Thursday, July 21, 2011

Reconciling Purchase Orders and Invoices

Today I was asked how to resolve a "problem" when a MISys purchase order and the supplier's invoice don't exactly match.

I have seen purchase order software that required the invoice amount to match the purchase order amount. In my mind, such software is indeed the "problem" because in my 25+ years of working with manufacturing companies, such a match rarely occurs.

To begin, it is common for a supplier to fulfil a purchase order in dribs and drabs. They may ship what they can against the PO and send you an invoice for the partial shipment. You may receive several partial invoices for one purchase order. Properly designed software must accommodate this fact.

A second reality is that the price you are quoted by the supplier and the price you are billed are sometimes different. You may argue that the price on the invoice order should match the price on the purchase order. If the invoice amount is higher, you should complain vociferiously. But what if the invoice amount is lower? Should you insist on paying the higher amount? Probably not.

Third, there may be additional costs applied to the invoice that did not appear on the purchase order. Shipping charges, delivery preparation/crating, import duties, brokerage fees, and taxes are just some of the costs you can expect to see on the supplier invoice that are normally absent from the purchase order.

In summary, the supplier purchase order and the supplier invoice rarely match, and properly designed software handles this reality in its stride. The MISys Manufacturing system was designed so that the actual acquisition cost for any material you purchase can be computed accurately. This is particularly important for manufacturing companies because the cost of any finished good item is computed from the sum of its component costs.

When processing purchase orders (including processing a corresponding supplier invoice) MISys works to determine the amount you paid for any raw material item (this is often called the "landed cost"). Matching the PO and invoice amounts is not a problem after all.

For more information about the MISys Manufacturing system, visit

1 comment:

Unknown said...

Thank You for sharing these with the rest of us!!very helpful.Invoice Templates