Advance Payments to Suppliers (Prepayments) - Caltech

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1 AdvancePaymentstoSuppliers(Prepayments) Purpose Generally,goodsandservicesprovidedtotheInstitutearepaidforafterreceipt.Onoccasion,itmaybe necessaryordesirabletoprovideaknownandreputablesupplierwithanadvancepayment(prepayment) topayforgoodsorservicesbeforedelivery.ThisPolicydescribesthegeneralprovisionsregardingadvance paymentsincludingtherequirementforPurchaseOrdernotation,thesubmissionofinvoice,accounting reconciliation,receivinganddocumentation,andrequiredapprovals. ApplicabilityandAuthority ThisPolicyappliestoallsuppliersofgoodsorservicestotheInstitute ThisPolicyappliestoallCaltechdepartmentsandsupersedesanypracticesinexistencepriortoits effectivedate ProcurementServicesistheauthorityonadvancepaymentsrelatedtoPurchaseOrders PaymentServicesistheauthorityforadvancepaymentsfornonPOrelatedpurchases Definitions Advancepayment/prepayment:Fullorpartialpaymentforgoodsandservicesbeforetheyarereceivedby theInstituteingoodorderorrenderedsatisfactorily. Procedure GeneralProvisions Advancepaymentsorprepaymentsshallbeavoidedwheneverpossible.Itisaprudentbusinesspractice nottopayforgoodsorservicesuntiltheyhavebeenreceivedingoodorderorrenderedsatisfactorily.The Institutemaysufferlossofinterestonfundsusedtomakeadvancepayments,especiallyifdeliveryof materialsorperformanceofservicesistotakeplaceatsomefuturedate. Copyright California Institute of Technology, 2011. All rights reserved. Advance Payments to Suppliers (Prepayments) 1 of 5 Procurement and Purchasing Services 02-2012

2 ExceptionstothisPolicymaybewarrantedfor: Books,periodicalsandnewspapers,includingspecialorderitemsfortradeandprofessional publications Caterersforfoodandbeverageservicesforfunctionsrequiringadeposit Foreignorders Highcostequipmentmanufacturedtomeetfunctionalspecifications Honoraria Maintenanceandserviceagreements Membershipdues Performingartists,whencontractrequirespaymentbeforeperformancebegins Principalinvestigatorsandotherresearchpersonnelwhoconductresearchusinghumansubjects andpaythesubjectsaminimalamount Rentandleasesforrealestateandleasesforequipmentwhenpaymentsarenomorethanone monthinadvance Reservationsforgrouptransportationand/orexpenses Seminarsandregistrationfees Supplierswhooffersubstantialprepaymentdiscounts CoordinationofPoliciesandAdherencetoStandardOperatingProcedures AswithanyotherpaymentissuedbytheInstitute,standardoperatingproceduresapplytoalladvance payments.Forexample,whenstandardoperatingproceduresrequireapurchaseorderberenderedfor thepurchaseofgoodsorservicesoveracertainfinanciallimit,theproceduremustbefollowedwithinthe guidelinessetforthbyProcurement.Allprocedures,coordinationandapprovalsarerequiredtotakeplace inordertocomplywithsetpolicies.StandardoperatingproceduresoftheInstitutecannotbe circumventedmerelybecausethemethodisanadvancepayment. PurchaseOrders ThetotalamountofthePurchaseOrdershallincludethevalueoftheadvancepaymentandafull descriptionoftherefundPolicyofferedbythesupplier.Inthecaseofprepayments,thesupplier,by acceptingthePurchaseOrder,signifiesthisasacceptanceofthecontractandagreestoperformin accordancewiththetermsandconditionsoftheorder. Invoice AppropriateinvoicesmustberenderedtotheInstitutebythesupplier: AdvancedPaymentinFull Supplierstowhichafulladvancedpaymentisissuedmustprovideacompleteandfinalinvoice(or Proformainvoice)forthefullamountoftheadvancepaymentpriortotheissuanceofpayment. Theinvoicemustcontaintheconfirmationoftotalcost,includingtax,freight,handling,etc. SuppliersarediscouragedfromprovidingaProformaasanestimateandlaterbillingtheInstitute infull.PaymentServiceswillconsidersuchsubsequentinvoicesasduplicatesandnotrender additionalpaymenttothesupplier. Copyright California Institute of Technology, 2011. All rights reserved. Advance Payments to Suppliers (Prepayments) 2 of 5 Procurement and Purchasing Services 02-2012

