancies. The Logistics Invoice Verification (LIV) module will compare incoming invoices against the PO and goods receipt(s); matching invoices will be picked up for payment whilst those with variances (in excess of configured tolerances) will be blocked.

But how should AP and the wider business deal with blocked invoices?

There are a number of options available in different scenarios and best practice can be difficult to define.

Let’s start by looking at Quantity blocks which occur when the invoice quantity exceeds the ordered and/or receipted quantity. The invoice will remain blocked until either the vendor sends a credit note for the discrepancy quantity, or a further receipt is posted bringing the received quantity in line with the invoiced quantity. Which of these actions is appropriate depends on whether the invoice is correct (i.e. goods have been received but the GR not yet posted) or the vendor is wrong.

But might it be preferable to stop this invoice before it posts (with a block)?

This could be achieved using a product like SAP Invoice Management which can identify the quantity discrepancy in advance of posting. The workflow could route to the Requester who will know whether the goods have been received and if necessary post the GR through SAP Invoice Management process options. Or if the vendor invoice is in fact wrong then it may be easier to Return to Vendor than to request a credit note through some onerous offline process.

Dealing with quantity blocks may be further complicated when using GR-IV-based invoicing, whereby invoices must directly match goods receipts. In this case experience shows that it is best to catch quantity blocks in SAP Invoice Management prior to posting as it can become messy to reconcile invoices and receipts in SAP. This can be easily achieved in SAP Invoice Management with standard business rules.

When talking about price blocks the resolution will depend on whether the vendor or the PO has the correct price. If the PO is correct then the process will likely involve requesting a credit (subsequent credit) from the vendor. If however the vendor is correct – perhaps because the PO is using an out of date historic price – then the resolution may involve amending the PO price or clearing the block to ‘pay as invoiced’ –  a process which would involve authorisation from the buyer and be actioned by AP. Either approach may lead to concerns around the financial postings and reporting due to discrepancies between the PO commitment, the stock posting at the point of GR and the invoice postings. Your organisation’s own finance processes may determine what is preferable from a reporting perspective.

But what is best from a purchasing perspective?

Amending the PO price will likely trigger a release procedure (i.e. approval) which is presumably desirable for controls and compliance. But it may also be slow which will delay payment of the invoice (which – bear in mind – has the correct price). In any event should we be advocating the retrospective update of the PO price, which in a robust procurement process should be driven by contract pricing and master data?

It may therefore be quicker and easier to simply remove the price block and pay the invoice. This may even be preferable from a reporting standpoint. But can this really be recommended as best practice – and again should AP be used to fix a flawed purchasing process..?

In reality there is no ‘one size fits all’ answer. Best practice depends on your own organisational purchasing and finance processes. However, based on our experience it can be cleaner, easier to track/manage and more flexible to deal with invoice blocks BEFORE they happen. This approach is possible with SAP Invoice Management business rules which support a flexible workflow for issue resolution.

ExceleratedS2P has worked on a number of SAP Invoice Management projects where we’ve implemented appropriate, fit-for-purpose solutions for invoice processing. Why not drop us a line if you want to find out more.