Accounts Payable / Creditors

Initial ordering process

Ideally, all incoming invoices from suppliers should tie up with supporting documentation previously received by the accounts department with provision for the expense already entered into the system and allowed for in the cost report. The documentation may exist in several different formats (e.g. letters of agreement, internal memos, transport requests etc) but in the majority of cases purchase orders (PO) will apply.

Responsibility for raising purchase orders may vary from one company to another but, in general, it should specify:

Supplier name, address and contact details.

Detailed description of the items being purchased or, when applicable, rented.

If a purchase, the agreed price net of VAT.

If a rental, the individual value of the items being hired (particularly relevant for prop/costume requirements), the hire period, the agreed rental price net of VAT and any additional terms and conditions of hire that may apply (e.g. deposits etc).

The PO’s should be signed by the individual preparing it, countersigned by the H.O.D where relevant, seen by the Production Accountant (so that the appropriate cost code can be confirmed) and authorised by the Line Producer/Production Manager before it is released to the supplier.  Generally three copies of each purchase order are raised.  One is sent to the supplier, one is kept by the Line Producer / Production Manager and one is sent to the accounts department.

Where substantial cost is involved, and more than one supplier has been asked to submit quotes, there should be records on file confirming that an appropriate process has been followed and that the most competitive bid has been selected before the PO is issued.

An example of a purchase order is attached here:

Purchase order example.xlsx

Invoice processing 

When an invoice arrives it should be checked for validity (VAT numbers etc) then matched up with the prior supporting documentation and, if the amounts agree and the invoice is in order, it should be posted into the accounting system.  If no supporting documentation exists the invoice should be entered but back-up should be sought before submitting the invoice for approval. Where appropriate, confirmation that the goods have arrived (delivery notes etc), or services provided, should be obtained and the invoice plus backup signed off by the relevant H.O.D, the Production Accountant and the Line Producer/Production Manager.

If an invoice includes VAT but does not show the supplier’s VAT number, then VAT cannot be reclaimed on the invoice and the production accountant should not therefore pay the VAT element of the invoice until a valid VAT number is supplied.

If an invoice covers only a part of the expense commitment on a PO it should be posted into the system and the PO provision reduced by the proportionate amount so that the cost factor remains unchanged. The invoice can then be processed as per above. If the invoice exceeds the PO expense commitment (e.g. additional items, hire overruns etc) reasons for the difference need to be documented, and if appropriate, the cost factor adjusted before the ‘signing off’ process continues.

No invoice should be paid until all the approval procedures have been completed.

 

 

A proforma invoice is a temporary document used by some businesses to save having to pay VAT over to  HMRC before the client has paid them the VAT.  A proforma invoice is not a valid invoice for VAT purposes and VAT cannot be reclaimed on a proforma invoice.  Generally a supplier will issue a VAT invoice when the proforma invoice is paid.  A production accountant should claim the VAT back using the date of the full invoice as the tax point rather than the date of the proforma invoice or the date of payment of the proforma invoice.