What is the best practice for handling invoices that contain charges for items on back-order? Our practice has been to not process the invoice until all items have been received. Sometimes this means not paying the invoice by the due date.

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How a company handles the payment of partial orders is usually a reflection of management's philosophy about it, and also depends on the vendor billing, as well as how often you do business with that vendor. Most vendors will bill for the partial shipment along with showing the back-order quantity to ship.

If your company has discount terms with a vendor, then it may be advantageous to pay the invoice within the discount period and before receiving all of the items. You might also consider how critical the vendor is to your company's operations. Not paying partial shipments within the vendor terms may result in a detrimental relationship in which they may ultimately not ship back-orders until current billing is caught up. On the other hand, if assembling or producing your products is dependent upon receiving the whole order from your vendor, then management may feel it's a good practice not to pay until all of it is received, to ensure the vendor ships the remaining part of the order.

In another scenario, if a vendor bills for the whole order including the back-ordered items, then your practice of payment after receiving the full order may be appropriate since it may be difficult to track partially paid invoices. It also avoids over- payments.

Another approach, though, is to pay for only the part of the order that was delivered, with remittance advice sent along to explain that. This requires care in receiving and AP to track what is received and paid for. If the vendor is an occasional or one-time vendor, prudence dictates care in paying for the entire order prior to receipt of the entire shipment. Your question is also a good one to post to our Forums/Messaging section of the site to get feedback from your peers on how they handle back-orders. You may want to identify your industry, in case there are generally accepted practices that may help them in providing you with their thoughts.

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