While 93% of companies require a purchase order for the procurement of services, there is a wide range of practices for how receipts are verified. These range from no verification of receipt (typically for utilities or service purchases under a specific dollar amount), negative verification (where performance is assumed unless the requestor responds to indicate a problem) to positive verification (where payment is made only after confirmation that services were performed is received).  

For 69% of companies, services are entered into a receiving system for matching. However, since services don’t arrive at a receiving dock like most physical purchases, there are a variety of solutions for triggering the receipt activity, ranging from the requestor entering a service confirmation to various workflow tools to trigger an approval process based on the entry of invoice information.

As detailed below, while 93% of companies require a purchase order, there are many possible approaches for how the terms are detailed on the purchase order:

There are also a wide range of approaches for how services are received against the purchase order, with 31% of companies not entering a receipt and 2% of companies typically having the purchase order created after the invoice is received.  Here are the details:

These questions generated an active discussion between iPolling^TM1 participants in Peeriosity’s Accounts Payable (P2P) research area with the following 22 comments providing additional insight into member practices:

1.      Service orders are used with a custom unit-of-measure and a quantity of one for the total value amount. Invoices are received against the PO and further invoices for the same PO are posted as subsequent debits.

2.      Not to exceed PO’s are set with unit-of-measure as AU (activity unit).  This allows for multiple invoices to be posted against a single line item until the total line value is met. Internal controls determine authorizations required outside of the PO parameters.

3.      We currently do not require a goods receipt for services. Approval of the invoice is used instead of a goods receipt.

4.      For most services PO’s are used. They should be issued prior to the services being rendered. PO’s are typically set up as low-level detail. For example, qty. = 10,000 x $1.00 USD = $10,000 USD line item total. When the good receipt is entered, for example, if an invoice arrived for $4000, the person who requested the service would review the invoice, and if okay, enter a goods receipt qty. of 4,000.

5.      Certain goods and services have PO’s completed after receipt, while others are tracked by total dollar when received.  We primarily use PO’s or work orders for services in building maintenance processes such as landscaping. However, we do not have a standard practice for other services (example: inside plan/flower maintenance).

6.      PO as blanket (value-based), no goods receipt, invoice against PO line is routed for approval.

7.      We do not have receipts for service PO’s. We use a two-way match – PO and invoice.

8.      We have purchase orders specific for a total dollar amount and some purchase orders indicate a “not to exceed amount” (e.g. units and/or dollars) and may be used for multiple invoices. We have a workflow tool for service PO’s that requests approval to pay the invoice. Once the requester approves, we process payment. We do not enter receipts for services. Any service PO under $4,000 automatically gets paid if a PO exists for the invoice.

9.      Our service POs do not require receiving entry against the PO. We require invoice approval downstream (prior to payment) as verification that the billed-for services were actually provided/performed by the vendor.

10.  We have some purchase orders for hours and cost per hour for which the receipt would be the number of hours. Others are for a unit of 1 with the dollar amount. Still, others have the dollars as units and the value as $1 each. These can have multiple invoices for the purchase order.

11.  We use JD Edwards as our ERP. Purchase orders for services are raised using generic items linked to both accounting information and our purchasing segmentation. People can choose to raise POs in quantity (hours) and unit price, but in reality, they raise POs in the total amount where the quantity is the total amount and the unit price is the local currency. At the receipt stage, the end-user will enter in the quantity the amount they are okay to pay (in our set-up receipts can only be done in quantity). POs are raised before service is provided. In case of extra work, the initial PO must be received and the supplier invoiced the same amount, then an extra PO is raised for the additional work.

12.  We use an “Authorization of Non-receivable Goods or Services” rendered/completed to provide the “3-way match” and release the invoice for payment.

13.  PO’s should be created before the service is rendered and, if needed, the amount updated after the service is complete. Sometimes the buyer waits to create after the fact.

14.  Q1: In the process of implementation of SAP SERVICE POs functionality. Q2: Looking at implementing best practices for purchasing, however currently we have a combination of all those items listed. Challenge working with a decentralized group of PO Creators vs. a controlled group of purchasing officers.

15.  Our Service PO’s show the expected amount to be paid for the services performed. We allow multiple invoices against this PO, but there’s a system check to ensure they do not exceed the expected amount. We use a standard unit of measure on all service POs, set to AU (activity unit). Usually a quantity of 1.

16.  We’re an SAP operation and currently use a Service Entry Sheet process that is created when we receive an invoice against a service PO. We have a workflow that routes the Service Entry Sheet to an approver. The Service Entry Sheet will not be created if the invoice doesn’t match the PO and/or exceeds the expected PO value. Once the Service Entry Sheet is approved, we post a goods/service receipt against the PO and release it for payment per terms.

17.  Normally a service confirmation is entered when the service is received similar to goods received.

18.  We have begun to roll out POs for services but are in the early stages. We use sPro (Services Procurement) in PeopleSoft for many of our temp labor POs (where suppliers record hours & expenses for each resource). We also recently began rolling out deliverables-based POs in sPro for other service-type purchases. We also use blanket POs (not-to-exceed/amount-only) in ePro (PeopleSoft)for services but will be migrating strategic services to sPro over time (more control and end-to-end automation from a P2P perspective). Our plan is to continue to roll out POs for all services. For services-related POs in sPro, the entry of time and/or a progress log by the supplier serves as the receipt. The time entry/progress log is approved by an internal business owner and then automatically “flipped” to an invoice for payment. For service-based blanket POs in ePro, automated invoice workflow approval is required for all invoices over a specific dollar threshold. Invoices under that threshold do not require mandatory approval but still go through an automated invoice workflow. If the business owner does not reject the invoice, it is automatically paid per terms provided the invoice does not exceed the PO amount.

19.  After the invoice is applied to the PO, we have a spend approval workflow that triggers before the invoice is available for payment.

20.  We currently primarily use POs for services for a dollar amount up to 1 year with multiple invoices and receipts. If the value is exceeded, then a decision needs to be made if the PO value will be increased or not.  We primarily manage Service POs with Unit Price as $1 and the Quantity as the total service dollar amount (eg. a $200,000 service PO would be 200,000 “qty” X $1 “price”). When we receive multiple times, we receive the quantity (e.g. Receive quantity 25,000 to pay a $25,000 invoice).

21.  In Europe goods receipts are not posted, but approval from the requester is required.

22.  Purchase order quantity is the dollar amount of services. The unit price is always $1.00. Receipt of services is done via workflow approval by the requisitioned on the PO.

As detailed above, there is a wide range of processes being followed to record the purchase of various services and complete the steps required to issue payment.  For some, related processes have been carefully thought through and refined for maximum efficiency and low cost.  However, for many others, these processes have evolved over time, with modifications made as payment processes were centralized and common ERP processing platforms were implemented.  For many, significant opportunities exist to streamline and simplify related work processes.

“Getting from here to there” isn’t always easy.  Using Peerosity’s iPolling^TM capability members can quickly see the range of options used by peers, with the ability to review supporting comments and follow up directly with peers to better understand similarities and differences. 

How are purchases for services managed at your company? 

Who are your peers and how are you collaborating with them?

¹ “iPolling” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer Mail^TM, members can easily communicate at any time with others who participated in the iPoll.