Invoice matching plays a pivotal role in the world of Accounts Payable (AP), and the execution of this vital task can substantially impact your organization’s operational and financial health. As traditional methods of invoice matching can be labor-intensive, leveraging technological advancements can offer significant efficiencies and advantages.
This article offers an in-depth exploration of invoice matching, its various forms, the imperatives of automation in invoice processing, and the various benefits that come with it. By the end of the article, you’ll know all there is to know about automated invoice matching and the role it could play in your organization.
Invoice matching is a fundamental part of the accounts payable process, where the data on a vendor’s invoice is validated and cross-verified with the related purchase order (PO) and delivery receipts.
The process begins when an organization generates a purchase order outlining the specific goods or services required from a vendor. The organization acknowledges this with a receipt once the goods or services are delivered. The vendor then issues an invoice for the delivered goods or services, which triggers the process of invoice matching.
The main aim of invoice matching is to ensure complete alignment between the purchase order and the invoice. This process allows for prompt settlement of vendor payments, reducing the potential for errors and even vendor fraud.
Accounts payable automation encompasses multiple technologies such as Optical Character Recognition (OCR) for data extraction, machine learning for invoice matching and anomaly detection, document management solutions for storage, and data analytics tools for analysis.
When there’s a mismatch between the purchase order, invoice, and receipts, there is what’s often called a “deviation.” This can be a quantity deviation (wrong number of items) or a price deviation (incorrect price). Identifying and rectifying these deviations is a manual job for most AP departments, but, as the name suggests, automated invoice matching performs these tasks automatically.
With automated invoice matching, any deviation falling outside an established “tolerance level” is flagged and put on hold, awaiting correction.
Invoice matching ensures goods or services ordered were delivered and that the invoices received are accurate. This matching process has several levels, often referred to as 2-way, 3-way, and 4-way matches. Let’s go through each of them.
2-Way Matching
At the most basic, there’s 2-Way matching. This involves comparing the invoice with the purchase order. The aim is to ensure that what the supplier has invoiced aligns with what was ordered by the buyer. While seemingly simple, the repetitive nature of comparing prices, quantities, and item descriptions can be a considerable drain on labor.
3-Way Matching
Stepping up in complexity, we encounter 3-Way matching. This method throws another document into the mix–the goods receipt note (GRN). Now, along with the invoice and the purchase order, we’re also verifying that the goods or services were indeed received. The additional layer of scrutiny means an increased workload and more potential for discrepancies.
4-Way Matching
In 4-Way matching–the most burdensome matching task of all–the documents used in 3-way matching have to be referenced against an inspection or acceptance report. This ensures goods or services received meet the required standards.
Invoice matching software automates the entire invoice matching workflow–from invoice receipt to the eventual payment. It can be a standalone software application or integrated into a broader enterprise resource planning (ERP) system, like how DocStar integrates with Epicor.
Let’s take a look at how invoice matching software works in this step-by-step example:
Let’s take the example of a manufacturing company that orders raw materials from various suppliers and uses an automated invoice matching system. We’ll call our company “Widget Industries.”
Technologies like Optical Character Recognition (OCR), Artificial Intelligence (AI), and Robotic Process Automation (RPA) are fundamental to modern invoice-matching software. Let’s run through some of these acronyms to understand the role they play:
OCR
PDF files, and photographs, into digitized versions. Once digitized, these documents become more “useful” as they can be searched, edited, analyzed, and matched.
AI
RPA
RPA is used to automate routine tasks that would typically require human intervention. Think of it like having a team of software-based robot agents. In the case of invoice matching, RPA could automate tasks such as retrieving invoices from an email or a digital repository, inputting invoice data into the accounting system, or initiating payments for approved invoices.
Automating the invoice matching process makes it faster and easier. It eliminates the need for human intervention and reduces the hassle associated with paperwork and manual validations.
Here are some of the key benefits:
Time-and Cost-Saving
Manual invoice matching is laborious and time-consuming. Automating it boosts productivity, letting businesses process more invoices without increasing headcount.
Accuracy
Automation reduces errors and ensures a seamless workflow transition between stages. Overpayments, duplicate payments, and other costly mistakes are detected and weeded out in real time.
Fraud Detection
Fraudulent invoices are automatically flagged for manual verification. This heightens control and reinforces the safeguarding of financial resources.
Stronger Vendor Relationships
Faster invoice processing fosters positive business relationships, which can evolve into better contract terms and early payment discounts.
Data-Driven Insights
Analyzing data stored in paper invoices is a lot of work. Once digitized, this data can be manipulated to identify trends, spot weaknesses, and make better vendor decisions.
Audit Readiness
Automated invoice matching ensures crucial documents are stored digitally and centrally, making them easier to manage and accessible for audits.
Scalability
With automated invoice matching, you never have to worry about overburdening your accounts payable department. Your solution grows with you as your business expands.
Invoice matching is a slow, manual, and error-prone procedure that automation can significantly simplify. Get it right–by implementing software like DocStar–and you can supercharge productivity, enhance transparency, maintain strong relationships, and dramatically reduce costs.
If you’re ready to embrace this technology and achieve a future-proof competitive advantage, reach out to one of our AP automation experts. We’ll be happy to guide you through the process and answer any questions you might have.
