Understanding Invoice Reconciliation

The final phase in the guided buying process flow begins when the supplier's invoice is matched against the PO and goods receipts to ensure there are no discrepancies in the data.

The invoice goes through an invoice reconciliation process to address any of these discrepancies, and once complete, the system generates a payment request that gets sent to the ERP system.

In the final phase of the procure-to-pay process flow, the supplier’s invoice is matched against the purchase order and goods receipt, generating a payment request.

It's important to understand the differences between invoices and invoice reconciliation documents.

Invoice documents represent a supplier’s request for payment for goods or services.

Once the invoice document is sent to the SAP Ariba invoicing solution, the document is kept as is and cannot be modified. This preserves the original invoice for audit purposes.

The invoice reconciliation or IR is a copy of the original invoice that is used to reconcile any discrepancies or exceptions that occur on the invoice.

IR documents are given a unique ID that begins with the prefix IR followed by a unique numbering identifier.

The system always creates an IR for an invoice, regardless of whether or not there are exceptions.

And any changes to the invoice are tracked using the IR document.

SAP Ariba invoicing matches all incoming invoices against any corresponding POs, contracts, receipts, or any other documents to validate the data.

If there are any discrepancies in the data based on pre-configured settings, the system generates an invoice exception to flag the discrepancy.

Invoice exceptions have tolerances that can be set to specify the thresholds at which the exception is triggered.

Invoice exceptions also have settings to determine who is added to the invoice reconciliation to handle the triggered exceptions.

These tolerances and exception handler settings can be adjusted at any time to make changes to the process.

• Invoice matching
  • Purchase Orders
  • Contracts
  • Receipts
• Invoice exceptions
  • Types
  • Tolerances

SAP Ariba matches invoices to other documents such as purchase orders, contracts and receipts and exceptions are systematically generated.

Invoice exceptions have tolerances Each invoice exception type has its own settings for tolerances and a group that gets added to handle reconciliation.

Tolerances can be modified at anytime.

Before implementing SAP Ariba invoicing, consider strategizing and developing comprehensive policies and processes along with the change management plan for end users.

For non PO invoices, since there are no POs, contracts or other documents to validate the data against the approval process should be aligned properly to ensure the correct approvers are added to validate the invoice.

Non PO approvers typically include the requester on the invoice and also the requester’s supervisor or chain of command.

With PO based invoices, if the invoice data matches the data on the PO, then it may not be necessary to require approvals.

If the data does not match, then the invoice reconciliation process is used to address these exceptions before a payment request is created.

• Non-PO Invoice Approval
  • Approval routing configuration is critical to validate goods or services were rendered
  • Approval is usually performed by the Requester listed on the invoice as well as the Requester’s chain of command
• PO Invoice Approval
  • If the Invoice matches the Purchase Order, additional approval is typically not needed
  • If the Invoice does not match the Purchase Order, payment will be held until exceptions are cleared within the Invoice Reconciliation process

When matching invoices to other documents, the system will use either a 2-way match between the invoice and the order or a 3-way match that also includes any receipts.

Using a 3-way match allows the invoice to be compared and validated against additional data which can help to validate against any receiving inconsistencies. But a 2-way match can also be a sufficient solution in many cases to simplify the process.

In the screenshot we see a 2-way match between the PO and invoice payment terms. In this example, both documents have net 45 set for the payment terms which indicates there are no payment terms exceptions.

SAP Ariba’s automatic reconciliation matches invoices to orders, contracts and receipts within tolerances, and generates any exceptions.

2 way match

• Supplier’s Invoice + PO or Contract

3 way match

• Supplier’s Invoice + PO or Contract + Receipt

Each invoice exception type contains tolerances and settings that can be adjusted to specify the thresholds at which each exception is triggered and the exception handlers that get added if the exception occurs.

These invoice exceptions can be triggered at the header level applying to the entire document or at the line item level applying to one or more specific line items.

Invoice exception types can be set to auto accept, auto reject or require manual handling of invoice exceptions by specified users.

In this example, we have configured an invoice exception type to generate an exception anytime the invoice unit price does not match the PO or contract unit price.

In this case, there is a discrepancy between the unit price that is outside of our tolerances, which will forward the exception to a handler specified in the invoice exception type setting.

