Organizations not only pay the purchase price of inventory and supplies that they acquire, but they also pay a cost to conduct purchases and to write checks to pay for purchases. This cost is the wages and salaries that organizations pay to employees involved in purchasing and payment activities. Many organizations continuously look for ways to reduce this cost by improving the efficiency of the purchasing and payment processes. General Electric Co. (GE) implemented a Web-based electronic invoice presentment (EIP) system in which its small and midsize vendors send invoices electronically via the Web. This process allowed GE to avoid the time and cost of receiving and entering paper invoices into its IT system. GE agreed to pay within 15 days in return for a 1.5 percent discount for invoices submitted under the EIP system. On the other hand, any paper invoices would be paid in 60 days. Within six months of implementing the new system, “more than 15,000 of GE's vendors, who represented 45 percent of the company's vendors, signed up for electronic presentment.”¹ This change resulted in a 12 percent reduction in the cost of payables processing.

This chapter describes the processes of purchasing, receiving, and paying for inventories and supplies.