PROJECT REPORT ON A STUDY ON ACCOUNTS PAYABLE SYSTEM FOR GENERAL MOTORS.

SUBMITTED TO UNIVERSITY OF PUNE IN PARTIAL FULLFILLMENT OF TWO YEARS FULL TIME COURSE OF MASTERS IN BUSINESS ADMINISTRATION (MBA) SUBMITTED BY HASWINI RAO BATCH -2010 2011 UNDER THE GUIDANCE OF PROF. SANJAY GAIKWAD PIMPRI CHINCHWAD EDUCATION TRUSTS PIMPRI CHINCHWAD COLLEGE OF ENGINEERING NEAR AKURDI RAILWAY STATION, AKURDI NIGDI, PUNE.

DECLARATION
I hereby declare that the project titled A Study On accounts Payable Process is an original piece of research work carried out by me under the guidance and supervision of Prof.Sanjay Gaikwad. The information collected by me has been collected from genuine and authentic sources. The work has been submitted in partial fulfillment of the requirement of MASTER OF BUSINESS ADMINISTRATION to Pune University. The results embedded in this project have not been submitted to any other university for any other course.

Student Signature Haswini Rao

ACKNOWLEDGEMENT
It is my privilege to work on the project Accounts Payable Process. At the very outset, I am obliged to GENERAL MOTORS for the permission to undertake training program and provide me with the facilities.

I express my sincere sentiments of gratitude to Mr. Sanjay Bathe (EXIM Manager) who guided me throughout this project. I would also like to thank Ms.Vinita Shinde (Asst.Finance Manager) for her continuous assistance without which this project would not have been a success.

It is the spirit of being associated with the Finance and Accounts department particular and General Motors in general who inspired me to complete this project successfully.

I thank our Principal A.M.Fulambarkar and Dr.T.Vidyasagar (HOD). I am indebted to my mentor Mr. Sanjay Gaikwad for extending his untiring guidance to me, by constantly discussing the project matter and helping me in clarifying my thinking in several pertinent issues and providing a meaning full insight into the subject. I owe my deep sense of gratitude and sincere thanks to all of them

Thank you.

INDEX

OBJECTIVES OF THE PROJECT

To observe and understand the process of accounts payables. To study different factors which affect accounts payable To calculate and compare average payment period with collection period, cash cycle and its effective management. To settle the accounts which are opened for more than sixty days and ninety days on priority and as soon as possible. To develop the practically sound accounts payable system to make it more effective and easier. To check for modification and alternatives in current accounts payable process to make it more effective and easier.

INDUSTRY PROFILE AUTOMOBILE INDUSTRY IN INDIA

The Indian automobile industry seems to come a long way since the first car that was manufactured in Mumbai in 1898. The automobile sector today is one of the key sectors of the country contributing majorly to the economy of India. It directly and indirectly provides employment to over 10 million people in the country. The Indian automobile industry has a well established name globally being the second largest two wheeler market in the world, fourth largest commercial vehicle market in the world, and eleventh largest passenger car market in the world and expected to become the third largest automobile market in the world only behind USA and China.

The Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 17.5 million vehicles (including 2 wheeled and 4 wheeled) and exports about 2.33 million every year. It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 3.7 million units in 2010. A chunk of India's car manufacturing industry is based in and around Chennai, also known as the" Detroit of India with the India operations of Hyundai, Renault and Nissan headquartered in the city and BMW having an assembly plant on the outskirts. Chennai accounts for 60 per cent of the country's automotive exports. Gurgaon

and Manesar in Haryana are hubs where all of the Maruti Suzuki cars in India are manufactured. The rapid advancement in the automobile industry in developed countries has boosted up the demand for locally produced multipurpose cars and made the automobile industry of India to strongly focus on exterior design and frequent introduction of new models and on product with good quality and strong technology.

The Chakan corridor near Pune, Maharashtra is another vehicular production hub with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Fiat and Force Motors having assembly plant in the area. Ahmedabad with the Tata Nano plant, Halol again with General Motors, Aurangabad with Audi.

MAJOR PLAYERS
The automotive industry in India produces a wide range of vehicles like passenger cars, utility vehicles, commercial vehicles, two-wheelers and three-wheelers. Currently, there are approximately 15 manufacturers of passenger cars and utility vehicles, 9 manufacturers of commercial vehicles and 16 manufacturers of two-wheelers and threewheelers.
Major Manufacturers in each segment
PASSENGER CARS Maruti Suzuki Tata Motors Mahindra & Mahindra Hindustan Motors Honda Toyota Volkswagen General Motors Ford Audi COMMERCIAL VEHICLES Ashok Leyland Tata Motors Eicher Motors Swaraj Mazda Mahindra & Mahindra Hyundai ITEC Volvo TWO-WHEELERS Hero-Honda Bajaj Auto TVS Royal Enfield Motors Kinetic Motors LML India Suzuki Motors Yamaha Motors THREE-WHEELERS Bajaj Auto Piaggio Mahindra & Mahindra TVS Motors Tata Motors -

The largest Indian passenger car manufacturers include Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Hindustan Motors. Presence of foreign players such as Mercedes-Benz, Fiat, General Motors and Toyota is also growing in this segment. Recently, the passenger car segment has also seen the entry of other global majors such as BMW, Audi, Volkswagen and Volvo. Major Indian manufacturers of commercial vehicles are Tata Motors, Ashok Leyland, Eicher Motors, Mahindra & Mahindra and Force Motors.

Like the passenger car segment, this segment has also seen foreign companies such as ITEC, Mercedes- Benz, Scania and Hyundai entering the market. Indian companies like Hero Honda, Bajaj Auto and TVS dominate two-wheeler manufacturing. Foreign players in this segment include Honda, Yamaha and Piaggio. Indian companies that include Bajaj Auto, Force Motors and Mahindra & Mahindra also lead three-wheeler manufacturing. As such, the automobile market has been flooded with numerous models in each segment by both domestic and international players.

