The term "tolerance groups" refers to a way to make sure that employees do not exceed their authority in financial transaction

Financial transaction

A financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.-History:...

s in an ERP

Enterprise resource planning

Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...

system. Usually this is done by setting limits on the size of transaction an employee can process. As part of the configuration process, a company can define any number of tolerance groups with a range of limits and can then assign employees to these tolerance groups.

Configuration allows the company (setting the tolerance groups) the flexibility to further tailor this methodology of placing limits on an employee. A company can set:

• The maximum document amount the employee is authorised to post.
• The maximum amount the employee can enter as a line item in a vendor/customer account.
• The maximum cash discount percentage the employee can grant in a line item.
• The maximum acceptable tolerances for payment differences for the employee.

Payment Differences

Tolerance groups set limits on the dollar value for a single item in a document as well as the total value of the document. Just as importantly, it sets a limit on payment differences. For example, suppose a customer has been invoiced for $1,005 but accidentally sends in a check for $1,000 to pay the invoice. The cost of requesting and processing a second payment for the $5.00 would cost both parties more than $5.00. In this case it is better to accept the $1,000 check as payment in full and account for the difference as a variance.

As with authorizations, it is a safe policy to define a default tolerance group with low limits and err on the side of less authority rather than more authority.