Invoice That Will Not Match
Litware raised a purchase order for 1,000 units at $45.00. The vendor shipped and invoiced 1,000 units at $46.20 plus $2,400 of freight that the buyer agreed to by phone but never added to the PO. The invoice total is $48,600. The vendor's matching policy is three-way, price tolerance 3%, quantity tolerance 0%, invoice total tolerance 1%. The same invoice includes $540 of travel costs for the vendor's field engineer, which the buyer keyed onto the PO item line. For future orders above $100,000 the vendor now demands a 30% advance before shipment. The AP clerk cannot post the invoice and asks whether to switch the vendor to invoice-total matching to clear the backlog.
1. Explain precisely why the invoice fails matching and recommend the least-risk fix.
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Line by line:
- Price: 46.20 vs 45.00 = +2.67%, inside the 3% price tolerance. Passes.
- Quantity: 1,000 vs 1,000 at 0% tolerance. Passes.
- Freight: $2,400 has no matching charge line on the PO. This is the failure - line-level matching rejects the charge, not the price.
- Invoice total: 48,600 vs 45,000 = +8%, far outside the 1% total tolerance. That tolerance only bites if invoice-total matching is used, but it tells you how far off the commitment is.
Least-risk fix: add the $2,400 as a miscellaneous charge on the PO with a charges code configured to compare purchase-order and invoice values, approved through the PO change process. The invoice then matches at line level and the freight posts to the charge account rather than being buried in inventory cost.
Alternative, only if the price genuinely changed: PO change order to 46.20. It is heavier but leaves an approved audit trail and keeps commitments accurate.
Reject the clerk's proposal. Switching to invoice-total matching drops the quantity and price controls, so over-shipment and price creep become invisible - and the $540 travel cost would sail through with them. Fix the document, not the control.
Also check which policy actually applied: matching policies are assigned at several levels (vendor and item, item, vendor, item group, vendor group, all) and the most specific applicable record wins. A tolerance set at the wrong level is a common reason a 'configured' tolerance appears not to work.
2. The $540 of vendor travel costs was keyed on the PO item line. What is wrong with that, and how should it be handled?
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What is wrong: an item-based PO line posts to the item's posting profile, which points at inventory (or cost of goods sold). Keying travel there capitalises the $540 into inventory and it gets absorbed into unit cost across the units received - the distribution centre's stock value now includes an engineer's airfare. It also distorts margin for the wrong period.
Correct handling:
- Put the travel on a service line with a procurement category whose posting is mapped to a travel or professional-fees main account, or raise a separate services PO. Services typically run two-way matching, which is appropriate - you are not receiving a countable quantity.
- Keep vendor rechargeable costs and employee expenses apart. Expense management policies (per diem, mileage, receipt rules) govern employees, not vendor invoices. The control you need here is the procurement category and an approval, not a travel policy violation.
- If the travel was never approved as part of the deal, the commercial question is whether Litware owes it at all - the buyer's phone agreement is not a commitment.
3. How should the 30% advance on orders over $100,000 be set up so it is controlled and does not double-pay?
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Setup:
- Configure a prepayment on the PO - a prepayment invoice with a dedicated prepayment ledger posting account (balance sheet), driven by a prepayment percentage or an explicit prepayment invoice. Do not pay it through a general journal; that breaks the trail back to the PO.
- Post the prepayment invoice, then pay it through the normal vendor payment proposal so it appears in the payment history and cash forecast.
- On the final invoice, apply the prepayment in invoice matching so the amount is offset and the vendor is not paid twice. Unapplied prepayments accumulate as an asset nobody chases.
Controls:
- Prepayments are not subjected to three-way matching - that is the gap. Require management approval on the PO before the prepayment invoice can post, and reconcile the prepayment account monthly against open POs.
- Check the tax treatment: in many jurisdictions an advance is taxable when invoiced, so the prepayment invoice may need sales tax posted, not just a balance sheet entry.
- Before you agree to the term, confirm the exposure - a 30% advance on a $100,000 order is cash out before delivery, and the credit risk now sits with you, not the vendor.