The growth of the Indian middleclass along with the growth of the economy over the last few years has resulted in a host of global auto giants setting their foot inside the Indian Territory. Moreover India also provides trained manpower at competitive costs making the country a manufacturing hub for many foreign automobile companies. India proves to be a potential market as compared to most of the other countries which are witnessing stagnation as far as automobile industry growth is concerned.

A recent research conducted by the global consultancy firm Deloitte says that at least one Indian automobile company will feature among the top six automobile companies that will dominate the car market by 2020.

The Indian automobile industry proved to be in good shape last year even after the economic downturn. This was majorly due to the fact of renewed interest shown by global automobile players like Nissan Motors which consider India to be a potential market.

As far as authorized dealer networks and service stations are concerned Maruti Suzuki is the most widespread. The other automobile companies are also showing rapid progression in this field.

FACTS: The Automotive Industry in India is one of the largest industries and a key sector of the economy. At present, India is the worlds Largest tractor and three-wheel vehicle producer. Second largest two-wheel vehicle producer. Fourth largest commercial vehicle producer. Eleventh largest passenger car producer.

The Indian auto component industry is quite comprehensive with around 500 firms in the organized sector producing practically all automotive components; there are more than 10,000 firms total. Indias component industry now has the capability to manufacture the entire range of auto-components, for example, engine parts, drive, transmission parts, suspension and braking parts, electrical, body and chassis parts, equipment, etc.

The Industry's Challenge: Even though the automotive industry is robust, car manufacturers are complaining that the government's frequent change in policies is not encouraging the industry. Changing the policies and guidelines frequently severely hurts the companies plans. It also affects investment decisions in the country Future Plans: The Government has prepared a ten-year Automotive Mission Plan (AMP) to draw a future plan of action and remove obstacles in the way of competition, such as that required infrastructure be put in place well in time to alleviate its constraining impact on the growth. The plan envisages a tax holiday for the industry on investments exceeding $225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange earnings. It also calls for a one-stop clearance for foreign-direct-investment proposals in the sector and deductions of 30% of net income for 10 years for new industrial undertakings. To bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in the auto sector, captive power generation would be encouraged to enable industries to access reliable, quality and cost-effective power.

COMPANY PROFILE

Introduction to General Motors

General Motors was established in 1908 by William C. Durant. General Motors, also known as GM, is the worlds second largest Car manufacturer based on annual sales. Founded in 1908, in Flint, Michigan, GM employs approximately 209,000 people around the world. With global headquarters at the Renaissance Center in Detroit, Michigan, United States, GM manufacturers its cars and trucks in 35 countries. In 2008, 8.35 million GM cars and trucks were sold globally under the brands Vauxhall, Daewoo, Buick, Cadillac, Chevrolet, GMC, Holden, Pontiac, Hummer, Saab, Wuling, Saturn and Opel. GM brought brand differentiation to the world back in the 1920s, when Alfred Sloan created the price ladder of GM Marques that offered a car for every purse and purpose.

Founded By: William Durant

Present CEO: Daniel Ackerson

Today the GM product revolution again is strengthening its brands, with more innovative marketing that better understands the customer. Witness the incredible renaissance of Cadillac, led by all-new cars and trucks that have gone in a unique design direction, and by marketing that really connects with potential buyers. Designing, building and selling great cars and trucks that people really want to own. Compelling designs excite customers and connect with them on an emotional level. Well designed vehicles turn heads and fire the imagination.GM is investing aggressively in high technology and e-business within its global automotive operations. GMs goal is to develop cars and trucks that have an emotional appeal for a new generation of consumers- cars and trucks that people feel they must have.

GENERAL MOTORSS VISION

GENERAL MOTORSS MISSION

Develop, build and provide Indias best vehicle and customer ownership experience.

To profitably sell 200000 vehicles in 2010 and to be the preferred brand of choice with all our products in top 2 rankings of JD Power.

GENERAL MOTORSS SLOGAN

A slogan is a short, memorable catch phrase, tagline or motto used to identify a product or company in advertisements. The advertising slogan, or business slogan most associated with General Motors, is: "People in motion."

Creation: 1897-1909 The worlds love of mobile started at the New York Auto Show in 1900. General Motors was founded by William Billy Durant on September 16, 1908. Durant had become a leading manufacturer of horse-drawn vehicles in Flint, MI before making history into the automobile industry.

Acceleration: 1910-1929
The rise of the automobile captured imaginations and sparked invention.

Emotion: 1950-1959
GMs commitment to innovation lent optimism during tumultuous world events.

Revolution: 1960 -1979

Globalization: 1980-1999

Innovation & Challenges: 2000-2008

Rebirth: 2009-Present

GENERAL MOTORS PRODUCTS SERVICES

GENERAL MOTORS PRESENCE IN INDIA

GENERAL MOTORS IN INDIA

General Motors India has completed 14 years of operation and today offers a range of products under the Chevrolet brand, which was introduced in India in 2003. In addition to the Chevrolet Spark and Beat, it produces Captiva, Optra, Cruze, Aveo, Aveo U-VA, and Tavera.

GM is now the fifth-largest automobile manufacturer in India and in the first 10 months of 2010, sold 93,960 vehicles, which represents a growth of 73 per cent from the same period last year. It has 211 sales points and 205 service outlets in 178 cities across India, and has embarked upon an ambitious rural marketing initiative to further boost sales. In February 2010, GM and its Chinese partner SAIC opened a joint venture in India for cooperation in vehicle manufacturing and sales. GM signed an agreement with the Maharashtra Government for the construction of a new engine plant adjacent to its vehicle manufacturing facility. Construction started in December 2008, with pilot production commencing in March 2010. The engine plant complements GM's vehicle manufacturing facilities in Talegaon and Halol, Gujarat, and the GM Technical Centre in Bangalore, which is carrying out a range of engineering, design and R&D activities.

