The invoice matching process is one of the most essential yet frustrating tasks for accounting departments. Manually performing invoice-to-purchase-order matching is time-consuming, but this task is critical to ensuring accuracy in financial transactions.
Human error, mismatches and diverse supplier policies add complexity when matching invoices to purchase orders. To help mitigate these challenges, some accounting departments are turning to automation to improve their invoice-matching speed and accuracy.
What is Invoice Matching?
Invoice matching is a process used in accounting and procurement to ensure that the details on an invoice match the corresponding purchase order (PO). The purpose of matching invoices to purchase orders is to enhance accuracy and reduce errors and fraud in the accounts payable (AP) function.
• A PO is a document generated by a buyer for a supplier that outlines the details of the goods or services they are purchasing, including quantities, prices and delivery terms.
• An invoice is a document issued by a supplier to a buyer, requesting payment for the goods or services provided. It includes details such as the quantity, price and description of the items delivered.
By comparing invoice and PO documents, discrepancies such as incorrect quantities, pricing errors or missing items can be identified and resolved before a business makes a payment. This helps to streamline the AP process, improve reporting accuracy and strengthen supplier relationships.
How to Match Invoices with Purchase Orders
To help ensure accuracy and accountability in procurement and finance, consider these basic tips for matching invoices with purchase orders.
1. Obtain the PO and invoice. Check that they match each other in terms of quantity, price, product description, etc.
2. For an extra layer of accuracy, compare the PO and invoice to the receipt or packing slip (if relevant) to verify that all three documents match and that the goods or services were delivered as ordered.
3. If discrepancies are identified during the matching process, investigate and resolve them promptly with the supplier. Communication with suppliers helps foster positive, enduring relationships.
Following these steps will help minimize AP errors, overpayments and duplicate payments.
The Difference Between 2-Way and 3-Way Invoice Matching
In 2-way invoice matching, the PO is checked against the corresponding invoice. 3-way matching goes one step further by comparing the PO, invoice and receipt or packing slip.
| Two-Way Matching | Three-Way Matching | |
|---|---|---|
| Purchase Order | ✅ | ✅ |
| Invoice | ✅ | ✅ |
| Receipt or Packing Slip | ⛔ | ✅ |
For more information, check out our article on the differences between 2-way and 3-way matching.
What is Automated PO Matching?
Automated invoice matching is a process in which software compares POs and invoices electronically. If desired, automated PO matching software can also conduct three-way matching, incorporating receipts or packing slips.
Through predefined rules and algorithms, the software automatically verifies that the details on the invoice match those on the corresponding PO. This technology is designed to reduce the need for manual intervention, speed up the matching process and minimize errors.
AP and procurement professionals can set up tolerances within their automated matching system so that invoices are flagged when they fall outside pre-defined parameters. For example, with a 5% tolerance:
• If you issued a PO for $500 but the invoice is for $520, it will be matched (the total is 4% off)
• If you issued a PO for $500 but the invoice is for $530, it will be flagged and held for further review (the total is 6% off)
In most invoice matching systems, when an invoice is flagged and held, payments cannot be rendered until the hold is resolved. This is designed to create a fail-safe, preventing the payment of an unmatched order.
The Benefits of Automated PO Matching
Automated PO matching can help increase efficiency, accuracy and cost savings compared to manual processes, making it a valuable tool for optimizing AP operations. Some of the potential advantages include:
Improved Efficiency
Automated matching can reduce the time and manual effort required to reconcile invoices with POs, speeding the invoice approval process.
Enhanced Accuracy
With predefined rules and algorithms, automated matching can minimize discrepancies and human error occurring in manual processes, leading to greater accuracy in financial reporting.
Cost Savings
By streamlining the matching process and reducing manual labor, automated PO matching can help lower the operational costs associated with this task.
Faster Processing
Automated matching can be faster than manual matching, which may enable organizations to make payments faster, taking advantage of early payment discounts and avoiding late payment penalties.
Better Visibility
Many automated AP systems provide real-time visibility into the status of invoices, which can enable better tracking and management of payment workflows.
Automate Your Invoice Matching Process
By leveraging automated matching, accounting departments can streamline payment processes and mitigate the risk of human error. Data critical for business, such as invoices, purchase orders and order receipts can be organized electronically without tackling mountains of paperwork.
Additionally, by integrating an automated PO matching process into your accounts payable workflow, you can better position your business to potentially meet early payment terms and earn discounts while also minimizing losses by avoiding late fees.
To learn more about automating invoice matching at your organization, click below to book a call with one of our AP automation experts.