A Quick Overview Of Invoice Matching
The accounts payables departments (AP) in small and large businesses must understand invoice matching’s importance for informing critical strategic decisions.
Yet, this process can prove to be a laborious chore, even for the most experienced professionals.
It requires time, energy, and concentration. Fortunately, AP automation tools can transform this process into a seamless activity.
What Is Invoice Matching?
This matching process involves comparing information on an invoice with another document to confirm the former’s authenticity. The supporting document used for comparison can be a purchase order, a contract, a goods receipt, and so forth.
Matching invoices to purchase orders (PO) and receipts ensure that the correct vendor payments are processed and that the accounts are kept straight.
Typically, this process follows a transaction where a company uses a purchase order for obtaining goods. This order specifies the number of goods for requisition and the price of the total number of units specified. Once the order is processed, buyers must register the purchase in their ERP system.
Details of this registration must match the bill for payment.
What You Need To Know About Deviation
According to a study by the Ardent Partners’ State of ePayables in 2019, 62% of companies feel that handling deviation is the single most challenging task involved in accounting.
A deviation (or exception) occurs when information in a bill contradicts the supporting document’s details.
Exceptions are classified into the following two types.
- Price deviation: As the name suggests, this is when the price listed for the billed items doesn’t match with that listed on the supporting document
- Quantity deviation: This is when the quantity specified on a bill doesn’t add up to the one listed on the purchase order
Matching payments to invoices helps businesses recognize if deviations are acceptable or unacceptable. If they’re inappropriate, the company will need to reach out to the vendor to fix the error.
The Different Levels Of Invoice Matching
The process’s different stages correspond with the number of documents used for supporting the quantity and price of items.
There are three different levels. These include:
- 2-way invoice matching in AP: This level involves comparing a bill to a PO
- 3-way invoice matching in AP: The bill must corroborate with both the purchase order and the receipt of goods
- 4-way invoice matching in AP: If the PO came with an inspection document, the latter becomes part of the matching process along with the purchase order and the receipt of the goods
Comparing Invoices To Contracts
The AP staff can rely on automation tools to match invoices with a contract and payment plans. These plans and contractual expenses, such as leasing an office, don’t typically involve a purchase order.
Since these orders don’t fall within indirect expenses, purchase order matching requires manual handling. This isn’t the case when comparing invoices to contracts regulated or authorized under a vendor contract. Using automated tools is a more efficient way to organize and handle such documents.
Automation For Data Synchronization
With automated bill comparisons and master data synchronization, the AP staff reduces immense waste. Automation saves these teams an incredible amount of time as well as resources. However, for the digital solution to be feasible, it must work.
First off, it requires a dependable connection between the ERP system and the automated solution.
Updating and ensuring information accuracy is critical here. In the day-to-day business routine, newer purchase orders and invoices continuously replace the older ones. The AP staff needs to update the records in the ledgers accordingly. Moreover, price lists and inventories must be regularly reviewed before onboarding new vendors.
The Continuous Improvement Methods
Getting a grip around this entire process doesn’t happen in the span of a night. If a reliable and speedy accounting procedure is on your agenda, approach it by engaging in more significant automation efforts. The accounts payables team can do this in two ways.
Start with inexorably improving the quality of data fed into the ledgers. With the help of a smart automation solution, you can smoothen the invoice matching process. You’ll be able to identify and remove obstructions and deviations that sit internally.
Dig into the most recurrent causes for data mismatch. Check whether this is consistent with a particular vendor or if some kind of missing information is responsible. If instances of missing or unfed information are more consistent with some vendors, one phone call is enough to rectify this. Check to see whether failing to update your price lists is responsible for exceptions with individual bills.
The second way to increase efficiency involves allowing for small deviations. For instance, there might be a rule that exceptions of 50 cents or less are ignored during the process. This automatically reduces the number of exceptions that are manually reviewed. Moreover, it’s identified as a pre-configured tolerance level that’s legally acceptable in some cases, such as freight shipping.
The Benefit Of Automated Invoice Matching
With automated matching, we’re looking at entirely touchless invoicing. In case there’s no deviation, the ERP automatically processes the data for payment. The time saved by reducing the number of documents needing manual attention from ten to one is a game-changer.
Statistics reveal that the best-in-class companies have achieved 90% touchless invoice processing through automation.
The Bottom Line
While touchless account processing seems like a dream to some, it’s entirely achievable.
Through automation and efficient record keeping, the AP staff can effectively reduce the time required for invoice matching.