GENERAL MOTORS TALEGAON

Karl Slym (left) President and Managing Director, GM India, and Vilasrao Deshmukh, Union Minister for Heavy Industries & Public Enterprises, at the inauguration of General Motors' flexi-engine plant in Talegaon, Pune. General Motors India (GM) inaugurated its new flexible-engine facility at Talegaon near Pune. This is GM's first power train plant in the world that enables both petrol and diesel engines to be manufactured simultaneously. The facility represents investment in excess of $230 million and while it has an initial annual production capacity of 1.60 lakh engines, it is designed to accommodate future expansion. The new plant will produce engines for small passenger cars of the company in India and has come up in under two years.

GM Talegaon Produces Cars of Only Chevrolet Brand.

PRODUCTS OF CHEVROLET

BEAT

SPARK

GENERAL MOTORS ORGANISATION STRUCTURE

Managing Director

Admin & Finance

Production

Finance Procurement t

Medical Law Security

Administration

Production

Sales

Public Relation

Camera & Light Editing

Programme

Billing Floor & Set

Audit

Technical/Engineering

Laboratory Colour Black & White Chemical / Quality Control Development Store

Laboratory Workshop Plant & Machinery Electrical Electronics Civil

LITERATURE SURVEY
The below Trading & P&L A/c and Percentage Distribution figure explains the allocation of various percentage distribution in the Books of Account in a manufacturing organization. Trading & P&L Account Particulars Raw-Material Expenses Direct Expenses Gross Profit c/d Amt (%) 63.72 19.28 17.00 100 Indirect Expenses Net Profit c/d 14.23 2.77 Gross Profit b/d 100 17.00 Particulars Sales Amt (%) 100

17.00

17.00

PERCENTAGE DISTRIBUTION

Sales
14.23 19.28 2.77 Raw Material Direct Expenses Indirect expenses

63.72

As we can see that indirect expenses comprises of only 14.23% in the industry, and the raw material comprises of 63.72% in which all the vendors bill payment process is done. As per the previous figure we can see that the highest percentage is of the RawMaterial Expenses, these expenses include the biggest process in the company to allocate the payment to Vendors and close their open transactions. The payment to the external party is of prime basis to the company. As it is a Manufacturing Company, supply of Raw Material should be in a constant flow without any barriers. The need for the settlement of vendors account in urgency arises by this. The company has to deal with the external party i.e. vendors whose on time payment is of vital importance for the company. Out of overall expenses the Direct Expenses carries 19.28% in which 10.13% belongs to Suppliers or Vendors. This includes: Carriage Inwards Power and Fuel Gas Supply Excise Duty VAT Octroi Duty

Indirect Expenses carries only 14.23% in overall expenses. In this, the involvement of the vendor is of negligence percentage the reason is participation of vendors is limited only for providing services to company like transportation, packaging etc. they deal only in limited area of the company expenses.

DIRECT EXPENSES

VENDOR PARTICIPATION IN %

Carriage Inward Power and Fuel Gas Supply Excise Duty Octroi Duty VAT

1.23 1.62 2.33 3.12 0.61 1.22

The indirect expenses are: Courier Services Packaging Transportation The vendors are our Creditors and their payment is of prime importance, they come under the accounts payable section. The payment making process is called as Account Payable Process. Direct Expenses, Indirect Expenses, and Raw Material Expenses payment is done under the Account Payable. The dealing of the above process is done by the finance department.

Accounts Payable
Introduction: Account is formal record that represents, in words, money or other unit of measurement, certain resources, claims to such resources, transactions or other events that result in changes to those resources and claims Payable means amount owed to a creditor for delivered goods or completed services. Hence account payable means nothing but an expense that has been incurred but not yet paid. This is comprised of all short-term obligations owed by a business to creditors, Suppliers and other vendors. Accounts payable can include supplies and materials acquired on credit.

Meaning and Definitions: According to Financial Dictionary; Money owed to suppliers, An expense that has been incurred but not yet paid. According to Don Hofstrand, Accounts payable: An amount owed to a supplier for goods or services purchased on credit; payment is due within a short time period, usually 30 days or less; according to Berenson LLP Certified Public Accountants. According to Glossary; account payable means Money which a company owes to vendors for products and services purchased on credit. This item appears on the company's balance sheet as a current liability, since the expectation is that the liability will be fulfilled in less than a year. When accounts payable are paid off, it represents a negative cash flow for the company, example, Money that you owe to your suppliers and other creditors will be recorded as transactions in the account payable ledger. Accounts payable is the obligation that a business owes to its creditors for buying goods or services. That is, it is the unpaid invoices, bills or statements for goods or services rendered by outside contractors, vendors or suppliers. Accounts payable are sometimes referred to as "payables".

Role of Accounts Payable Process in the organization: The accounts payable system controls the disbursement of funds to outside organizations. As part of this process, it retains subsidiary ledger information for thousands of vendors and thus becomes a vital tool, providing management with an abundance of information relating to vendor activity. Effective and efficient accounts payable processing is important for several reasons: The accounts payable system is one of the main sources of general ledger activity. fraud to occur. The relationship between customer and supplier can be greatly influenced by the accounts payable services. The nature of the accounts payable system makes it a prime target for periodic auditing. The primary role of the accounts payable system is to process payments to vendors for both trade and administrative payables. In addition to this, most businesses use the system as a centralized disbursement system for paying other demands, such as customer refunds or employee expense advances. of funds, accounts payable is a likely place for

Importance of Accounts Payable Process: The accounts payable processes have a significant impact on the profits of a business. Companies spend huge amounts of money every year to process invoices, perform purchase order matching, address defects and respond to vendor inquiries. If the accounts payable system is not effective, a company has to bear the additional cost of late payment penalties, missed discounts, duplicate payments and rework. With an increased focus on cost reduction and improved fiscal management, executive management teams are realizing the benefits of an effective accounts payable process. The accounts payable system is a totally integrated and consistent sub-system of the general ledger system.

Accounts Payable Cycle

Direct Material

Indirect Material

No

No

Yes

Yes

No

Yes

No

Yes

No

Yes

Vendor:
Vendor is the most important person for any organization. They are the one who supplies the raw material to the company not only for production but also for different services which a company needs.