3 Deposits,Partial,ProgressandDownPayments Supplierstowhichapartialadvancedpaymentisissued(i.e.downpayments,progresspayments, deposits,etc.)mustprovideacompleteinvoice(orProformainvoice)fortheamountequaltothe fractionalportionoftheorder,includingtheproportionalamountofsalestaxand shipping/freight/handlingpriortotheissuanceofthepartialadvancepayment.Salestaxshould notbeheldbackandbilledatthefinalpayment,butshouldbeincludedoneachprogressorpartial invoicefortheappropriateamountdueatthetimeofbilling. ExpenseDistribution AdvancepaymentsissuedtosupplierswillbechargeddirectlytothePTAorGLstringindicatedinthe requisitionorpaymentrequestform.ThePTAorGLwillbechargeduponsubmissionofarequestfor advancepaymenttoPaymentServices.Expenseswillbebookedatthetimetherequestissubmittedand thusarereportedasexpensesforthatperiod.Thisisanacceptableaccountingpracticeifthegoodsand servicesarereceivedinthefiscalperiodinwhichpaymentismade. Inaccordancewithgenerallyacceptedaccountingprinciples,however,amountspaidforservicesorgoods tobereceivedinafuturefiscalperiodshouldberecordedasprepaidexpenditures.Whereadvance paymentscannotbeavoidedduringtheyearendfiscalclose,yearendadjustmentscanbemadetothe accounts,i.e.forsignificantadvancepayments.However,itispreferabletolimitadvancepaymentsto goodsandserviceswhichwillbereceivedorrecoveriesofexpendituresincurredbeforetheendofthe fiscalyearendclose. Advancedpaymentsgreaterthan$50,000madeatthetimeoffiscalyearend,orwhenpaymentand receiptofgoodsfallsbetweentwoseparatefiscalperiods,mustbereviewedbyFinance,Purchasing ServicesandPaymentServices.Thisreviewistodetermineifanyaccrualorallocationasaprepaid expenditureisnecessary. Advancepaymentswithrespecttolowdollaritems,suchasperiodicalsubscriptionswhichmaycover severalfiscalperiodsaregenerallynotofconcernfromanaccountingperspectivebecausetheamountsare notmaterial. ReceivingandDocumentation PreReceiptofPOforPaymentProcessing InorderfortheProformainvoiceoradvancepaymenttobeprocessed,theadvancemustbe submittedthroughastandardpurchaserequisitiontoProcurementServices,orprovidedinthe formofagoodsreceiptplacedagainstthePOlineiteminquestion.Whiletechnically,nogoods havebeenreceivedasyet,theprereceiptofgoodsagainstthePOisnecessaryforthosedivisions usingthereceiptfunctionalityinOracle.Otherwise,therequisitionsubmittedtotheBuyerwill sufficeasproperauthorization. Copyright California Institute of Technology, 2011. All rights reserved. Advance Payments to Suppliers (Prepayments) 3 of 5 Procurement and Purchasing Services 02-2012

4 PhysicalReceiptofGoodsandServices Itistheresponsibilityoftherequestertoverifytheactualreceiptofgoods/servicesandthatthe goods/servicesprovidedbythesuppliermeetqualityexpectations. Therequesterisresponsibleforverifyingtheactualreceiptofthegoods/servicesassociatedwith theadvancepayment.Requestersshouldcollectallsupportingdocumentationtosubstantiatethe deliveryandacceptanceofgoods/servicesintheeventofanaudit.Upondeliveryofthegoods/ services,therequestermustensurethatthesupplierhassatisfiedtheorderandthatthe goods/servicesmeetwiththespecificationsofthecontract.Verificationincludestheinspectionof goodstoensurethattheyhavebeendeliveredtimelyandinacceptablecondition. BuyerReview Buyerswillreviewadvancepaymentrequestsforreasonablenessandensurethattherequestfollowsthis Policyandallstandardoperatingprocedures.Uponreceiptofthedulyapprovedrequisitionandthe Proformainvoicefromthesupplier,theBuyershallsubmitthemtoPaymentServicesforpayment processing. SupplierPerformance Whenaprepaymentinadvanceofperformanceordeliveryisissuedtoasupplier,thentherightofthe InstitutetoobtainsuchserviceorpropertyonbehalfoforintheserviceoftheInstituteshallconstitutea claimagainstthesuppliertosatisfactorilyprovidesaidgoods/services.Failureofthesuppliertoperform willconstituteadefaultonthecontract.Ifasupplierfailstoperformaccordingtothespecificationsorthe timeframeprovidedforinthePurchaseOrderorcontract,theBuyerorrequisitioningdepartmenthead willcontactthesupplier.Ifthereisacontinuedlackofperformancefromthesupplier,theInstitutemay declarethesupplierindefaultandmayexerciseappropriatelegalremedies. ProcessFlow RequestorshallsubmitaPurchaseRequisitiontotheProcurementDepartmentforprocessing TheBuyermayattempttosourcethegoodsorservicesfromaprovidernotrequiringpaymentin advanceandwillingtoextendtermstotheInstitute WhentheBuyerhasnoalternativebuttoissueanadvancedpaymenttoasupplier,theBuyerwill generatethePOasoutlinedinstandardoperatingprocedures TheBuyershallobtainaProformainvoicefromthesupplierwhichspecifiesthetotalamountdue, includingtaxesandfreightcharges TheBuyerwillsubmittheProformainvoicetothePaymentServicesDepartmentforprocessing AprereceiptofgoodsshallbeplacedagainstthePOlineitembeingprepaidifthedivisionis utilizingthegoodsreceiptfunctionalityinOracle.Otherwise,thePurchaseRequisitionsubmitted permitstheBuyertoapproveandsubmittherequesttoPaymentServicesforprocessing. Copyright California Institute of Technology, 2011. All rights reserved. Advance Payments to Suppliers (Prepayments) 4 of 5 Procurement and Purchasing Services 02-2012

5 Oncetheinvoiceisapproved,theAccountsPayableRepresentativewillentertheinvoice,expense theaccountingprovidedandschedulepaymenttothesupplier Disbursementswillgenerateandsubmitpaymenttothesupplier ThedepartmentresponsiblefortheoriginalPurchaseRequisitionwillmonitorthedeliveryofthe goodsorservicestoensurethedeliverytakesplacetimelyandthatthegoods/servicescomplywith theirrequirements Whenpaymentandreceiptofgoodscrossfiscalperiodsandwhenthatpaymentamountexceeds $50,000,PaymentServiceswillcoordinateareviewoftheinvoiceandreceiptofgoodswiththe Financegroup. Exceptions AnyexceptionsorrequirementthatrequiresadeviationfromthisPolicyshallbereviewedandapprovedby theDirectorofProcurementServices. Copyright California Institute of Technology, 2011. All rights reserved. Advance Payments to Suppliers (Prepayments) 5 of 5 Procurement and Purchasing Services 02-2012

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