Differences Between PO and Non-PO Invoices: Approvals, Automation & More
MHC Marketing April 28th, 2022
In order to run a business that continues to scale and grow, it’s important to have a basic grasp on foundational aspects of your Accounts Payable processes. Two concepts to be aware of are “purchase order (PO) invoices” and “non-PO invoices.” While they may seem similar, knowing the distinction between the two can have a positive effect on your procurement and payment processes, month-end close, and more.
In this piece, we detail the differences between non-PO and PO invoices一in terms of what they contain, when they are generated, the approval process, and even ways to streamline workflows with automation tools.
TABLE OF CONTENTS
- What’s the Difference Between Non-POs and POs?
- The Approval Process for POs vs Non-POs
- Automating Processing for POs and Non-POs
- Modernize PO and Non-PO Processing
What’s the Difference Between Non-POs and POs?
The difference between PO and non-PO invoices is that the former results from a pre-existing procurement process, while the latter is created outside of a formal purchase process. In a traditional transaction, a pre-approved PO is sent to a supplier before they provide goods or render services. The vendor will send a corresponding PO invoice when those goods or services are delivered.
Contrarily, when a business makes one-off purchases without sending an authorized purchase order, they will receive a non-PO invoice from the seller. We’ll elaborate more on each type of invoice below.
What is a PO Invoice?
A PO invoice is sent to the buyer when a supplier has completed services or delivered goods outlined in a pre-approved purchase order. There are several common key elements of a PO invoice, including a purchase order number, the quantity and price of each item, their descriptions, and the dates the order was placed and delivered. We’ll go into more detail later, but a major component of processing PO invoices is ensuring that each line item matches across the original PO, the PO invoice, and the goods receipt.
PO invoices are often used for direct purchase or procurement, meaning that companies know what they are buying ahead of time. Companies might use purchase orders when buying goods or services they need regularly, such as agreed-upon consulting sessions, janitorial services, printer paper, or even software. POs and corresponding PO invoices make the accounts payable team’s job easier by clearly stating what was intended to be purchased, what was actually purchased, and what was received.
What is the PO Payment Process?
Once an order is filled, the AP department will receive a PO invoice. At that point, they’ll complete a three-way match and route the PO invoice for payment and internal approval. Typically, the PO invoice approver is the person who requested to buy goods or services, because they know what was in the original PO (which was approved before the order was placed); and because three-way matching was done beforehand, PO invoice approval should be relatively quick.
With an automated approval process, companies can designate stand-in approvers and set up workflows to automatically generate a secure ACH payment to the vendor, making invoice approval and processing even faster and more transparent.
What is a Non-PO Invoice?
A non-PO invoice is sent to the buyer when a supplier has completed services or delivered goods not associated with a pre-approved purchase order. In other words, companies receive non-PO invoices when they spend money on something outside of their normal purchase or procurement process. While using a PO is considered best practice, going through the PO process doesn’t always make sense for legally contracted services or smaller purchases.
Some examples where non-PO invoices apply might be discretionary spending for business travel, license fees, emergency procurement of goods, or service change orders.
Unlike PO invoices, non-PO invoices don’t come with the ability to do a three-way match. Instead, AP has to carefully read through contracts or speak with the employees who bought goods and services to determine whether a non-PO invoice is logged appropriately. For these reasons, non-PO invoice approval and payment can take longer than PO invoice processing and has more potential for mistakes.
What is the Non-PO Payment Process?
Non-PO invoices are not pre-approved, so accounts payable teams have to identify and apply the correct accounting codes and then attempt to locate invoice approvers. While these two steps may sound simple, they can be challenging without the documentation that comes with PO invoices.
And most companies have a multi-tiered approval process for non-PO invoices based on type, amount, and location. It can take a long time, and leave significant room for error.
Overall, non-PO invoices have to follow a more complicated approval process than PO invoices, but once that process is finished, AP can complete the booking and send payment.
The Approval Process for POs vs Non-POs
Now that you know the differences between PO and non-PO invoices and how they are paid, let’s take a deeper dive into how they get approved.
PO Invoice Approval Process
The PO approval process is fairly straightforward:
- The buyer receives a PO invoice. This invoice should match exactly what was on the original PO (items, quantity, price, etc.).
- The PO invoice is routed to the accounts payable department, if it wasn’t already.
- An AP officer reviews the PO invoice and compares it to the purchase order and the goods receipt to ensure that everything is consistent across all three documents. This process is called a “three-way match.”
- If the three-way match is successful, some companies may feel comfortable approving the invoice automatically.
- If the three-way match is not successful, AP and the person who initiated the PO will contact the vendor to discuss and rectify discrepancies.
- The PO invoice (and proof of three-way match) is then routed to the final approver.
- If the final approver agrees with AP’s assessment, they approve the PO invoice for payment.
- If the final approver does not approve the PO invoice, AP and the approver will contact the vendor to determine next steps.
- The AP team processes payment.
It’s important to note that performing these steps manually (particularly the three-way match) opens the door to errors and unnecessary delays. They are inevitable with a manual accounts payable process, and researchers have documented that people’s error rates range between one and four percent for spreadsheet data entry. On top of that, manually-processed invoices are less likely to be paid on time, subjecting the business to hefty late fees.
Non-PO Approval Process
The non-PO approval process is a bit more involved than that of PO invoice approvals:
- The buyer receives a non-PO invoice.
- The non-PO invoice is routed to the accounts payable department.
- AP reviews the non-PO invoice and attempts to find the internal point of contact for the purchase.
- The internal point of contact provides an explanation for the charges and/or provides contracts to substantiate their purchase.
- Note: Steps 5 and 6 can be lengthy if the internal point of contact isn’t immediately clear
- The internal point of contact reviews the non-PO invoice with the AP department to determine whether the charges listed on the invoice are legitimate.
- AP routes the invoice to the named approver or approvers if the non-PO invoice matches the buyer’s expectations for the goods and services delivered.
- Each approver reviews the non-PO invoice and any other associated documents and passes them along to the next approver.
- Step 7 repeats until all approvers have approved the invoice.
- If, at any point, an approver does not approve the invoice, the AP department will meet with them to establish what the issue is and contact the vendor to resolve the problem and issue a new non-PO invoice.
- Once all approvers have approved the non-PO invoice, the AP team processes payment.
Carrying out the non-PO approval process manually can take a considerable amount of time and effort. Thankfully, automation can change that.
Automating Processing for POs and Non-POs
Many companies still rely on manual PO and non-PO processing. In fact, 84% of businesses perform at least one manual accounting process every day. And it can lead to an array of issues, from introducing human error like miskeyed information, incorrect or missing POs and non-POs, inaccurate matching, duplicate invoices, sending to the wrong approver, to causing delays with financial ramifications (loss of early payment discounts and late fees).
That’s why some businesses are turning to technology to remedy these issues. Automated invoice processing reduces errors, decreases the chances of paying late fees, and improves productivity, which gives accounting teams more time to work on more strategic projects. According to the Institute of Finance and Management (IOFM), accounts payable departments that implemented automation processed roughly twice as many invoices per full-time employee compared to organizations that had less automation.
Of course, your business’ success with automation depends on selecting the right platform for your needs. Below, we’ll review how to automate PO and non-PO invoice processes, and how MHC Northstar’s features make these processes even more efficient.
Automating the PO Invoice Process
AP automation tools, like MHC NorthStar, can streamline the PO invoice process by capturing invoice data, intelligently matching PO invoices, and routing PO invoices for approval. MHC uses best-in-class Optical Character Recognition (OCR) and artificial intelligence features to scan invoices for relevant information and verify three-way matching. Companies can also control who approves invoices and give them easy access to all the documentation they need at their fingertips一all without AP team member intervention.
Automating the Non-PO Invoice Process
The non-PO invoice process is usually more time-intensive, but automation can change that as well. MHC NorthStar has pre-configured coding and learns from previous invoices incurred by the same cost center and/or vendor. What’s more, AP automation tools can link recurring invoices with their contract, making it easy for approvers to confirm invoice details. Companies that use MHC can also automatically distribute non-PO invoices to relevant approvers based on their company’s internal hierarchy.
Automating the Full Invoice Payment Process with MHC NorthStar
MHC NorthStar was built to automate the invoice payment process end-to-end. With OCR, AI, and other modern cloud features, POs and non-PO invoices can be routed for proper matching, approval, and secure payment in minutes instead of days or weeks. MHC has intelligent invoice capture, templatized workflows, approval routing, and ERP system integration out-of-the-box, making it easy for AP team members to set up and customize.
Modernize PO and Non-PO Processing
Anyone in your company eligible to make a purchase needs to understand the nuances of PO and non-PO invoice processing. Gathering the correct information and paying close attention to the approval process is critical for an efficient AP workflow. When everyone is on the same page, you can improve your accounting department’s productivity and boost your cash flow.
But manually handling aspects of PO and non-PO invoice processes puts your AP department at risk of unnecessary and costly errors that automation can easily fix. The MHC Northstar platform provides easy, user-friendly automation with OCR and machine-learning-driven invoice capture, drag-and-drop workflow customization, and built-in tiered invoice approval pathways.
Ultimately, MHC Northstar increases visibility into the invoice process and saves the whole company time and money. Learn more about how MHC can simplify and modernize your invoice processing today.