In General Motors there are 2306 Vendors. The vendors are being bifurcated on their different types namely: Direct Material Vendor. Indirect Material Vendor.

Direct Material Vendor: Direct material vendors are those vendors who supply the direct raw material required for the production purpose, those raw material or parts are known as Parent Parts. Direct material vendors are the fix supplier of parts to manufacturing company. Indirect Material Vendor: Indirect material vendors generally provides different types of services to the manufacturing company. These vendors do not carry fix type of contract with manufacturing companies for providing services. The Vendors are being created in SAP (System Application & Product in Data Processing) System. This process is done through Bangalore office of General Motors and vendor code is created against each and every vendor. Unique vendor code is allocated for every vendor. These vendor codes are used for the process of payment. Vendor codes get confirmed to ACS (Affiliated Computer Service) which provides finance serves to all GM plant including in foreign countries.

Raising Purchase Requisition:

This is the step in the process of General Motors Company. As the material needed for the manufacturing is being supplied by the vendors, a purchase requisition is raised by the purchase department when any material or raw good is needed. In General Motors the purchase request is raised by the purchase manager against the vendor by using SAP system. The Purchase Requisition is filled by the Purchase Manager.

Purchase Requisition Process:

SOR

Cost Book

Pre RFQ 1st Round of Offer

RFQ Tech Review

2nd Round of Offer

Target Setting

Final Offer

SOR is a Statement of Request which is raised by Engineering Department. Cost Book is given by Finance Department for target costing. Pre RFQ is pre request for quantity to the Shortlisted Bidders. After that RFQ is given to the selected Bidders. As this process ends, 1st round of quarter, in which the selected bidders called, there Technical review is done, in which again cost and quality of material decided. In 1st round the cost and quantity is submitted by the Bidder to the company. After this, 2nd round is also done where the company and bidder come together to set a common platform for price and quality of material. As this round is completed the final Bidder is given the contract for supplying material to the company. The recommendation of the selected supplier is sent to the management for the approval. Once the management approves the Supplier, is listed in the vendor list of the company and is allowed to supply the decided material to the company.

Purchase Order:
After the selection of the Supplier, the purchase order is raised by the vendor. The same is selected by the management, approving the supplier for allowing him to supply the necessary material or the required quantity to the company. In the approval, the condition is also set by the management about the Delivery Term, Packaging, Transportation, Batches etc.

Advance Shipment Notice (ASN):

Advance Shipment Notice includes terms and conditions for a delivery of goods given by manufacturer to vendors. Advance Shipment Notice is being sent by the purchase department in for the sample delivery of required material. The sample material is then tested by inspection committee for the verification of the material so that it should match the required and estimated quality of the company. If it gets matched then, approval is made for the supply of goods or material.

Unloading Material:
Once the request is raised, the vendor provides the required quantity against the order. The vendor brings the material with the Invoice which has all the description of the material. The material is collected by the stores department and the original invoice is sent for the further process viz, clearing of Bill amount. The Below entry is passed after the material is shifted to stores department as inventory.
Date Particular L/f Debit Amt. Credit Amt.

Inventory A/c XXXXX To GRIR A/c

Dr.

XXXX

XXXX

( Being material Shifted to stores as inventory )

Creation of GRN in MGO:

Material Global Optimization (MGO) is software in which the vendor fills the information of the material sent to the factory and which is being checked by the account department for making sure the same material is posted to manufacturing unit. Once the account department receives the invoice the actual work of Finance gets started. The flow is as following.

After this process we get the Good Receipt Note (GRN) no. which is automatically created in MGO (Material Global Optimization). GRN is a unique number which is assigned against every single invoice. No two GRN numbers can be created for a single invoice. The GRN number which is created in MGO is called as MGO GRN. The MGO GRN is an important data which is sorted by the account department. It is used for the further process of the Invoice. After this process the invoice moves for the next step, that is Identification of Material.

Part 1: Identification of Material:

This procedure is called as Part 1 creation. The Part 1 is created in SAP under SAP under J1iex transaction code.

Par t 2: CENVAT Crediting:

This process is nothing but the cross checking of Step 1 data. For retrieval of the data here we enter the SAP internal number so that the invoice entry number is displayed and we can cross check for the accuracy of the data. If the SAP internal number is not made we are not able to retrieve the data for cross checking. The internal number is also written on the invoice for its identification. The Sap GRN number is then used for the further process of clearing the vendor payment After crediting CENVTA entry is passed in SAP as the GRN (Goods Receipt Note) is created and GRIR A/c is made for the vendor.
Debit Date Particular GRIR A/c XXXX To Vendor A/c (Being accounting entry passed) Dr. L/f Amt. XXXX XXXX Credit Amt.

ACS (Affiliated Computer Services):

Affiliated Computer Services is business processing outsource service provider company based in Bangalore provides Finance and Accounting services to General Motors since mid-2000. Major play of Affiliated Computer Services (ACS) is in the Vendors Account payable process and preparation of annual general motors for General Motors.

Finance Service Provider:

General Accounting services from ACS include overseeing, coordinating and controlling the accounting records and closing activities of General Motors. ACS handles intercompany Consolidations & Close, Account Reconciliations, Fixed Assets, Inventory/Cost accounting and General Ledger services. The benefits of allowing ACS to handle General Motors general accounting needs include fewer rework issues, minimized journal entries, standardized reconciliation process, greater compliance and increased reliability and repeatability of every process.

Role of ACS in General Motors:

In General Motors ACS plays a vital role for closing the open transaction of vendor account in GRIR A/c in General Ledger by making the payment to the vendors. The material invoices are scanned in General Motors Talegaon Plant and being sent to ACS in Bangalore. The original is filed with the company and the scanned data is uploaded in ODM which can be accessed by ACS only. Every single invoice is scanned and sent to ACS for their amount payment. After the payment is made the accounting entry in SAP is also done by them. We can see these entries in SAP after the posting is completed. If any problem occurs during the payment procedure, the same is informed to finance department of General Motors with their respective reasons. As the scanning is complete in the GM Company ACS updates the ODM fields which are helpful for the finance team for viewing the scanned invoices.

