Utility Invoice Processing – PO Requirements and Outsourcing

Energy costs are one of the largest expense categories a company has, which makes it a priority to understand and manage utility-related data.  Yes, if the lights were out last month at one of your company locations, you probably need to pay the electric bill; however, the process of managing utility payments is more complicated than simply keying in the invoice total.   With multiple locations, there are ongoing issues with opening and closing accounts and tracking related deposits and refunds, issues with ensuring that proper rate schedules are applied, and, finally, issues with bill processing and the analysis of expenses to identify inefficiencies across your portfolio.

As part of a redesign of their Purchase-to-Pay process ^[1], a Peeriosity member used iPolling^TM to quickly get responses for how companies process utility payments.  The first question asked, “How does your company primarily pay for utility (electric, natural gas, etc.) invoices?”.  While in 63% of the cases utility invoice processing takes place internally in Accounts Payable ^[2], in 37% of the companies a third-party firm is involved. 

Here are the details:

The second iPolling question asked about the timing of payments to the utility vendor.  The results were mixed across all categories, with 70% paying in 15 days or less. 

The iPolling questions on the topic of utility invoice payments generated a lot of discussions, with many companies providing additional comments about their process, and with some providing details for the vendor they are using to perform utility audits.  Here are some of the comments:

• The payment terms are different by market. Most utility vendors are on immediate terms, but, for the majority of markets in Europe, they are on direct debit and charge the company bank account directly and invoices are accounted for and cleared on the direct debit date in the system.

• We use a third-party firm (ECOVA).

• The utility invoices for two of our business lines currently go through a third party vendor, and we’re in the process of adding our third business line to that provider. We currently process and pay those invoices in our AP department.

• We currently pay utility invoices in-house but are looking at outsourcing to a third party ^[3] for audit and bill pay.

• Payment terms vary from immediate to 30 days. We monitor all utility vendor accounts to ensure timely receipt and payment of invoices. Utility invoices receive prioritized processing from a dedicated resource.

• All utility companies are paid in the next payment run after being posted, usually less than 10 days.

• We use a combination, with some invoices going directly to a third-party firm for audit, and they instruct us to pay, with other invoices being processed entirely by our own Accounts Payable Department. It depends on the country.

• The invoices go directly to a third party for audit and data collection and they provide an electronic invoice file for payment.

• Our payment terms are set to immediately pay for utilities.

• Amesco is our third party who audits the utility invoice and then instructs us to pay.

• The payment terms are different by market. Most utility vendors are on immediate terms, but, for the majority of markets in Europe, they are on direct debit and charge the company bank account directly (incl. down payments) and invoices are accounted for and cleared on the direct debit date in the system.

• NISC receives reviews and provides a payment file for utilities.

• We have utility bills to be paid in 3 days. We had to map these vendors and prioritize invoices from them. With some, we managed to get an EDI connection ^[4], which helps a lot.

• We pay the utility invoices out of our AP system, and then send a copy of the invoice to our third party for audit.

• The company that pays our utilities (CASS) is on net zero terms.

• We have a third party that captures most of our utility invoices (for usage/tracking purposes – no auditing) and then transmits them to us via EDI for processing.

• We have a ‘hybrid’ in North America where a third party manages the relationships, approves bills, and then sends them to AP to disburse the funds. In the other regions, it is typically handled directly by AP and not managed by a third-party firm.

As a related issue, recently the Procure to Pay Global Process owner at a member company wanted to know whether or not other companies create purchase orders for utility expenses (water, gas, electricity), so he used Peeriosity’s iPolling^TM capabilities to quickly find out.

When questions like this come up, it can be helpful to have clear insight into the policies of peers.  Fortunately for members of Peeriosity, it is easy to get objective and unbiased feedback from peers who are interested in sharing their views and helping a colleague, with the option for participants to see the identity of others, and with the ability to easily contact peers using Peer Mail^TM, an e-mail tool that is integrated into the Peeriosity solution.

The iPolling^TM results indicated that only 23% of companies require a purchase order for utility expenses, with another 23% indicating that the policy varied based on the location or business unit.  At 54% of the companies, a purchase order is not required.

Certainly, creating a purchase order for utility expenses can add a layer of complexity to the process.  While some companies feel that this approach has its merits because of the increased visibility and controls around these expenses, there are some other approaches that might be considered.  Those include having specialized reporting around utility spending, an enhanced no-PO approval process for utility expenses, or having a third-party provider that specializes in the analysis and payment of utility invoices assume control of the process.

This poll question generated a lot of discussion among peers regarding when purchase orders are required for indirect spend, including utilities.  Here are some of the comments:

• We require PO for most indirect expenses; however, there are a few exceptions that are managed as non-PO.

• PO amounts vary depending on our business unit.  Indirect spending policies are not standard across our company.

• We define approved channels that can be expensed outside the PO system.  For anything else, regardless of dollar value, a PO is required.

• Whether or not a PO is required is based on the type of purchase, not on a dollar amount. Utilities, telecom, and rent are examples of recurring bills that do not require a PO.

• The majority of indirect expenses require a purchase order with no amount limit except for rent, utilities, taxes, benefits, donations, and job candidate interview expense reimbursements.

• We require a PO for most indirect expenses; however, there are a few exceptions that are managed as non-PO. Additionally, we allow the use of the purchasing card for one-time buys that are less than USD $1,000.
  

• We have a procurement matrix, which lists which kinds of purchases need a PO, with no exceptions for low-cost purchases.
  

• It depends on the market. For those markets on Ariba, we do require a PO/shopping cart for any indirect purchase. However, utilities could be exempt. In some markets, we have an outsourcing provider who audits and pays our utility invoices.
  

• We require a purchase order for indirect spending such as services, repairs, etc. We have a portion that still goes non-PO, but must have approvals before the invoice is paid. We are looking at a third-party company to manage utilities, hopefully by late 2017.

• It is not a requirement to put indirect spending on a PO and there is no threshold. We allow payment for indirect spending through our non-PO electronic payment process and/or credit card.
  

• The majority of our indirect materials purchases require a PO. We have a few exceptions that are approved. For utilities, we require blanket POs for AP to book/pay invoices, to ensure proper allocation of cost and authorization of the funds.

What process do you follow at your company for utility invoices?  If you are processing in-house, does your process include auditing invoices, in addition to scheduling them for payment?  Do you require purchase orders for utility expenses?

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

“iPolling^TM” 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 participate in iPolling.