Moderated by Sherry, Financial technology consultant at Hyperbots
Sherry: Hello and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Mike Vaishnav here with me, an experienced finance executive with experience in global operations, strategic leadership, and a proven track record in driving results across finance, M&A, controllership, and corporate strategy in diverse industries. Thank you so much for joining us today, Mike, to discuss the challenges and strategies for matching invoices with blanket purchase orders. First, could you briefly explain the key differences between a blanket PO and a specific PO?
Mike Vaishnav: Sure. Thanks, Sherry. The blanket PO is used for ongoing purchases with a predetermined amount or quantity. It is open for a specific period of time or amount where you’re going to receive goods, but there’s no perfect quantity or fixed price. The amount is set, but the exact quantity for each purchase may vary. A specific PO, on the other hand, is tied to a one-time purchase with a fixed quantity and amount. You know exactly what you want to order, and it ensures that the exact amount of goods or services will be delivered. For example, with a blanket PO, you might decide to buy 1,000 units over the next six months for $100,000. The quantity can come in multiple deliveries, and you would match the quantity received against the PO, such as 100 or 200 units at a time. Another example of a blanket PO is for consulting services or projects. You might set up a blanket PO to cover a specific project with a set budget, including services like legal or audit fees. Payments are matched against the progress of the services rendered. A specific PO, however, is for ordering a specific quantity of goods in a one-time or limited purchase.
Sherry: And given the open-ended nature of blanket POs, how do you approach the matching of incoming invoices with these POs?
Mike Vaishnav: Matching can sometimes be tricky with partial deliveries, but you need to match the delivery of the product or service to the PO. For product-based blanket POs, it’s relatively straightforward you receive 100 units, and you deduct that from the total PO amount. For services, it depends on the deliverables and how the service is invoiced. If it’s based on time, such as contractor hours, you can match the timecards to the PO but service-based blanket POs can be more challenging to match than goods, where quantities and delivery schedules are clearer.
Sherry: And how do you track the cumulative spend and quantities against a blanket PO to ensure the limits are not exceeded?
Mike Vaishnav: There are various ways to track this. One method is using a cumulative tracking system within the accounts payable function. The accounts payable team monitors what goods have been received and how much of the PO has been used. This allows for continuous monitoring of the remaining quantities and amounts, ensuring that invoices don’t exceed the PO limits. Some companies use integrated systems to track this automatically, while others may use add-on solutions or manual tracking to ensure compliance.
Sherry: And what role do tolerance levels play in the matching process for blanket POs?
Mike Vaishnav: Tolerance levels are crucial. They set the acceptable range for discrepancies in price or quantity, determined by the company based on the materiality of the item. Some products may have higher or lower thresholds depending on their nature. If the variance is within the tolerance level, say 5% plus or minus, the system can approve the invoice automatically. However, if the discrepancy exceeds the threshold, it requires further review and approval.
Sherry: From your vast experience, could you describe the approval workflow for invoices that exceed the set tolerance levels?
Mike Vaishnav: If the invoice exceeds the set tolerance levels, it triggers a workflow for approval. Based on the company’s workflow, it will route the invoice to the appropriate person for review, following the approval hierarchy and limits. If the variance is minor, a lower-level manager might approve it. However, if it’s significantly higher than the threshold, it escalates to higher-level management or even executive approval. The rationale behind the variance must be justified, whether it’s due to contractual terms or other factors like the vendor shipping more to clear out their inventory.
Sherry: Since AI has taken the finance industry by storm, I have to ask, how can AI enhance the efficiency of matching invoices with blanket POs?
Mike Vaishnav: AI significantly enhances the efficiency of matching invoices with blanket POs. It can analyze and flag discrepancies that require manual intervention by predicting potential mismatches based on past trends and patterns. AI can also streamline the process with ERP systems to match quantities and flag issues in real time, helping catch errors more quickly. It also speeds up workflow approvals, enabling faster resolution of any problems and ensuring compliance through predictive analytics.
Sherry: And since we’re talking about efficiencies, what are some best practices you follow to ensure effective matching of invoices with blanket POs?
Mike Vaishnav: First, establishing a robust process is key, whether through an ERP system or using AI-based tools. Regularly reviewing and auditing the PO matching process helps identify any discrepancies early. Clear communication with vendors is also essential. Discrepancies often arise from mismatches in received quantities or incorrect invoices. Timely reporting, reconciliation, and monitoring of open POs to address why they haven’t been matched yet are also critical.
Sherry: Finally, how do you ensure compliance and control in the process of matching invoices with blanket POs?
Mike Vaishnav: Compliance is ensured through strong processes. Setting up proper tracking and tolerance levels, implementing approval workflows, and following internal policies help maintain control. Regular audits, reconciliations, and system-based controls further ensure that blanket POs are handled efficiently and accurately. AI can assist in monitoring for unusual activity and ensuring that any issues are addressed promptly, improving overall compliance.
Sherry: Thank you so much for these insights, Mike. This has been a very informative discussion on the complexities and strategies for managing blanket POs.
Mike Vaishnav: Thank you. Nice to be here.