Online Document Management (ODM):

Online Document Management is done by Finance department itself for the convenience in handling the invoices and making it available as per the requirement. ODM provides the scanned image of invoice copy. Scanned invoices are send to ACS so that the payment of the vendor can be done. By referring scan invoices with SAP entries, payment to vendors are made through bank transaction. Online Document Management (ODM) is nothing but a service which is used for the scanning purpose and also maintains data. As the scanning is completed by the ODM department they receive a Document number (DCN) for each invoice. Finding the scanned invoice in ODM is very easy task if we know the DCN number.

In the above screen shot we can see the different fields which carry certain numbers. These numbers are updated by the ACM team. Only DCN is received at the time of scanning. The field indicators are as follows: Field 1: Scanned date Field 2: SAP posting number Field 3: P/o number Field 4: Invoice number Field 5: Vendor code Field 6: SAP GRN number Field 7: SAP doc. number

The entry is passed after the payment to vendor is done by ACS. This entry is passed to close the open account of the vendor. Accounting entry is as follows.

Date

Particular Vendor A/c Dr. To Bank A/c (Being payment made to vendor)

L/f

Debit Amt. XXXX

Credit Amt.

XXXX

XXXX

Report by ACS: Affiliated Computer Services (ACS) after receiving the scanned copy of the invoice, processes it for the payment of vendor to be done. The accounting entry is done in the books of accounts and also is being updated in SAP. The posting of all entries in SAP has a particular SAP posting number which is listed in SAP. When ACS is unable to do payment to vendors or unable to do the process then, they inform about this to Finance Department of General Motors with error report submitted separately. Finance department had a separate team to handle such challenges by ACS. All the queries by ACS are resolved by finance team and process is completed when this team completes the course of action for the payment of vendors. ACS provides the detail of the pendency of Invoices on the basis of aging i.e. period of open transaction. This aging is done on three different categories.

Transaction opens for more than 90 days Transaction opens for more than 60 days. Transaction opens for less than 60 days.

The same can be seen in SAP also. SAP, under the vendor line item list, displays the open and closed transaction. The priority of closing open transactions is decided by the Finance Department. General Motors maintain a separate GRIR Pendency report for different Vendors, so to solve the error and clear the payment of the same.

Research Methodology
Definition:
The process which includes defining and redefining problems , formulating hypothesis or suggested solutions; collecting ,organizing and evaluating data, making deductions and reaching conclusions, and at last carefully testing the conclusions to determine whether they fit the formulating hypothesis.

- Clifford Woddy Statement of Research:

The Plant spends large amounts on Account Payable but in order to evaluate that whether the existing process is convincing or not an appropriate check has to be done. So, a process of evaluation, rather than being an additional cost, can be a significant costsaving measure. The statement of the research is:

Evaluating the effectiveness of Accounts Payable Process in General Motors.

Research Data:
The research data used were of two types: Primary Data Secondary data

There were a collection from the Plants Finance Department and stored documents in form of hard and soft copy.

Primary Data

Meaning: Primary data are obtained by a study specifically designed to fulfill the data needs of the problem at hand. Such data are original in character and are generated in large number of surveys conducted mostly by government and also by some individuals, institutions and research bodies. Source of Primary Data for Project The primary data consists of the interaction with the Team Members of the Finance floor and the staff of the Plant. A lot of information was available by the Plants trainings, interacting with the staff members and the trainers.

Secondary Data

Meaning: Data which are not originally collected but rather obtained from published or unpublished sources are known as secondary data. Source of Secondary Data for Project The secondary data was collected by the hard and softcopies of the Vendors Accounts Payable documents. They were as follows: Hard copy as well as soft copies of various Invoices Soft copy of pending vendors Account Payables Access to Online Document Management Reports by ACS Access to SAP

Research Design:
The research design comprises of accounts payable process in below six steps: Observation of Accounts Payable process in General Motors India with the help of SAP, MGO, and ODM softwares. Practical work on Account Payables process and close the vendors open account by crediting to vendors account. Analyzing various errors occurs during settlement of vendors account.

Design course of action to be taken to resolve the errors occur

Implementation of actions to prevent the errors

Finding the result

Research Process:
This project in General Motors is attempt to depth study and search on a topic named Accounts Payable Process as area of investigation, backed by the collection, compilation, presentation and interpretation of relevant details and data.

DATA ANALYSIS Inception:

For the analysis of data we have picked some random line item of invoices of different vendors available in General Motors. The vendors which are selected to close the open accounts which are open from June 2011with some queries being raised by ACS for not closing vendors GRIR accounts. Here we are trying to solve those queries and close the vendors GRIR accounts. The following table indicates the vendor details which are selected to show the process of closing the open GRIR account.
Sr. No. Vendor Name Vendor Code Invoice No. Invoice Date

TATA 1 AUTOCOMP SYSTEMS LTD. BUNDY LTD. INDIA 19000074 968034929 29.05.2011

19000091

709098

11.06.2011

One invoice may consist of many line items. Even it can have more than 100 line items in a single invoice. The objective behind this project is to settle the accounts which are opened for more than sixty days and ninety days on priority and as soon as possible.

Arrangement for Account of Tata Auto Company Systems Ltd:

The process starts when Tata Auto comp system has sent the required material placed by the Purchase Manager of General Motors. Vendor TATA Auto Company Ltd. Sent material along with the invoice showing below.

Stamping on invoices is done in the stores department at the time of receiving the material after checking the quantity demanded by purchase department. In this case, required quantity and supplied quantity by the vendor is same and do match with each other.

GRN creation in MGO

Material Global Optimization (MGO) is software in which the vendor fills the information of the material sent to the manufacturing industry and which is being checked by the account department for making sure the same material is posted to manufacturing unit. Once the account department receives the invoice the actual work of Finance get started. The received material is shifted to stores department as inventory. And the GRN is created by the account department, passing a journal entry in the Books of Account. The entry is as followed.

