In every organization, the internal procurement process begins when an employee or department documents a particular supply they need. This document is referred to as the purchase requisition and is submitted to the procurement department.
After the department vets and signs off on the requisition form, it’s developed into another document that outlines the product requested, specifying the quantity and quality to be delivered. This document, which is delivered to the supplier is known as the purchase order.
What is a PO flip?
When a supplier completes delivery of the order placed by the procurement department, they submit an invoice stating the quantity and other specifications of the delivery made as well as payment terms such as due dates and late payment fees.
All that comes in handy during the three-way matching process where the procurement team matches the invoice submitted by the supplier with a goods receipt note, and the purchase requisition before making payment.
Put all those layers of processes together and you get a complex machine that takes forever to approve payment for supplies made by vendors. Errors are made here and there, late fees kick in, and internal operations are held up.
This is where PO flip comes in.
Collecting all the line items on the purchase order and creating an invoice from it creating automation tools is PO flip. The supplier now only has to verify and sign off and payment can be made in as little as a few hours.
So what happens in a purchase order flip?
PO flip is 100% dependent on modern procurement software. The very name flip comes from the fact that software can scan the line items on a purchase order and instantly fill it into an invoice template that’s ready immediately.
- The purchase order is created and stored within the procurement software by the procurement team
- Upon delivery of the issued order, the procurement team initiates the purchase order flip
- The procurement software extracts the line items from the purchase order
- The purchase order fills out an invoice template with the line items extracted from the purchase order
Once the line items from the purchase order are filled into an invoice, the PO flip process is complete and the invoice is ready for payment.
Key components in the PO flip
Apart from the procurement software where the purchase order data is collected and flipped, the other main components that make purchase order flip possible are as follows. These include:
- Buyer contact
- Shipping details
- Payment terms
- Vendor data
- Order information (product, price, quantity, other specification)
Benefits of PO flip
PO flip benefits both your organization and your vendors. By streamlining the procurement process, you can take delivery of supplies faster, increase supplier satisfaction, and automate away the manual drudgery of filing inline items for hundreds—if not thousands—of invoices by hand.
Here are five of the key benefits of purchase order flipping.
Streamlines the three-way matching process
The three-way matching process is where procurement operations verify the data present on purchase orders, purchase invoices, and goods receipt to ensure accuracy and eliminate fraud.
Now, for this to work, there’s the need to keep a huge trail of documents. Instead of having suppliers submit invoices and having to verify the accuracy of the invoices submitted, the purchase order flip takes the order the vendor agreed to supply and makes an invoice out of it.
The only task now required is to confirm the quantity and quality of goods supplied and issue a goods receipt note before initiating the three-way matching process.
Eliminates error associated with manual data entry
Manual data entry has been a mainstay of procurement for a long time, bringing along issues with details missed or misrepresented. Using the PO flip process, the need to manually extract data from purchase orders and into invoices is eliminated since now, all that data is programmatically moved from where they are to where they need to be without continuous human effort.
Ensures timely payments of supplier invoices
Suppliers can issue late payment fees designed to dissuade customers from leaving invoices lying about in filing cabinets for weeks. This is understandable because when you’re delivering inventory without getting the capital invested returned as soon as possible, business potential is tied up in those unsettled invoices.
On the other hand, a few percentages lost on late invoice payments isn’t enough to deter many businesses from postponing payments, especially when they have a flood of accounts payable claims going out every day. Invariably, some of them have to take the back burner while the most pressing ones get settled.
Purchase order flip generates invoices instantaneously and makes it possible to settle supplier invoices considerably faster than it would take to collect, file, and manually verify invoice items from suppliers.
Helps AP take advantage of early payment discounts
Like the point above, suppliers also try to incentivize early payments by offering discounts to customers who settle invoices earlier. Purchase ordering dramatically shortens the time required to get invoices ready for payment and makes it easy to take advantage of early payment discounts without doing anything drastically different.
Eliminates duplicate invoicing and other forms of invoice fraud
In 2014, a scammer sent fraudulent invoices to Google and Facebook for services never rendered, totaling over $124 million. And they paid up.
Eventually, the perpetrator was caught but if both the organizations had a purchase order flip in place, this mishap could have been avoided.
Even if someone leaked an accounts payable email, sending an invoice to it would stick out like a sore thumb because purchase order flipping eliminates the need for manual invoicing.
This leads us to the next big benefit of PO flip which is that it makes invoice fraud impossible. When invoices can’t be created except via purchase orders, it now takes a harder, more sophisticated level of effort to defraud your organization. And the harder, the easier it is to spot, right?
How to get started with PO flip
Purchase order flip is a comprehensive process that requires both software automation and human input to set up. But once it’s done, it requires less effort to run on an ongoing basis, saving your organization money and reducing your exposure to fraud.
Here’s how to make it work.
Choose a procurement platform that’s designed to support PO flip – Not every procurement software tool is built with the automation required to collect data entered in one place and use it in another context. Purchase order flip only works on tools designed to make it work.
Set up your procurement operations on the new platform – Before you start the magic, you’ll have to set up your procurement operations on your new platform to manage everything from collecting purchase requisitions, turning them into purchase orders, routing the latter to suppliers, and flipping them into invoices.
Onboard team members and suppliers – Your team and suppliers are the human elements that make it all work. Invest into educating everyone on how your platform of choice works and how it’ll deliver value for everyone using it.
PO flip will transform your procurement by eliminating manual operations at a key level and bringing more accuracy and accountability into your procurement operations. Choose a tool like Kissflow Procurement Cloud to get up and running on your procurement process.