PO vs. Non-PO invoices: differences in the invoice approval process
- 09 Mar 2020
The accounts payable function manages the processing of supplier invoices, all the way from reception of the invoice, through coding and approvals, until the payment is posted in the ERP or financial system and ready for payment. There are two main types of supplier invoices: purchase-order-based invoices, also called PO invoices, and non-PO invoices or expense invoices. Discover the differences between these two types and why the invoice approval process will differ depending on the type.
What is the Difference Between PO vs. Non-PO Invoices
The difference between PO vs. non-PO invoices lies in the purchase that generated the invoice. When a purchase requisition process is in place, the purchase will be triggered by a pre-approved purchase order (PO) that is sent to the supplier. In the case of purchases made outside the regulated purchase process, a non-PO invoice, also called expense invoice, will be sent from the supplier.
What is a PO Invoice?
A PO invoice should include the purchase order number and details of the goods or services provided as agreed between the buyer and supplier. Arriving at accounts payable, the PO invoice will be matched against the purchase order to ensure all details correspond. In most cases, companies will perform a 3-way invoice matching to verify the PO invoice details matches both the purchase order and the goods receipt registered in the procurement or ERP system upon reception of goods or services. PO invoices typically include invoices for purchases of direct material.
What is a Non-PO Invoice?
Non-PO invoices do not have a purchase order associated and are the result of spend outside a regulated procurement process. This type of invoice is often called expense invoice and is used for various indirect purchases.
What is the Invoice Approval Process for PO vs. Non-PO Invoices?
The accounts payable process is different for PO vs. non-PO invoices, mainly when it comes to the invoice approval process.
A PO invoice is, in fact, a pre-approved invoice since the purchase, supplier and amount was approved as part of the purchase requisition process leading up to the purchase order. This way, a PO invoice can be automatically processed for payment as long as all details match the information on the purchase order and goods receipt, without anyone manually reviewing and approving the invoice. If a deviation is identified in the matching process, the invoice will be sent to the buyer for review and action.
A non-PO invoice, on the other hand, has not been pre-approved and will, therefore, need to go through an invoice approval process within the buying organization. Usually, the accounts payable team will apply coding, and identify the correct approver, based on the information on the invoice and their best knowledge. In some cases, if the invoice details are scarce, this can be a tricky operation. Often, there is an internal approval hierarchy implying that invoices of a certain amount or cost center will need to go through multiple approval steps in the internal hierarchy. Once all necessary invoice approvals have been obtained, the invoice comes back to accounts payable for final booking and payment.
How Do You Automate Processing of PO vs. Non-PO Invoices?
Today, there are accounts payable automation solutions available for companies of all sizes and industries. There are considerable opportunities to automate the processing of both PO invoices and non-PO invoices to remove manual, error-prone steps in the accounts payable process and achieve increased efficiency and control.
Intelligent invoice matching of PO invoices can, in fact, support a fully automated and touchless process. When the data on a PO invoice matches the data on the purchase order and goods receipt, the AP automation solution can perform automatic matching and no one in accounts payable, nor anywhere else in the organization, needs to touch the invoice.
The processing of non-PO invoices can also be highly automated by adopting a modern AP automation solution. Automation opportunities include:
- Automatic coding that is pre-configured in the solution based on previous invoices from the same supplier or cost center
- Automatic distribution to the relevant approver based on the organization’s approval hierarchy
- Automatic approval by matching recurring invoices (such as a lease) to the payment plan in a contract
Companies benefit from automating the approval process of PO invoices as well as non-PO invoices. The invoice approval process will be much more efficient and faster. And the entire organization will benefit from better control of the AP process as well as increase visibility of financial metrics and company spend.