Debit

:Date

Particular Part No. 95970211 A/c Dr.

L/f

Amt. 34968.70

Credit Amt.

25/05/2011

To GRIR A/c (Being material shifted to stores as inventory)

34968.70

By passing this entry in SAP material is shifted to the stores department. Materials in stores department are treated as raw material inventory of the General Motors. The GRN no is also get created in MGO software against particular invoice (invoice no.92010587308) this GRN no commonly known as MGO GRN no.

Step 1: Identification of Material This process is called as J1iex- Part I creation where Part 1 is created in SAP for identification of material under J1iex transaction code. The above screen shot 1 is the image of the SAP-J1iex transaction screen used for creation of part I for identification of material.

The above screen shot shows invoice is captured for excise duty rates. Once the invoice number is entered in the field the screen show the description of the invoice and the Part I team has to check it with the original invoice and capture the excise rate for the invoice. The excise rates are fixed as per the Government rules. The process once finished the team then saves the information in SAP and receives an internal number which is being used for the further process.

Step 2: CENVAT Crediting This is the process of capturing CENVAT in SAP under J1iex part 2 transaction codes. Cross verification of J1iex part 1 entries is also done in this part. Screen Shot 2 is the image of the SAP - J1iex transaction screen used for creation of part I for identification of material.

The above screen shot shows how SAP screen looks like after the crediting CENVAT. After crediting CENVAT while saving all transactions a unique SAP internal number is generated against the transaction done.

In this type the POSTCENVAT is done in which the SAP excise duty rate and the original invoice duty rates are checked. The quantity and the amount are also checked for making sure that everything is correct with the invoice processing system. Once the POSTCENVAT is done the data is again saved in SAP system and we receive a unique number which is called as, SAP GRN Number. Here the work of CENVAT crediting team finishes.

Screen shot shows the duty rate for TATA auto comp Ltd. invoice. Various types of duties are chargeable to vendors of manufacturing company such as BED, AED, ECESS, and SED. All duties are deducted directly from the payment to vendors and TDS (Tax deduction Certificate) is being sent to vendors by company. The TDS certificate is made by referring to following SAP screen.

Screen shot 4 shows the different types of duties like the BED, AED, ECESS, etc being calculated in General Motors

Screen shot shows that how SAP Screen looks like after the Part II is captured.

The above screen shot shows the SAP GRN number and all the information of the invoice including the duty values and other different values. Once we get the SAP GRN number the same is used for tracing the invoice in ODM.

After crediting CENVAT accounting entry is passed in SAP as the GRN (Goods Receipt Note) is created and GRIR A/c is made for the vendor Particulars Tata Auto comp Systems GR/IR A/C-M200 Cenvat Clg A/c Cenvat Clg A/c Cenvat Clg A/c VAT Receivable Mtls-Mah Round Off Total 34,968.70 2,882.98 57.66 28.83 4,742.27 0.60 42,681.04 42,681.04 Debit Credit 42,681.04

By passing accounting entry in SAP GRIR (Goods Receipt Invoice Receipt) account is created against vendor TATA AUTO COMP of Rs. 42,681.04 /Online Document Management (ODM) This is a last stage in the process of invoice for its payment clearing in the General Motors, Talegaon plant. The scanning of the invoices is getting done in online document management. After scanning we will receive a unique document number known as DCN which is most useful for tracing scanned invoices. The DCN number is useful for retrieval of scan copy of original invoice. In ODM screen DCN number is to be entered in the mentioned field only, then only we can access invoice. The screen shot of the same is as follows. For the TATA AUTO COMP vendor the Online Document Management DCN (Document no) is 3482609 which should be fill in the field showing DCN in ODM screen so the invoice of TATA AUTO COMP amount of Rs. 3742.37 with the vendor line

item, part no of PPGM0157 and invoice no 9201058738 can be retrieve.

Screen shot

We can see that just entering the DCN we received the full information about TATA AUTO COMP invoice viz. Scanned Date (Indicated in Index field 1) SAP Posting No (Indicated in Index field 2) Invoice number (Indicated in Index field 4) Vendor Code (Indicated in Index field 5) GRN No. (Indicated in Index field 6) With the ending of ODM process all the responsibilities of Finance department of General Motors are getting finished. From here work of ACS (Affiliated Computer Services) is gets start.

Affiliated Computer Services (ACS) has to complete the accounting entry in SAP within 3 working days. While closing the vendors account Affiliated Computer Services (ACS) passed the accounting entry as Debit Amt. 42681.04 42681.04 Credit Amt.

.Date

Particular

L/f

Tata Auto comp 15/07/2011 To Bank A/c

Dr.

(Being payment made to vendor)

The Accounts Payable process of TATA AUTO COMP (Invoice no 9201058738) is finished with the final accounting entry for crediting the payment in vendors account. This is a normal process which is followed by the company for clearing the payments and closing the open A/cs.

As the coin has both the sides, the company also has to deal with many challenges. Few challenges which are faced by the company are as follows:
The main reason which the ACS provides for not clearing the vendor payment is Invoice Not Found to them. The reason behind this is the different errors, they are known as Primo Errors. Generally error comprises of the following points:

1. Quantity Mismatch 2. Amount Mismatch 3. Part number Mismatch 4. DUNs number not found 5. Vendor code not found 6. System Problem 7. Wrong P/O number taken 8. Excise not captured 9. Excise wrongly captured 10. Invoice with unclear display

There may be many more new problems which can arise while clearing the account. The finance team deals with this entire problem and tries to clear all these invoices by making the payment to the vendors as soon as possible. Everyday Finance team deals with many different cases for making the biggest process flow in a smooth manner. As making payment to the external parties is the main dealing of every manufacturing company, General Motors also keeps its hand full in making this BIG process easy and maintaining the data in the books of account. The frequency of invoices trapped or invoice amount not credited to vendor accounts depend upon the various factors such as image quality of scan copy, etc.

