Evaluated receipt settlement definition
/What is Evaluated Receipt Settlement?
Evaluated receipt settlement (ERS) is an arrangement in which payments to suppliers are based on the quantities received, rather than a supplier invoice. The payment to the supplier is based on the number of units received and the price per unit stated in the authorizing purchase order. This approach is significantly more efficient than the traditional accounts payable process, but requires a high degree of coordination between the supplier and the purchasing entity.
How Does Evaluated Receipt Settlement Work?
The basic underpinnings of the evaluated receipt settlement process are as follows:
The supplier sends a listing of its products prices to the customer, which the customer includes in its ERS system. The list is usually sent electronically and in a format that the customer can use to drop into its in-house system.
The customer issues the supplier a purchase order that references the prices previously sent to it by the supplier.
The supplier issues an advance shipping notice to the customer, typically in an electronic format.
The supplier ships the ordered goods to the customer. The delivery includes a bill of lading that references the purchase order number.
The customer matches the bill of lading to the advance shipping notice.
The customer automatically calculates payment based on the supplier’s pricing schedule and the number of units received. The system also accounts for any sales taxes due, as well as volume discounts.
The customer automatically issues payment to the supplier, usually via an electronic payment.
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Advantages of Evaluated Receipt Settlement
Evaluated receipt settlement has several advantages, which are as follows:
Work reduction. It eliminates much of the non-value added activity associated with the payables function.
Variance elimination. There are no variances between the billed amount on the supplier invoice and the amount received, since there is no supplier invoice.
Electronic payments. Payments are usually electronic, so no checks are issued.
Automatic processing. The process can be largely automated, since there is no need for the manual reconciliation of documents, as occurs with three-way matching.
Payment consistency. Given the level of automation, suppliers can rely upon more consistent payments.