In this article, learn about:
Invoicing processes for CPGs
Automated invoicing with EDI
Invoicing best practices for suppliers
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Invoicing is integral to getting paid for CPG (Consumer Packaged Goods) suppliers. However, suppliers who do not adhere to the CPG requirements for invoicing can lose money just as easily.
Invoicing makes up a major part of the Order to Cash cycle (O2C), which is made up of three primary stages:
Ordering: This is the beginning of the cycle, encompassing order management, as well as sending, receiving, and acknowledgement of the Purchase Order (PO).
Fulfillment: This part of the cycle encompasses shipping, sending, and receiving the Advanced Ship Notice (ASN), inventory management, and any communication with Distribution Centers (DCs).
Billing: The last stage of the cycle includes the invoice process, which involves both sending and receiving the invoice, invoice deductions, disputing deductions, and making the final payment.
Once the CPG receives the shipment and approves it (during the fulfillment stage), the supplier is responsible for sending the invoice to the CPG. The CPG will then accept the invoice, make any adjustments they deem necessary, and send the payment to the supplier.
Why Proper Invoicing Matters
For CPG suppliers, the invoice process can often be frustrating when invoices are not paid in full due to deductions or chargebacks. While most retailers allow suppliers to dispute some or all deductions, it is still important to ensure the entire O2C cycle stays compliant to avoid deductions on the front end.
A typical invoice should include the following information:
Invoice number
PO number
Supplier number
Supplier contact information
Item details and description
A PO starts the beginning of the ordering stage of the cycle. If the shipment does not match the PO, then the subsequent invoice will also be mismatched, and the result will be a deduction from the CPG when paying the invoice. An incorrect or missing PO number is the primary cause of invoice-related deductions or rejected invoices.
While disputing deductions is possible, disputing takes time that suppliers could be spending making more money. Besides, disputes are not always approved, and the time the supplier took to dispute may not result in money back.
In short, proper invoicing matters for:
Getting paid
Staying compliant
Avoiding disputes
Related Reading: Data Analytics for CPG Companies
Invoicing with EDI versus without EDI
When it comes to the actual process of invoicing, the biggest question for suppliers is whether to invest in automation.
One of the most common ways retailers automate their processes is through Electronic Data Interchange (EDI). EDI allows suppliers and retailers to communicate electronically without having to rely on emails for important documentation, such as POs, ASNs, and invoices.
Many retailers, including CPGs, require their suppliers to utilize EDI in order to work with them. Make sure that you know whether or not the CPGs you supply require EDI, and if so, which EDI providers they approve.
So, what does the invoicing process look like with EDI? Utilizing EDI for your supply chain looks roughly the same, but with automation and different terminology:
PO (EDI 850) is sent from the CPG to the supplier.
PO Acknowledgement (EDI 855) is automatically sent to the CPG from the supplier.
ASN (EDI 856) is sent, and the order is packaged and shipped out.
After the shipment is received, the system automatically sends the CPG the invoice (EDI 810).
Finally, the CPG sends the supplier the payment (EDI 820), which may include deductions.
The automation that EDI provides is helpful as suppliers and CPGs do not have to manually send necessary documentation back and forth, usually via email. Automation is also helpful for preventing human error. However, EDI can also cause its own errors due to incorrect data from the outset.
Pros of EDI Invoicing
Faster processing time means getting paid more quickly
Reduction in manual errors
Improved compliance with CPGS, particularly if the CPG requires/prefers EDI adherence
Easier document tracking
Cons of EDI Invoicing
High initial cost for EDI setup and integration
Less flexibility for unforeseen errors
Reliance on third-party EDI providers
EDI does not mean errors won’t happen
Related Reading: EDI for Retail Supply Chains
Common Invoicing Mistakes to Avoid
Automating the invoice process or not, mistakes still happen. Common invoicing mistakes that CPG suppliers should avoid are:
Mismatched PO number
Incorrect quantities listed on the invoice
Late invoice submissions
Missing required documentation (ASN, BOL, etc.)
Not adhering to CPG compliance expectations
Not verifying delivery prior to initiating the invoice
Failing to follow up on unpaid invoices
Best Practices for Invoicing for CPG Suppliers
Avoiding mistakes is not the only way to ensure proper invoicing and getting paid. There are also some helpful best practices suppliers can follow to make sure invoices are error-free and get paid:
Double- and triple-check CPG compliance requirements and expectations
Implement an internal invoice review checklist to ensure compliance
Ensure that the PO number is listed correctly on the invoice
Keep track of the status of your invoice and the subsequent payment
Communicate proactively with CPG Accounts Payable departments regarding any issues or needs
Maintain organized and easily accessible documentation
Partner with a compliance or deduction management service
Related Reading: Accounting Playbook for CPG Suppliers
Disputing Invoice Deductions
Understanding the invoice process, utilizing EDI, avoiding common mistakes, and implementing best practices are important, but even with all of this in place, errors can still arise. The supply chain can be volatile, and invoice deductions can occur due to issues outside of suppliers’ control. When this happens, it is important for suppliers to have a clear system in place for disputing deductions.
One of the best ways for suppliers to ensure the dispute process goes as smoothly as possible is to familiarize themselves with the CPG’s disputing expectations:
Which deductions are disputable versus non-disputable?
What documentation is required for the dispute?
What is the timeline in which suppliers can dispute a deduction, or re-dispute?
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