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Can ‘No PO, No Pay’ actually prevent payment mistakes?

This blog discusses the pros and cons of the ‘no PO, no pay’ approach to accounts payable processes, and explains how this control can be boosted.
A toy person halting falling wooden blocks, signifying the idea of no PO, no pay.

One of the most frustrating aspects of processing invoices in Accounts Payable is confusing data. From duplicate invoices to POs that don’t match the invoice total, to invoices with no PO at all. We often come across areas of non-compliance, and so we need to be vigilant, and say: “No PO? No pay.” But, does this actually work? Does it keep out those duplicates, stop the non-compliance? We delve into those questions in this blog.

What is ‘No PO, no pay’?

It’s a simple concept, really. A ‘no PO, no pay’ policy is where invoices which do not have a purchase order (PO) number when they enter the system are not paid. Instead, they are returned to the supplier with a request to seek a PO before the payment is made.

It is very commonly used as a control by public sector organisations such as local government councils and healthcare services, including the NHS.

What is the benefit of ‘no PO, no pay’?

The benefit of using this as a standard in your process means that you only pay for goods which have been properly ordered and authorised. Generally, a PO will need to be approved, meaning that it has been budgeted accordingly by the approving manager. This ensures that the working capital of the company is spent wisely.

Those invoices without POs will not be processed, which means there is a lower likelihood for fraud, and to prevent a duplicate being accidentally sent. Having a PO against the order means that the total invoice contents and amounts can be cross-examined and validated.

Non-PO invoices can result in late payments as validation checks are more difficult to complete. This can damage your credibility with suppliers as a result.

Does it stop non-compliance?

No PO, no pay does not stop non-compliance, but it does make matching invoices far easier.

The key with this policy is vigilance. Accounts Payable is the last line of defence for overpayments, or duplicates. There should be no, or very few exceptions to the policy, and if they are, they would follow a strict protocol.

That, though is where some of the issue lies. There will always be invoices or payments that cannot be completed with a PO. There will be card payments, cheques, standing orders.

Does it stop duplicate payments and other payment errors?

This method can stop duplicate invoices… only if one of them does not have a PO. However, on its own it’s not a good control for these issues.

Duplicate invoices can come in many forms – a different PO could be attributed to it, the PO number on the invoice could be slightly incorrect. The exact same invoice with the same PO could be given twice, on different dates, to different members of your accounts payable team, and processed twice. In any of these cases, simply having a PO is not enough to deter the duplication, and so it’s important to apply further controls that find all duplicate invoices.

This can come in the form of 3-way or even 4-way matching, which is mostly automated via ERP systems in modern times. And yet that process can fail to catch all your invoice errors, as single POs can be matched multiple times without it being flagged as a duplicate. We recommend putting a more sophisticated control measure in place to catch this sort of error.

A large roadblock for ‘no PO, no pay’ is that not all spend types can be controlled with a PO. Utilities, subscriptions, rents, leases. Many standing payments will not reference a PO on the invoice, or have an invoice at all. These cannot be run through this policy, and therefore need extra measures to automate and control them.

FISCAL's risk, duplicate invoice and fraud detection software example, analysing transactional risks in Accounts Payable and prevent overpayments or duplicate payments
FISCAL Technologies software identifies duplicate invoices, erroneous POs and other AP risks, allowing your team to solve them before payments are made.

How FISCAL helps you avoid duplicate invoices, double payments and more.

When it comes to stringent financial and supplier controls, FISCAL’s software can help. Our AI-based platform continuously monitors your data and forensically analyses it for errors, identifiers of duplicates invoices, and potential fraud. When an issue is found, we share it immediately, showing you and your team where and what the risk is.

It helps you identify whether your invoice is missing a PO faster, can identify duplicated POs or simply those that have incorrect digits. And, far more than that. These checks, completed before the payment run, stop your organisation from paying out more than they should, therefore protecting working capital.

Adding our software to your accounts payable process enables that final check before payment to become completely automated, saving time. It’s proactive, preventative approach that safeguards working capital.

In conclusion, ‘No PO, No Pay’ is a great control to have, but there are too many ways and reasons for it to be circumvented, and for errors to still occur. Therefore you need more controls before payment. Make sure you’re checking every invoice and every supplier, every day.

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