Auto-ITC Reconciliation and vendor payment management for a public listed chemicals company

Our client has around 4 plants across 3 GST registrations and has around 10K purchase invoice posting every month. They were using a cloud-based input tax credit reconciliation solution for reconciling their purchase register with GSTR2A/2B data. In this solution, client was expected to upload their purchase register manually through excel based template & then, run the reconciliation process on the cloud application & download ITC reconciliation results in an excel report. This activity was being done at the month end to prepare GSTR3B return in which they have to claim rightful input tax credit. Some of the important issues being faced in such a reconciliation process is as follows:

1. Purchase data needs to be uploaded manually causing human error possibility in terms of data completeness & correctness
2. Carry forward of purchase invoices for claiming ITC to next period must be maintained separately
3. ITC reconciliation process is to be done outside of the SAP ERP leading to multiple data flow & verification issues

We implemented our Auto-ITC reconciliation & vendor payment management cockpit solution in the client’s SAP S/4 HANA ERP. Solution deployed is purely configurable where they just maintain list of their purchase document type as per SAP configuration and based on this, our solution automatically prepares a vivid GST purchase register report in the ERP. Client is also able to select the list of validations pre-configured in the solution which they want to auto-run on the extracted purchase invoice data. Solution deployed can extract both PO based & non-PO based purchase booking done in the SAP ERP. Solution can be scheduled to auto-extract the purchase invoices on daily basis through a background job.

Our Auto-ITC reconciliation solution via GST APIs also auto downloads GSTR 2A data of GST registrations of the client on daily basis and downloads GSTR2B monthly when it is generated on the GST portal. The reconciliation process between the extracted purchase data & GSTR 2A data is executed on daily basis through a scheduled job configured in the SAP ERP and ITC reconciliation results are prepared & saved in the ERP in a custom table. Purchase invoice(s) of the previous period (date) which are yet not matched or accepted by the user daily participates in the ITC reconciliation process along with the incremental new purchase bookings which have been done.

Our client can look at the ITC reconciliation results at any given point of time to check how many of their purchase document have got matched automatically. Solution also suggests the user for documents which have minor differences & can be accepted by them through bulk actions. For purchase documents which are mismatched or yet to be uploaded by the vendor on the GST portal, our solution also automatically sends an email communication to the vendor providing complete details on the discrepancy found.

Based on the ITC reconciliation results between purchase data & GSTR 2B, our solution also prepares an automated report for the user which can be directly used to claim input tax credit in GSTR3B return.

We also introduced a feature in our SAP cockpit solution to automatically create retention entries of GST amount for the vendor invoices which have mismatch status or are yet to be uploaded by the vendors on the GST portal. Our solution considers ITC reconciliation result, e-Invoice applicability status, GST return filling preference of the vendor, GSTIN status of the vendor, last period GST return filling status of the vendor & MSME status while deciding if the GST amount retention entry should be created by our solution or not. It also auto-reverses the GST retention entry of the vendor invoice when it gets matched or accepted in the ITC reconciliation process. This has enabled our client to put an automated measure on vendor’s payment process if they are not following GST compliance guidelines. For urgent payment clearances, we have also provided our client with an escape route which can triggered for exceptional scenarios.

Our client saves around 40 hrs per month due to our automated ITC reconciliation cockpit solution deployed in their SAP ERP. Automated email communication to vendors for mismatched & missing invoices and vendor payment blocking for such invoices has enabled lot of GST compliance discipline in their vendor network. Within 3 months of the solution implementation, our client was able to receive almost 98% match in ITC reconciliation activity of their posted purchase invoices. Since, the solution remains inside their SAP ERP, it also perfectly meets their infosec requirements.