Dealing the Challenges

As the challenges come to finance team, they try hard to deal with them in the most efficient manner and as soon as possible, the time duration of solving a problem depends upon, what type of the problem is. As per the list provided above about the different errors and challenges to the finance team arises, the solution set is now made to tackle such challenge. The solution for challenge is as follows:

Capture the right quantity, if by mistake wrong is captured, reverse the entry and fill the right quantity and then forward it. i. If amount is mismatched then capture the right amount and clear the problem. ii. If part number is mismatched, check the invoice with that of in MGO and then correct the error. iii. Check in GPS, why DUNs number is not found, it may be due to change in the vendor code or the vendor name. Correct it and solve the problem. iv. If vendor code is not found in SAP list and the vendor is of this plant, create the vendor code for this plant in SAP. v. vi. If any system problem occurs contact to IS&S team. Update the P/O number which the vendor has raised for the payment purpose. vii. viii. Select the excise rate as per the Govt. rules and then forward the invoice. If excise is wrongly captured, check for the excise rate, quantity of material on which excise is taken, correct the error, forward for the further process. ix. Invoice with unclear image or display should not be taken and processed for the payment, as unclear data will create an error in future.

As the first sample invoice of TATA AUTO COMP was cleared in a smooth process and it didnt needed any extra efforts for making the payment to the vendor, now we will see one invoice which has an error and the solution on it so that the invoice is also cleared for the payment.

Arrangement for Accounts Payable of BUNDY INDIA LTD.:

Vendor BUNDY INDIA. Ltd is a direct material supplier local vendor. This vendor supply the direct raw material required for the production purpose. Urge for closing vendor account arises because this vendor is direct material supplier if vendor stop supply of direct material manufacturing process of automobile also get stop. In car manufacturing company if the production line is delayed by a single minute result in the loss equal to the selling price of one car. So in case of General Motors, Talegaon plant the loss will be around 3.5 lacks. In case of vendor BUNDY INDIA. Ltd. sent the required material as per the requisition of material placed by the Purchase Manager of General Motors along with the invoice (Invoice no 0106598)

The process goes as same as TATA AUTO COMP.

MGO GRN creation Step 1 Identification of Material Step 2 CENVAT Crediting Online Document Management Scanning

But when the scanned invoice reached the ACS they were unable to make the payment and clear the account. ACS provided the following reason: Wrong Excise Duty Captured in SAP (J1iex), now this is the place where the finance team got a challenge to solve the problem. ACS has provided the reason for not clearing the payment to the vendor. Then we looked in to the SAP for our further analysis. The SAP screen showed the following data which can be viewed in SAP

Screen Shot

Now here finance department start with the work of clearing of Bundy India Ltd Vendor line item. As per the training given to us on SAP and ODM, we found the reason of invoice not cleared for bill payment to vendor. We also received an opportunity of visiting different departments of the company and also got training on dealing with different challenges that are faced by the company. As per the observations the reason behind the open transaction is the wrong quantity which is captured by the team and then forwarded for the further procedure. Due to which a wrong excise duty has been captured in SAP, which again added a challenge in front the Finance Department. Screen Shot

Screen Shot

Both the screen shot shows how the problem occurs and what is the challenge faced by the finance team. In the case of vendor Bundy India Ltd., excise duty is wrongly captured in the SAP (J1iex) process. But we can see that in the invoice and the SAP posting done the quantity which is there do not match with each other. In the invoice the quantity is 200, while in the SAP the posting of quantity is done as 17,258. This quantity is nothing but the amount of the invoice which by mistake is taken as the quantity of the invoice material.

Secondly the GRN is being created twice, which cause problem for the payment of the bill because while processing invoice for further formalities every number should be unique and single in every process so that invoice can be traceable. This case is of multiple problems, there are two GRN created, the quantity is wrongly taken, and the Excise amount is not captured properly. Now to deal with this problem the solution for this type of problem is as follows: Cancel both the SAP GRN Cancel the entries passed for this invoice Create a new GRN for the invoice Capture the right quantity and right excise amount Forward the same to ACS for payment of the Bill Amount.

This was the solution for the problem that occurred in making the payment to the vendor. After acting in the same manner, we will be able to clear the account.

Findings:
For analyses of data and the process of Accounts payable we took a monthly Dump file for April 09. The file including 1092 vendors accounts opened in the system. 1092 opened transaction are bifurcated on the basis of aging period of more than 90 Days & More than 60 Days. A. 692 transactions opened from more than 90 days B. 400 transactions opened from more than 60 days

For CASE: A
165 of the open transaction were closed, as they were in the process. And action was already taken on it. 269 of the transaction were closed by taking necessary action with the guidance of Finance Team 151 cases are still in Error, and under process of Finance Team. 107 cases are such cases which were cancelled and action is taken and is under process of getting cleared. Most of them are in Primo Error. Bad invoice image is one of the causes which lead the invoice under Primo Error.

For CASE: B
Most of the cases were in Primo error 12 cases are being cancelled and action is taken and is under process of getting cleared. 95 cases are still in Primo Error, and under process of Finance Team. 52 cases are of the Supplier who do not stand in the GMTP Vendor List, and were by mistake come to GMTP Finance Team for the clearing of the bill amount. 117 of the transaction we closed by taking necessary action with the guidance of Finance Team. 134 transactions were closed, as they were in the process, and action was already taken on it.

Conclusion:
With the better understanding on the companys Vision Mission and leaning of Account Payable Process thoroughly means of various databases like Process Charts, Tables.etc, the suggestions to improve the effectiveness of the current practices is evaluated. Also, the systems based Invoice processing in SAP and ODM is understood and evaluated to improve the efficiency of the function.

Evaluation of current process was done to mitigate the non-value adding elements of the process. Pros Cons were taken in to the consideration for further improvement in the organizations financial management.The learnings through various Invoice transactions and feedback systems are considered to effectively control cost and make the system much easier. The small control points or improvements, but more effective in results, are mentioned in above Suggestions.

