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Invoice Matching

What is Invoice Matching?

Invoice matching is a process by which invoices are matched with supporting documentation, which includes existing vendor contracts, purchase orders, and goods received notes. The primary purpose of invoice matching is to ensure that vendor payments are only released for goods or services rendered, and to allow for accurate accounting treatments.

More importantly, invoice matching ensures compliance with the procurement contracts in place with vendors. An effective invoice matching solution also helps mitigate invoice fraud within the organization.
Invoice matching is generally the preferred option for verifying invoices when purchase orders (POs) are sent by the buyers prior to goods being received. This confirms that a requisition for goods was made, including the requested quantities, suggested vendor, and the agreed price too.

The requisition is first approved before the procurement department generates a purchase order and issues it to a vendor. This is a legal document confirming the buyer’s intention to pay when goods are delivered. Invoice matching helps mitigate the risks of errors or inconsistencies between the goods and quantities ordered, and the amount charged by the vendor.

Understanding Invoice Matching Deviations

A deviation is the difference in amount between what the company expects to pay and what the vendor charges. Simply put, a deviation occurs when the invoice particulars do not match the supporting documentation.

Most commonly, deviations often occur between:

Price: a deviation in price occurs when the amount invoiced does not match the amount stated on the purchase order.

Quantity: the vendor may send an invoice for goods that are either lower or higher than the quantity mentioned in the purchase order.

Deviations are often identified during invoice matching, and usually prompt an investigation to determine if they’re acceptable or if the vendor needs to revise the invoice. Tracking and managing deviations is time-consuming and highly labor-intensive, especially in manual AP departments.

Explaining Two, Three, and Four-Way Matching

There are different levels of invoice matching, often aimed at improving accuracy. This is mainly the number of supporting documents that an invoice is matched with.

2-Way Matching

This is the simplest invoice matching process. The AP staff verify invoices and match them against purchase orders. A tolerance limit is set, and the invoice must meet the specified criteria before it can be approved for payment.

3-Way Matching

Arguably the most popular method is 3-way matching. In this method, invoices are matched with three supporting documents.

They’re first checked for authenticity and accuracy, and then matched with the Goods Received Note (GRN) and the purchase order (PO). If the invoice falls within tolerance limits, it is sent for approval.

4-Way Matching

4-way matching is generally more complicated and adds another layer of validation. Invoices are matched with not just the GRNs and purchase orders, but they’re also compared with inspection slips. 

When the goods are received, a relevant employee has to first check the goods and create an inspection slip. The inspection slip details the quantity of goods received and the condition in which they were received. 

This is the most accurate form of invoice matching, but also the most time-consuming. It also ensures that companies only pay for goods or services rendered.

Invoice Matching with Contracts

In certain situations, the AP department may have to use contract matching. For instance, when a company receives non-PO invoices, the preferred way to match them is with the contracts that are in place. This is generally used for recurring payments. 

The invoice, once received, is matched with the terms and conditions stipulated within the original vendor contract. An internal approval process is followed to match the invoice, confirm the details, and then send the invoice for approval.

The Key Benefits of Automated Invoice Matching

Automating the invoice matching process is the preferred option for growing companies that receive lots of invoices from vendors. It completely eliminates the need for manual validations or sifting through piles of paperwork for AP staff. Here are some major benefits that automated invoice processing offers.

1. Saves Time and Reduces Inefficiencies 

It’s easy to see that the manual invoice matching is often protracted and time-consuming. However, when invoice matching is automated, it helps reduce inefficiencies and greatly reduces the risk of invoice fraud. 

2. Increased Accuracy

Automated invoice matching uses advanced technologies like artificial intelligence and machine learning to better understand input data. Optical character recognition is used to capture invoice data and enter it into the system. This greatly reduces the risk of transcription errors.

Automation also reduces the margin for human error, as there’s little to no input required from the AP staff when invoices are received. AI technologies are also much faster, automating this repetitive and mundane process and freeing up the AP staff to focus more on high-value tasks. 

3. Discounts and Better Negotiating Position 

This ultimately paves the way for companies to take advantage of early-payment discounts, and improve vendor relationships. This improves the company’s negotiating position as well, especially with quick settlements. 

4. An Audit Trail 

Touchless invoice matching is great since an audit trail is automatically generated whenever invoices are matched. This ensures that supporting documentation is valid and readily available. In case of an audit, the company will have all relevant documentation readily available. 

Automate Invoice Matching to Streamline AP Operations

Automating the invoice matching process is a fantastic way to reduce the burden on your AP departments, letting them focus on more high-impact tasks in the Procure-to-Pay process. To that end, one of the best options available to companies is SoftCo’s Procure-to-Pay solution. It completely automates the P2P process and features a dynamic matching engine that supports 2-way, 3-way, and confidence matching. It’s a fantastic solution for companies that want to automate tedious tasks without compromising on accuracy.