Monday, November 3, 2014


International Payables – Where the headaches begin David Gustin - October 29, 2014 2:39 AMCategories: Letters of Credit | Tags: Accounts Payable automation, EDI                

Globalization has resulted in dramatic growth in trade flows. While governments like to focus on exports, many companies source both finished goods and raw materials globally. In the past, when buying overseas, companies issued letters of credit and really outsourced the management of A/P to banks (documentation checking, payments, etc.). Now, many companies buy on open terms and must manage a web of invoices that occur not just with suppliers, but with consolidators, agents, inspection agencies, truckers, etc. Many companies I have dealt with over the years have built legacy processing systems both on the inventory and A/P side to handle checking and matching outside their ERP systems. One of the challenging issues is that every company has a different business process. Depending on how a particular company works, the most significant difference between domestic and foreign invoice processing is a foreign purchase order can involve multiple parties to pay – forwarder/consolidator, manufacturer, factory, buying or selling agent, container freight station, shipping line, etc. These all need to be reconciled back to the PO level (or individual SKU level, particularly for landed cost calculations to support pricing). For example, there may be one shipment per PO or multiple shipments per PO. Most companies have a rule of how many containers they will put on a single Bbill of lading. Some do 1:1, while others do up to 3 containers per 1 bill of lading and still others do more. It gets messy quickly. The chart below shows how SKUs are part of a PO, which is part of a shipment, which may or may not be part of a Letter of credit. Imagine trying to reconcile the feeds from consolidators on the back end. Where is the aspirin!<img class="aligncenter wp-image-54680 size-medium" src="" alt="International Reconciliation" width="300" height="211"> Much of the headcount is related to taking paper and rekeying information coming from third parties, particular consolidators and reconciling invoice to multiple POs at a line item level. This is not an area necessarily driven by scale, but number of vendor relationships, size of orders, POs to invoice, matching policies, systems to enter data into, etc. Domestic A/P is very much electronic oriented at many firms, supported by EDI and electronic matching (2-,3- or 4-way). I’ve done comparison to look at support staff to support direct import programs and international shipments. The variability in staff to support custom entries is significant and could include treasury, A/P, vendor relations, receiving/customs group, quality assurance, vendor compliance, etc. So in tackling solutions here as vendors, a deeper understanding is required of a particular company’s international versus domestic process. - See more at: