Process purchase orders and purchase order invoices


A purchase order documents a liability before you receive the actual invoice. Reports are available to help you determine non-invoiced purchase orders. The procurement categories aren't inventoriable items, and this unit doesn't cover item receipts or managing inventory. The purchase orders that this unit discusses are for financial purposes. The categories allow a simple way for you to choose correct main accounts based on the category of what's purchased.

Procurement categories

Dynamics 365 Finance puts procurement categories into a procurement hierarchy. The hierarchy provides an organization that helps make selecting the category easier. Each category links to a main account. Purchasing users don't need to understand which main account is charged, only the category of what they purchase. Go to Procurement and sourcing > Procurement categories for the definition of procurement categories.

Screenshot of the Procurement categories page.

Procurement categories link to main accounts on the Posting page in Inventory management > Setup > Posting > Posting. The main account that you specify for a category is the main account that you use in the vouchers that you create for the purchase order vendor invoices.

Screenshot of the Posting page, showing the category relations.

Purchase orders

Purchase orders are documents with a header and lines. These documents are more complex than journals because of the extra attributes that they allow, such as delivery dates, vendor contact, and company contacts. Additionally, you can add charges to purchase orders, manually or automatically. Charges can cover fees, freight, insurance, rebates, or any number of extra charges that you might add to a purchase order. The charges link to main accounts that you use to post to the voucher. You can negotiate purchase prices with vendors and store them in trade agreements or purchase agreements, and these purchase prices automatically fill in the purchase order. If these advanced features are required, you should use purchase orders and vendor invoices instead of vendor invoice journals.

You can use purchase orders and corresponding invoices to create and acquire fixed assets by entering the fixed asset group on the purchase order line or by linking procurement categories to fixed asset groups. For more information, see Acquire assets through procurement.

When you confirm a purchase order, the system commits the order to the vendor. When you filter the All purchase orders list page by Approval status = Confirmed, Purchase order status = Open order, it shows the commitment to vendors. No postings occur to the general ledger until you receive or invoice the order.

Access the All purchase orders list page by going to Accounts payable > Purchase orders > All purchase orders.

Screenshot of a purchase order.

Purchase order invoice

The vendor sends an invoice regardless of whether you use a purchase order in Dynamics 365 Finance or not. When you use purchase orders, the system creates the invoice from the purchase order and then copies the quantities, categories, and cost from the order.

The system compares information from the purchase order against the invoice that you actually receive from the vendor. This process is the invoice match process. Finance supports the following processes.

  • Two-way match - Compares the purchase order to the invoice. Typically, the system uses this type of match when inventory isn't tracked.
  • Three-way match - Compares the purchase order, the product receipt, and the invoice.

You can use settings to block the invoice post if mismatches occur or to allow the post after review. This type of match validation isn't available with vendor invoice journals. Purchase orders are required.

The system names these invoices Pending vendor invoices until they pass the matching process and are processed. They're Open vendor invoices after posting and before payment.

For more information, see Accounts payable invoice matching overview.

To identify the purchase orders that are ready to invoice, open the Purchase order list page. Filter the purchase order status to select orders with the status of Open order or Received, and orders that are in Approval status of Confirmed.

To process vendor invoices, follow these steps:

  1. Select one or more orders from the purchase order list or from the All purchase orders page for a single order. On the Action Pane, select Invoice > Generate > Invoice.
  2. If invoice matching is turned on, review the created Pending vendor invoices and complete the match process. You can delete pending vendor invoices, and then the system creates a new one if you invoice the purchase order again.
  3. Post the matched Pending vendor invoices. Use the Pending vendor invoices list page to view invoices that are in the awaiting match/not yet posted stage. Display the Open vendor invoices list page to view invoices that are posted but not yet paid.

Pro forma invoice

If you want to generate an invoice to test how it would appear without posting, select the Pro forma menu item from the Generate menu group. This approach processes the invoice as if it's to be posted but rolls back after producing the document, leaving no subledger or ledger impact. The pro forma process creates a pending invoice that you can save or delete.

Purchase order credit memos

If a problem occurs with a purchased item, and the vendor offers a price adjustment or refund, you can create a credit memo. You can create a credit memo for invoiced lines/orders. You would add the credit memo lines to a new purchase order or to an already open order for the same vendor. You can't add lines to an invoiced purchase order.

With purchase orders, you can use the option at the purchase order header or purchase order line to create the credit memo (credit note). Dynamics 365 Finance displays and selects purchase orders and purchase order lines for the same vendor to apply to the purchase order to be credited or to a new purchase order. The quantity for the added lines is negative, which results in a negative extended price. After the lines are on the order, the system invoices the purchase order, and the new lines produce a credit note document.

The credit note starts at the purchase order header or purchase order line; menu items are in each location. If you start from the header, on the Action Pane, select Purchase > Credit note > Credit note. To start from the line, select Purchase order line on the Action Pane above the Purchase order lines grid. Then, select New > Credit note. The Create credit note option displays regardless of whether you start the process at the header or line. Generally, you would add the credit lines to the sales order that they apply to. You can also create a sales order that contains only the credit lines.

On the Parameters tab, you can specify the following elements:

  • Quantity factor - You can multiply the quantity on each line by a number. It defaults to 1 and is usually left at 1.
  • Invert sign - When this option is set to Yes, the system should invert the sign (make it negative) for the new lines that you add to the purchase order.
  • Copy charges - When this option is set to Yes, the system adds charges at the header and line level to the new lines that you add to the purchase order. This option fully backs out the original amount of the line.
  • Recalculate price - Prices might change since the original order. If this option is set to Yes, the system uses active trade agreements and current pricing versus the original price on the line.
  • Copy precisely - When this option is set to Yes, the system copies ledger accounts, sales tax, and other information from the original purchase order lines to the new negative lines.
  • Delete purchase lines - When this option is set to Yes, the system should delete the original order lines that are copied. This option makes reading the purchase order and understanding its history difficult, and it impacts reports that rely on purchase order line data.
  • Copy order header - The system selects a single order header. Then, the system copies information from this header to all lines that you add to the credit note, regardless of the original order that the lines are copied from. This option is useful when you create a purchase order document for the credit note rather than adding lines to the existing purchase order.

Screenshot of the credit note parameters.

The Create credit note page includes three more tabs:

  • Invoices - Select one or more invoices.
  • Lines - The lines for the selected invoice display. Select only the lines that you want to invoice. You can select lines from multiple invoices by selecting multiple invoices on the Invoices tab.
  • Selected lines or header to be copied - Text showing the selected lines from all invoices displays.

Select OK to add the lines to the purchase order or Cancel to not create the credit note. After you add the lines to the order, you can delete them if something is wrong with them. You can add negative lines manually to the purchase order to create a credit note. The credit note menu items simplify the process.

The vendor credit isn't available until you generate an invoice for the new credit lines on the purchase order. When you generate the invoice, you can settle the credit note against the invoice automatically or manually, depending on the Automatic settlement setting parameters in the Accounts payable module.