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Resolving Evaluated Receipt Settlement Price Discrepancies

As companies transition from paper-based to electronic transactions for ordering and paying for goods and services, many have taken an end-to-end approach to reengineering the purchase-to-pay process by eliminating the need for an invoice entirely.  With Evaluated Receipt Settlement (ERS), also referred to as a “two-way match”, the shipping notice or packing slip information is matched to the purchase order to initiate a payment, without an invoice being needed to complete a “three-way match” before payment is authorized and issued.  This process works well as long as the shipment notice information agrees with the count in Receiving, and the price information is in synch between the ordering company and their supplier.  And, unfortunately, because payments are created in Accounts Payable, a separate department for Purchasing, there often isn’t clear visibility as to why a discrepancy happens or how to resolve one once it does.

A business analyst at a large global manufacturing company was interested in knowing how other Peeriosity member companies handled a specific issue – eliminating discrepancies between the purchase order price and a negotiated contract price that was expected from the supplier.  To find out, she created iPollingTM questions and within 24 hours she had a much better idea of how her peers were tackling this issue. 

Here is the background statement on the reason for the poll:  “We are evaluating our Evaluated Receipts Settlement (ERS) Control Process with a focus on contract price management and are interested to learn how other companies handle discrepancies between PO and contract to price.”

The first of two iPollingTM questions asked about the status of having a proactive process to eliminate discrepancies between the PO and the negotiated contract price on an ERS transaction.  The results were interesting, with no companies indicating that they had an automated process to proactively eliminate discrepancies, and 34% indicating that they had a manual process for doing so.  In addition, 8% are evaluating this issue, and 58% indicate they haven’t considered the idea, suggesting that such discrepancies are most often resolved after they occur, and not eliminated proactively.

ipolling results status at your company for having proactive process to eliminate Receipt Settlement Price Discrepancies

The second iPollingTM question asked how differences between the PO price and the negotiated contract price are avoided or resolved.  For 36% of member companies, the approach taken is to always use the PO pricing, and 10% rely on the supplier to notify them of a price discrepancy.  Another 36% rely on manual detection, with the remaining 18% relying on a back-end (after payment) audit to identify discrepancies.

 differences between the PO and negotiated price Receipt Settlement Price Discrepancies resolution ipolling results

Here are a number of the comments added by iPollingTM participants:

  • We take the position that the PO has the correct price and we make payments based on the PO. When payment is issued, the supplier notifies us if there is a mismatch. In Europe, invoice images are sent to the supplier when the receipt of the goods is completed, thus allowing the supplier to confirm prior to payment.
  • ERS invoices are paid at PO price. When Procurement updates pricing [which could affect invoices already paid], they also run a report that identifies the discrepancy between the price paid and the correct price. This report is reviewed and approved by the Buyer, and then forwarded to AP for manual processing.  We are currently working on automating the process to eliminate the manual work steps.
  • We use a combination of 1) having the supplier perform reconciliation and inform us, and 2) AP performing a manual review.
  • As a contract manufacturer, we have frequent price negotiations with our suppliers. The potential for price variances is high and the burden it will place on both our supplier and our internal teams has caused concern with implementing ERS, so we have not yet implemented it.  We are very interested to hear how others handle this issue.
  • We currently do not have our PO system in sync with our CMS (contract management system), however, this is something we are looking at for the future. Until we have better visibility between the two systems, the PO price is what we use.
  • In North America, we have an automated process where SAP system logic identifies price or quantity discrepancies, blocks the invoice for payment, and moves the discrepancy to a work queue to be manually investigated and resolved.
  • We have a concern that if we rely on the supplier/vendor to inform us of the pricing differences, there may be a risk that they will not respond if the PO price is higher than the final contract price.
  • We take the position that the PO has the correct price and we make payments based on the PO.  Once payment is issued, the supplier contacts us if there is a difference.
  • For ERS, the receipt quantity is matched and paid at the corporate contract price (not a specifically generated PO). Therefore, there we would not have a difference between the PO and the negotiated contract within our system. To resolve differences, we perform a back-end audit to review potential discrepancies and we also rely on the supplier to notify us of pricing discrepancies.
  • Our assumption is that the PO has the correct pricing and terms. Our approach is to have discrepancies identified by Accounts Payable at the time of payment.

If your company utilizes Evaluated Receipts Settlement, do you have a proactive process in place to eliminate discrepancies between the purchase order price and the negotiated contract price?  At your company, how are differences avoided or resolved?

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


 “iPollingTM” 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 e-mail system, Peer MailTM, members can easily communicate at any time with others who participate in iPolling.

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