Tag Archives: Purchase Order

Jargon: Incoterms (with a brief on Payment terms & Delivery Terms)

Sales Orders (SO) & Purchase Orders (PO) are 2 key trade documents in any business. They usually two important fields: Payment terms & Delivery terms. After a brief on these terms, we go on to explain Incoterms: internationally accepted trade-terms used in international contracts.

Payment terms most often represent the payment instrument (cheques/collaterals), credit period and discounts, if applicable. In the simplest form, P30 indicates that payment will be made 30 days after receiving the bill/invoice. P30/2%20 is a more complex term indicating that if the payment is done within 20 days (instead of the 30-day credit period), the buyer is entitled tot a 2% discount on invoice value. Payment terms could also be based on collaterals like L/C (Letter of Credit) or Irrevocable credits that help minimize the seller’s risk.

Delivery terms are indicative of the agreement on delivery cost, responsibility (=risk) and ownership of transported goods/services. Costs include freight charges, taxes & duties and commissions to clearing agents. As a seller, I may choose to transfer ownership at my premises {ExWorks}, at my port {Free Carrier}, after loading cargo on board air/sea/road/rail vessel {Free On Board}, customer’s port {Delivered Ex Quay/Ship} or right up to ship-to address (address where goods are required to be delivered).

Incoterms are delivery terms standardized by the International Chamber of Commerce (ICC) for use in international trade. The abbreviations along with description & associated buyer/seller liability are mentioned here.

Talking about commission, in reality commission is a sweeter word for greasing charges at ports; needed an example of organized crime, take this! How would it look if I had a ledger account called Bribes? Doesn’t Agent Commission really sound decent? One of my uncles lives of this profession, so I won’t say another word 🙂 Continue reading Jargon: Incoterms (with a brief on Payment terms & Delivery Terms)

Jargon: Electronic Invoice Presentment and Payment (EIPP)

Electronic Invoice Presentment and Payment, or EIPP, is more general concept (as compared to ERS discussed earlier) that is based on electronic invoice submission. ERS uses Advance Shipping Notices (ASNs) instead of invoice. However, they share benefits: avoidance of data entry, errors and exceptions, lost invoices and vendor inquiries. Most solutions are capable of receiving invoices in CSV, XML and few other formats over EDI.

EIPP or e-Invoicing is part of the larger procure-to-pay (P2P) cycle (will be writing soon on this). A huge challenge lies in supplier on-boarding: getting suppliers to automate at their end. In the current era, supplier enablement can be hastened by hosting an internet facing portal – called Supplier Portal in sourcing jargon – that suppliers can log-on to and key-in their invoices. ‘Flipping-the-PO’ is a standard feature that saves data entry effort for the supplier, and minimizes error. On referencing the PO being invoiced, information about line items viz. description, ordered quantity & price are defaulted. This helps reduce the number of expections in automated invoice matching. Imagine this as handing over your groceries list to a baniya who converts it to a bill by stamping his name and adding prices & total (and discounts if the baniya is willing to spare)