What is an invoice validation tolerance?

Administrators can create and manage invoice exception types using the SAP Ariba buying and invoicing administrator area or can upload them using CSV files.

Each invoice exception type configuration sets the fields to compare the exception tolerances and the handlers assigned to resolve that exception type.

An absolute tolerance can be established for amount or quantity values to set a hard limit for acceptable values. This slide shows a partial list of some of the standard invoice exception types available in this system.

• Standard invoice exception list
• Define which fields to compare
• Supports tolerance handling and operations

Organizations can choose to use header level validation or line item level validation. Header level validation throws an exception for any header summary level data that is outside of the pre-configured tolerances.

Line level exceptions will throw an exception for any one or more-line items that are outside of the pre-configured tolerances.

• Compares the line items and amounts on the invoice to the line items and amounts on the PO in SAP Ariba
• Header Validation compares invoice summary amount to order summary amount and receipt summary amount
• Line-level Validation throws an exception if any line item is out of tolerance

All matched invoices are validated against the criteria configured. The validation is rule based with tolerances and a workflow process for exception handling.

The invoice exception type configuration is used to define the required exception handlers that are added to resolve the exceptions and also the approvers that are added to the invoice reconciliation document once it's been reconciled.

Exception handlers are added based on their group assignments, which are role based and include different permissions according to the business roles needs.

When an IR triggers an exception, the system generates an email notification that gets sent to the listed exception handlers. Any IR that requires exception handling will be in reconciling status and will appear in the users To Do List.

All exceptions listed in the IR document must be resolved before the IR can be fully reconciled and generate a payment request.

In this page we have an invoice that was submitted with $100 in taxes. The PO, however, contains $0.00 in taxes. Because this is outside of our pre-configured tolerances, this exception is forwarded to the appropriate exception handler to resolve.

Based on the exception category/type, exception handling rules can be configured to define the exception handling process, reviewers and rejection/approval flow, and so on. Routing, viewing and handling of exceptions is group-based. Different groups have different privileges.

Invoice exception handlers receive system generated email notifications from SAP Ariba when their name is activated in the IR processing approval flow.

• Invoice Reconciliations that need to be reconciled will appear in the To Do box of the responsible reconciler.
• The IR will have a status of "Reconciling."
• All exceptions must be resolved before the IR can be approved for payment.

When an assigned exception Handler opens an IR document in reconciling status, they have header level options available to submit changes to the IR, reject the invoice or print a copy.

If an invoice is rejected, it is rejected completely and sent back to the supplier with information.

The supplier will be responsible for submitting a corrected invoice, an invoice or an exception can also be referred to another user for processing by clicking refer.

Submit: Submits all changes to the reconciliation document.

Reject: Reject the entire invoice

Refer: Refer the invoice to a colleague for reconciling

Manual Match: If the invoice has been matched to the wrong purchase order, chose a new PO for three-way match

Print: Print a copy of the invoice reconciliation

If a Tax Calculation Failed exception has been detected the Recalculate Tax button is displayed. Most likely this indicates that your tax table does not support the configuration of the invoice. For example, you may be shipping to a destination that is not listed in the tax table, and so the comparison of the Ship From and Ship To address to calculate the sales tax fails. To resolve the exception, you must first correct your tax table, and then reconcile the exception by clicking the Recalculate Tax button.

Line level invoice exceptions. Display options for exception handlers to edit the line level exception, manually match the line level exception to the correct PO or contract or defer the line level exception to another user for processing.

Each line level exception contains an option to accept invoice which accepts the amount or quantity listed in the invoice or an option to accept expected which rejects the invoice amount or quantity instead using the value from the purchase order or contract.

Edit: Modify the exception line before accepting.

Accept Invoice: Accepts the value of the invoice from the supplier.

Accept Expected: Refuse the amount of the invoice.

Manual Match: Manually matches the line item to the line item of an existing PO or Contract prior to accepting.

Defer to someone: Assign the exception to another user to handle it.

For line-level exceptions, accepting the information on the invoice means that you agree to pay for the line item as stated on the invoice, even if the line item differs from the associated purchase order, contract, or receipt.

Accepting the information on the associated purchase order, contract, or receipt means that you refuse to pay the invoiced amount for that line. The amount paid will be the amount on the original purchase order, contract or receipt, essentially paying a different amount than invoiced by the supplier.

The exceptions you are allowed to resolve depend on your group membership. If you are authorized to resolve an exception, your options to do so depend on your site's configuration. For example:

• By default, the option to accept the values on the associated order or contract is visible in the Action menu on the invoice reconciliation (IR) document. If your site is in Europe, regulations there require that invoices be rejected entirely or paid in full. The option to accept the values on the associated order or contract (instead of the invoice) allows "short pay" on invoices, which violates these regulations; therefore, it might not be visible in sites in affected countries.
• For some exceptions, if you do not see the option to accept the expected value corresponding to the order or contract, your site might be configured to not allow you to accept certain exception types.

Simply put an invoice reconciliation document is approved to signal to the supplier willingness to pay the reconciled invoice.

Alternatively, the invoice reconciliation document can be rejected signaling the invoice has been denied and will not be paid.

You approve an invoice reconciliation to indicate to the supplier that you will pay the reconciled invoice, or reject and indicate to the supplier that you will not pay the invoice.

Each exception line item has a reference link which allows handlers to review the details of each document that corresponds to that exception.

The reference link displays any invoices, purchase orders, receipts, or other documents that are associated with that exception.

Handlers can click the document ID's in the reference section to view the full document for further review.

Click Reference link in the exception to review details for that particular line item:

• Invoice
• Purchase Order or Contract
• All Invoices
• Receipt

From the exception, users can click on reference to see the detailed information for that line.

Invoice is the information for that line item on the original invoice as invoiced can be viewed, Description, Qty and price.

Purchase Order provides information on the original items ordered on the PO, Description, Qty and price.

All Invoices lists the information from previous invoices submitted against the line item on the PO.

Receipt displays what has been received in SAP Ariba for that line item.

Each invoice reconciliation document contains a reference tab that displays all documents associated with the entire IR and also displays the accumulators. Clicking on a document ID will open the full document, allowing handlers to review the full details.

Accumulators are fields that are used to capture, calculate, and display the amounts, quantities and values that have been ordered, received, reconciled, and more.

Accumulators calculate how much of a purchase order line has been invoiced, received, reconciled, and so forth. The following information is available on the reference tab.

• Total Received
• Total Invoiced
• Total Reconciled
• Total Ordered
• Status

Reference documents can be reviewed on the reference tab as well. From here you can see all the documents that the entire invoice references.

Click on document ID links to see the original documents.

The invoice reconciliation engine will compare the invoice to any PO's contracts, receipts or other data and will trigger exceptions based on the invoice exception tolerances and settings.

Because non PO invoices are not matched to any existing documents in the system, they typically trigger less exceptions. For these reasons non PO invoices require stronger approval processes to align the correct approvers to validate the invoice and to catch any errors.

Invoice exception tolerances can be adjusted at any time, allowing organizations to loosen or tighten restrictions on the allowable thresholds. Loosening tolerances may help to reduce the number of exceptions that require manual processing, while tightening restrictions can help to capture more discrepancy.

• SAP Ariba will check the IR against the PO or Contract and can enforce predefined exceptions
• Since there is little data to validate against, Non-PO invoices trigger a smaller number of exceptions
• It can be tough to predict how many exceptions will be triggered before you go live, so you should monitor exceptions closely and adjust tolerances as necessary to get either stricter control (fewer exceptions being triggered than you can handle) or a lower workload (more exceptions being thrown than you can handle)

Once an invoice reconciliation document has been fully reconciled and approved, it generates a payment request in the form of the OK2Pay file, which gets sent to the ERP system.

The ERP system uses the payment request to communicate to the ERP the reconciled amounts to pay the supplier and the ERP submits the payment.

Once the payment is made, the payment information referred to as remittance advice can be imported back into SAP Ariba procurement to provide visibility and status updates.

• Payment Request Export:
  • Once invoices are reconciled, SAP Ariba will export payment information to your ERP system
  • Your ERP system will use this information to pay suppliers
• Remittance Import:
  • Data is generated based on payment information from back-end system
  • Remittance files are imported into SAP Ariba Procurement
  • Provides payment information visibility in SAP Ariba Procurement