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FrontAccounting forum → Accounts Payable → How to pay before receiving goods?
Hi, I am trying to implement the following workflow.
I create a PO,
Vendor sends me Pro-Forma Invoice (usually with shipping charges; occasionally tax or customs charges separated out). Sometimes immediately (if their system can generate it automatically); usually in a few hours or a few days
I pay, and send remittance advice
A few days or weeks later I get the goods.
I can't figure out how to implement such workflow. Is it possible?
Make a payment to the supplier without allocating any invoices. You may put a memo/comment on the payment regarding the PO. Send a remittance. When goods arrive you enter the receival and when the invoice arrive you enter the invoice and allocate the former payment for the invoice.
/Joe
Wow! That was amazingly fast! Thank you.
Let me make sure I understand what you are saying (I think I do - but it's helpful to repeat it in my own words). Once I get the invoice and know how much to pay, I keep invoice "in the inbox", and go to "Payments to suppliers" to create a payment, right? Once the goods actually arrive, I get the invoice from the inbox, enter GRN and invoice. Right?
(I'll leave it to the accountant to decide whether to allocate at the time of the payment or at the time of receiving goods)
1. Create and send the PO to the supplier.
2. Create a payment to the supplier without allocating anything. Make a memo on the payment, f.i. PO #5. After creating the payment you can make a remittance and send it to the supplier.
3. When the goods are received use the Outstanding po maintenance and create the receival.
4. When the invoice arrive, enter the supplier invoice and select the po receival
5. Select Allocate supplier payments and credit notes. Select the payment you made before and the invoice to allocate.
Joe
joe,
For clarity, let's say I create a PO on July 1st for $250. I get the invoice on July 3rd for $300 ($250 + $50 shipping). I pay right away (on the 3rd), and receive the goods on the 20th. So, while your sequence has goods arrive as #3, and invoice arrive as #4 - in our business invoice arrives several weeks before goods. Similar to how we as consumer purchase online: we pay Amazon at the time of the order; not after we receive the shipment.
Therefore, I have two problems with this workflow (and that's before I get my head around allocations, which will probably never happen). Probably, I misunderstand something.
First, when I receive the invoice and make the payment. There is no correlation of the payment to the purchase order. What happens if the vendor sends another invoice on the 5th? There is nothing in the system that will hint me that I already paid for this PO.
Second, when the goods arrive there is always a reference to my PO since PO lists line items. If some items are on back order, those line items are marked as such. There may or may not be a reference to vendor invoice (more likely not). If I have 40-50 invoices that are not in the system (because the goods have not arrived yet) - how can I pick one to match the shipment? The only way is to open each invoice from that vendor (ok, from specific vendor there may be 5-10), and see which one applies to the PO that is on the shipping memo.
Is there no support for the workflow that I described? In our business 80 per cent of our purchases happen that way. And 100 per cent of our sales, including sales to businesses. There got to be some way to implement it...
Well, you simple wait until you get your final receival before allocating your initial payment.
When doing your payment you can instead reference the invoice number in the payment memo field.
This is the way I can suggest for you.
/Joe
Maybe we are using the word "allocate" in different ways... for me it means allocation of payments to GL accounts - something that, - as I said - is least of my concerns at this stage.
What I am concerned about is recording the payment; so my bank account transactions match my bank statements. Am I understanding correctly that it is impossible to record a payment before receiving the goods? (if it isn't - I can take it... just say one way or another)
We tried both FA and WebERP - and it seems impossible in either systems... Are we that unique in paying upfront? 
Virshu,
The payment you do is recorded both in the bank account and accounts receivable as well as the general ledger. Everything works as you wish.
Allocation means that you take the initial payment and allocate the invoice(s).
Please try this out on the training company and discuss this with your accountant.
With FA you have no problems with this.
Joe
Joe,
I've actually spent several hours with the accountant and I am channeling her frustrations. OK, let's try again.
The payment you do is recorded both in the bank account and accounts receivable as well as the general ledger.
No questions and no disagreement there.
Allocation means that you take the initial payment and allocate the invoice(s).
Duly noted.
Both these points are indisputably correct, but unrelated to my question. Let me ask the question this way:
1. Is it possible to put a payment in the system before receiving goods that will be tied to purchase order?
2. Is it possible to set up the system, so that it - before receiving goods - prevents the user from making the second payment for the same purchase order?
3. Is it possible to enter an invoice for the purchase order before receiving goods.
All three are simple yes/no questions.
Personally, as a developer with 20+ years of experience, I love the system. It's written in a well-thought way; easy to debug, and probably easy to enhance. But if the accountant says that she needs this functionality, and I can't show her how to do it - then for us it's like functionality doesn't exist. And all my admiration with code doesn't mean much.
I have explained how you can use FA with prepayments. If you cannot find a solution, then I can't help you.
Joe
I have explained how you can use FA with prepayments. If you cannot find a solution, then I can't help you.
Joe
OK, Thanks.
Probably last question: do you feel that FA has the functionality that I am looking for, and I am just not getting it? Or FA doesn't have the functionality that I am describing?
Maybe for simplification, the functionality in question is recording a payment in the system that is linked to PO before receiving goods.
There is no link between payment and PO. Only to the allocated invoices. This is the reason that if you use FA, then you have to wait for the receival before entering the invoice. There are no receivals to put into the invoice if you try to enter the invoice before the receival arrive.
Then when the invoice is registered you can allocate it from the previous payment.
This is the way you can handle prepayment if you want to use FA.
Joe
Interestingly, we tried yet another accounting system (PhreeBooks), and it works in the same way as WebERP and FA. Namely, you can only enter invoice after you received the goods.
In all other aspects we liked FA much better than the others. In fact, we ran into a few very pleasant surprises (the final was that there is a configuration option to see both Codes and Short Descriptions in the item drop-down lists). Also, the quality of documentation (including clear English) and the speed of responses exceeded all expectations.
Thank you guys - you are the best!
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