All About Invoice Matching: Streamlining Financial Processes for Efficiency

When invoices are received from a vendor, it is a common practice to match invoices with other supporting documents to verify their validity and accuracy. This practice is known as invoice matching. In a world where fraudulent practices are rampant, invoice matching provides an extra layer of security. 

Documents Required For Invoice Matching

Invoice matching involves matching quantity, rates, and other important information like payment terms, delivery timelines and more with supporting documents. Thus, the invoice-matching process is a paper-heavy and time consuming. 

Invoices

Invoices are the primary billing documents containing requests for funds to be paid to the vendors. Since most payments are made according to invoice details, they must be matched against other supporting documents to verify their accuracy. 

Purchase Orders

Purchase orders are formal documents issued by a buyer to their vendors stating the goods or services required by them. It becomes the legally binding contract for the purchase, once it is accepted by the vendor. Purchase orders contain information about the agreed-upon items, quantity, prices, and credit terms and can thus be used to verify the validity of an invoice.

Receiving Reports

A Receiving report is used to document details about the goods or services received by the buyers. It is a link between the purchase order and the invoice sent by the vendor. The receiving report contains the date and time of goods receipt, items and quantities, and also records the condition of goods at the time of delivery.

Types Of Invoice Matching

Invoice matching can be done at various levels depending on organizational requirements and their existing processes. 

2 - way matching

A two-way match consists of matching invoice details with details on a purchase order. This is especially common when dealing with service-related vendors. Upon receiving an invoice, the details are verified against the respective purchase order and entered into the accounting system if no discrepancies are detected, or if they are found to be within a tolerance level.

3 - way matching

A three-way match involves matching invoice details with the details on a purchase order and a receiving report. This ensures you're paying only for the goods you have received, avoiding overpaying for fewer or incorrect goods. The invoice is accounted and paid for if all details match within the tolerance levels. 

4-way matching

Some companies prefer matching invoices, purchase orders and receiving reports with inspection information as well before accounting for invoices. This is done to ensure that the quality of goods received is also within tolerance levels. 

Contract matching

Contract matching consists of ensuring vendor invoices are within discussed contracts. This involves checks such as the number of invoices a vendor sends monthly, whether the invoice amounts are within the agreen-upon price range, and whether the quantity of goods delivered matches the contracted quantity. 

Steps Involved In Invoice Matching

Invoice matching is an essential responsibility of the accounts payable and procurement functions. Here are the steps involved in invoice matching: 

Generating a purchase order

The first requirement for invoice matching is generating a purchase order. A purchase order contains a request for purchase from the vendor at an agreed-upon price and is later used to verify the validity of invoices sent by the vendor. 

Receiving goods or services and reports

The vendor then delivers goods to the customer. The customer checks the goods and creates a receiving report summarizing the quantity of goods received from the vendor. 

Invoice sent by the vendor

After the goods are delivered, the vendor sends an invoice to the customer stating the payment due, the required due date, and payment terms, if any. The customer is responsible for processing the invoice timely or paying a penalty in case of late payment. 

Invoice matching against thresholds

To confirm the accuracy of the invoice, customers match the invoice with supporting purchase orders, receiving reports or contracts, if any. A threshold is generally defined, and invoices within the threshold range are processed, and ones outside are put on hold or rejected. 

Handling exceptions with vendors

Invoice matching exceptions occur when invoice details do not match with the details on the supporting purchase documents. If the discrepancy is greater than an acceptable threshold, an issue is raised with the vendor, preventing payment until the issue is resolved. The vendor then makes the necessary rectifications and sends the corrected invoice with new payment terms to the customer.

Approval and payment initiation

If the discrepancy is within the acceptable threshold, the invoice may be sent for additional approvals from the relevant business stakeholders. Post approval, these along with the invoices with no exceptions, are processed for payment via the method preferred by the vendor. 

Benefits Of Invoice Matching

Invoice matching holds a myriad of benefits for your company. Here are a few:

Reduce errors

Manual processes are typically prone to errors. Matching invoices with purchase orders ensures your Accounts Payable team is accounting for the invoice accurately. Any discrepancies or invoice errors are automatically detected in the matching process and payments are made only after all issues have been resolved and/or approvals have been taken from all relevant stakeholders. 

Safeguard against invoice fraud

Invoice frauds occur when a fraudster sends an invoice replicating an actual vendor invoice. These invoices appear valid at a glance, but invoice matching helps identify fraudulent invoices that do not correspond to a valid purchase order in your accounting system. This prevents incorrect payouts and improves business control. 

Automating Invoice Matching Process

With automated invoice matching, invoices are cross-checked with corresponding documents using Optical Character Recognition and Robotic Process Automation. 

OCR in the context of accounts payable gets textual data from scanned or uploaded documents and matches them to invoice fields defined by you. Automation softwares then fits invoice fields like PO number, invoice date, order date, shipped date, total amount, and line item details. The software also flags invoices if it is found outside the pre-defined thresholds set by your accounting department. 

Automating the invoice matching process ensures no invoice is out of purchase, reducing your accountant's time doing repetitive manual tasks. Automation software is also less prone to errors, reducing overpayments and time spent rectifying human errors. 

With ClearTech's AP automation solution, you can also gain direct insights into uncontracted spend or spikes in line item amounts as soon as an invoice is received, enabling you to take swift action and prevent overpayments to your vendors. 

Conclusion

Invoice matching is an important accounts payable (AP) and procurement function to ensure the validity and accuracy of invoices received before they are processed for payments. It consists of matching invoices to relevant purchase orders, receiving reports, inspection slips, and vendor contracts. Invoice matching ensures you are safeguarded against fraud, are less prone to data entry errors, and don't overpay your vendors. Automating this process can reduce your accountant's time performing manual tasks and reduce errors, making life easier for your finance teams. 

FAQs

• What is automated invoice matching?

Using technology to automate invoice matching processes such as matching purchase orders, receiving reports and contracts to vendor invoices is automated invoice matching. No human intervention is required to match these documents. 

• How do you automate an invoice process?

Several accounts payable and invoice automation tools allow you to automate invoice processes. These solutions automate manual invoice entry by utilizing Optical Character Recognition technology for capturing and matching textual data to relevant fields.  

• What are the techniques of invoice matching?

Invoice matching is usually done using any of three methods, 2-way matching, 3-way matching, or 4-way matching. These techniques involve matching invoices to supporting documents such as purchase orders, receiving reports, inspection slips, or vendor contracts. 

• What is the 3-way invoice matching process?

The 3-way invoice matching process consists of matching invoices with their corresponding purchase orders and receiving reports to determine the validity of items and amounts mentioned in the invoice. A 3-way match primarily validates that the goods being paid for have been received.