Suggestions:
Dump file should be maintained on monthly basis for the updation of vendor payment in every month. Responsible person should maintain the file showing the status of invoices with them and the reason for the invoices not forwarded to the further process At the time of dotting down the material part no, part description, quantity and amount in SAP it should be recheck once by the concern person when all the fillings get done in SAP. The company should accept invoices printed by using dark ink so at the time of scanning the risk of bad image generation get reduced. At the time of receiving the material from vendor stores manager must confirm that he is not pasting stamp on amount or on any text explaining about the material. While capturing excise and other duties in J1iex part 1 should be cross check once by concerned person. Stores manager should confirm the authorized signature of licensee or authorized agent on invoices. The invoices should be rejecting which not caring any signature of licensee or authorized agent on invoices.

Limitation of the Project

The project is most comprised of technical data. Using of SAP was a bit difficult at the time of training and requires hands-on experience of the SAP and GM practices.

Special training was imparted for using the SAP system and guidance to operate ODM was supported by GMI personnel.

The other software (ODM) used in the company was unknown at the time of joining.

All other functions of the company may not be known without the training. As accounting and financial help is provided by other service provider, only managing of the finance is done in this company.

Relationship Between Accounts Receivables & Accounts Payable

Average Receivables Period

For example, if the average collection period is sixty days and the standard days of credit is thirty, then customers are taking much too long to pay their invoices. A sign of good performance is when the average receivable collection period is only a few days longer than the standard days of credit. Formula 31st Dec 2008
Average Accounts Receivable Annual Sales/365 days = 19days = 47days = 23days = 3,56,310 67,04,055/365 =

31st Dec 2009

3,38,310 =

31st Dec 2010

3,91,455

25,86,330/365

61,01,640/365

Graphically Presented

days
23 19 31st Dec 2008 31st Dec 2009 47 31st Dec 2010

The resulting number indicates how many days on average the companys customers take to pay their invoices. For example, if the company extends its customers a credit frame of 30 days, then the company would want the Average Collection Period Ratio 30. That would indicate that, on average, the companys customers take 30 days or less to pay their invoices, therefore complying with the credit policy. If, utilizing this example, the Average Collection Period Ratio is > 30, then the companys customers, on average, are not in compliance with the credit policy, and/or the company is not enforcing those policies sufficiently.

Average Payment Period The average number of days a company takes to pay its bills used as a measure of how much it depends on trade credit for short-term financing. Formula 31st Dec 2008
Average Accounts Payables Annual Sales/365 days = 1001655 67,04,055/365 =

31st Dec 2009

8,42,625 25,86,330/365 =

31st Dec 2010

9,67,365

61,01,640/365

= 54days

= 118days

= 59days

Graphically Presented

Days
59 54 31st Dec 2008

118

The resulting number indicates how many days on average it takes the company to pay its bills. For example, if the companys suppliers extend it 30 days of credit, then the company would want the Average Payment Period Ratio 30, but as close to 30 as possible. That would indicate that on average the company pays its bills on time, but it uses the credit terms offered very effectively. If, utilizing this example, the Average Payment Period Ratio is > 30, then the company is on average paying its bills late, which in case may be very detrimental to its relationship with its suppliers.

Comparing the Average Collection Period Ratio (ACPR) to the Average Payment Period Ratio (APPR) can also offer very valuable information about the cash-flow situation of the company. If, for example, the ACPR > APPR, then the company may encounter a cash flow problem (or cash shortage) in the near future, as it takes the companys customers more days to pay their invoices than the company takes to pays its own bills. The difference between the two, ACPR minus APPR, equals the days the company has to dig into its own cash reserves. This means the company is experiencing negative cash flow during that period, as it have to give money out (pay bills) without getting cash in (getting paid by its customers). Over the longer term this could lead to severe cash shortages. Therefore the company should always aim at ACPR APPR, so the cash coming into the company form its customers pays for the companys bills, and there isnt a cash crunch.

Current Ratio An indication of a company's ability to meet short-term debt obligations; the higher the ratio ,the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations.It measures the ability to pay bills.

31st Dec Formula

Current Assets Current Liabilities

31st Dec 2009

= 26,66,115 23,59,575 = 1.129

31st Dec 2010

= 23,87,385 21,22,065 = 1.125

2008
= 19,92,015 34,02,360 = 0.585

Ratio Accounts payable proportion in Current Liabilties

31st Dec Formula

Accounts Payable Current Liabilities =

31st Dec 2009

= 8,42,625 23,59,575 =

31st Dec 2010

9,67,365 21,22,065

2008
1001655 34,02,360

0.29

0.35

=0.45

Ratio Accounts payable proportion to Current Assets

31st Dec Formula

Accounts Payable Current Assets =

31st Dec 2009

= 8,42,625 26,66,115 =

31st Dec 2010

9,67,365 23,87,385

2008
1001655 19,92,015

0.50

0.31

0.40

Accounts payable ageing schedule The accounts payable ageing schedule can help you determine how well you are (or are not) paying your invoices. While it is good cash flow management to delay payment until the invoice due date, take care not to rely too heavily on your trade credit and stretch your goodwill (and future credit terms) with suppliers. Worse still, late payments may drive a supplier out of business, resulting in potential supply chain problems and threatening your own business.

Accounts Payable Ageing Schedule Suppliers Name Total accounts payable Current 1-30 days past due 31-60 days past due Over 60 days past due

Delphi Automative GMW Downshell Tata Autocom Bundy Ltd Lear Kiran Udyog Total Percentage breakdown

4645 2255 3020 3260 500 750 14430 100%

4645 2000 2000 1500 500 325 10970 76%

255 455 1000 225 1935 13%

340 420 50 810 6%

225 340 150 715 5%

The accounts payable ageing schedule is a useful tool for analysing the makeup of your accounts payable balance. Looking at the schedule allows you to spot problems in the management of payables early enough to protect your business from any major trade credit problems. For example, if Bundy India Ltd was an important supplier for Genearl Motors, then the past due amounts listed for Bundy Ltd should be paid in order to protect the trade credit established.