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Invoice Matching Process – A Complete Guide To Optimization

  • By ProcureDesk
  • July 21,2023
  • 10 min read

Invoice Matching Process – A Complete Guide To Optimization

Invoice Matching Process A Complete Guide To Optimization

Do you know that inefficient invoice matching is the only thing keeping you away from closing your books on time? If you could automate this process, you would get to close your books on time, allow your team to focus on other important tasks, and even save your weekends from work!

No doubt, invoice matching is a critical process for your business. The problem is that doing it manually can be time-consuming and even prone to human errors.

In this article, we will share what an invoice-matching process is and how an automated invoice-matching system can help you with your business.

Aside from that, did you know that using automated matching software can also help your business:

  • Improve accuracy: Your businesses can reduce the risk of errors by automating the invoice matching process.
  • Save time: An automated invoice matching software can save your business hours of manual work.
  • Prevent fraud: An automated invoice matching software can help your business identify and prevent fraudulent invoices.
  • Improve cash flow management: Automating invoice matching can pay your business faster.
  • Increase visibility into spending: An automated invoice matching software can provide businesses with a better understanding of their spending.
Explore opportunities for your business to automate your invoice-matching process. Our team of experts can help you with this. See ProcureDesk in action today!

What Is Invoice Matching Process?

Invoice matching process is when your business compares your invoice details with supporting documents to verify that all information is correct before doing any payments. Invoice matching is an important part of the accounts payable process since this ensures payment to vendors is done accurately and journaled correctly.

What Is A Deviation?

A deviation is the difference between an expected and actual value of something. There can be two different types of deviation, which may be in quantity or price.

  • Quantity Deviation: number of goods is not equal to the number of goods specified on the invoice
  • Price Deviation: amount in the invoice and purchase order is not equal

Here are some important tips to help your business manage deviations:

  • Set up a process for monitoring deviations: This process should include regular invoices and purchase order checks to identify deviations.
  • Investigate any deviations that are identified: The investigation should identify the cause of the deviation and take steps to correct it.
  • Take steps to prevent future deviations: This may involve changes to the procurement process or the supplier.

Why Is An Invoice Matching Process Performed?

As mentioned, invoice matching is a very important part of your company’s accounts payable process. It ensures your company achieves purchase accuracy and avoids any fraud.

The invoice Matching Process is performed to compare three key documents in your business:

  • Original purchase order
  • Product receipt/inspection document
  • Supplier invoice

By matching these documents, it becomes easier to identify discrepancies and other errors in your business. Thus, minimizing the risk of human error and other fraudulent activity.

The primary purpose of an invoice matching process is to verify that the goods and services you receive align with your original purchase order and that the pricing and quantity are also accurate.

By ensuring purchase accuracy, your organization can avoid overpaying or double-paying goods or services, saving money and avoiding financial losses.

Why Is Invoice Matching Important?

Invoice matching process is an important undertaking for your business to ensure smooth financial transactions.

We have outlined some of the crucial reasons why your business must perform this process accurately:

Payment Confirmation

By comparing the invoice with the purchase order and goods receipt, your business can ensure you pay for items or services ordered and received. This verification prevents invoice fraud or payments for goods that were never delivered.

Faster And More Accurate Release Of Payments

By streamlining the invoice matching process, your organization can expedite the payment process. Validating invoices against purchase orders and goods receipts helps identify discrepancies early on, reducing the need for back-and-forth communication with your vendors to resolve issues. This efficiency ensures that payments are made on time, which can improve your vendor relationships and potentially lead to better pricing or terms in the future.

Facilitate Transparency By Eliminating Errors And Double Payments

Invoice matching reduces the chances of your business experiencing errors in the payment process. It helps you catch duplicate invoices or payments, preventing vendor overpayment and ensuring accurate financial records. This transparency improves your financial management and provides a clearer picture of the company’s expenses.

Track Records Of Payments And Multiple Vendors

Invoice matching lets your business maintain a comprehensive record of payments made to various vendors. This tracking is essential to manage vendor relationships, track expenses, and conduct a financial analysis.

Prepare For Company Audits

Invoices that are accurately matched against purchase orders and goods receipts provide a clear audit trail. During internal or external audits, having a well-documented and reliable invoice-matching process ensures compliance and transparency for your business.

Improve Cash Flow Management

Effective invoice matching allows your business to predict and manage your cash flow better. When you know the exact amount due to your vendors and when you should pay them, it becomes easier for you to do budgeting and financial planning.

Enhance Control Over Your Expense

Invoice matching helps you identify discrepancies or price variations between your purchase orders and the invoices. This control prevents unauthorized or unexpected expenses from slipping through your payment process. Thus, resulting in improved cost control.

Strengthen Vendor Relationship

Timely and accurate payments through effective invoice matching contribute to positive vendor relationships. Your vendors are more likely to continue providing goods and services promptly and with better terms if they can rely on your company’s payment process.

What Are The Different Types Of Invoice Matching?

Two-Way Invoice Match

A 2-Way matching is a basic matching process that involves comparing an invoice from a third-party vendor with the corresponding purchase order.

This type of invoice-matching process ensures that the items and services listed on an invoice align with the goods or services originally ordered.

When the items and prices match within the agreed-upon tolerance levels, your invoice is considered valid and is immediately entered into your company’s database for accounts payable processing.

This matching type ensures that your company is billed accurately for the goods and services you receive.

Three-Way Invoice Match

A 3-way matching is way more comprehensive than a 2-way match. In this invoice matching process, you compare our vendor’s invoice with the purchase order and receipt of goods.

The purchase order, goods receipt, and supplier invoice must match each other within the specified tolerance levels.

A triple verification ensures that your company receives the goods and services as ordered before payment.

Once all three components are successfully matched, your invoice is entered into the accounts payable system for processing.

Related: How To Implement A 3-way Match Process

Four-Way Invoice Match

Last but not least, we have the four-way invoice matching process. A 4-way matching builds upon your three-way matching by having an additional component: the inspection information.

Your purchase order, goods receipt, and supplier invoice must align for this matching process. Aside from that, these elements require inspection data to be in agreement.

The inspection information is usually related to the quantity of the goods received and any quality checks conducted. If all four components match the predefined tolerance levels, the invoice is considered valid and entered into the accounts payable database for payment processing.

Here is the summary of differences for each type of invoice matching process:

  1. Two-Way Matching: Compares the invoice with the purchase order to ensure items and prices match.
  2. Three-Way Matching: Matches the invoice with the purchase order and the receipt of goods to verify the completeness of the order.
  3. Four-Way Matching: Extends the three-way match by including inspection information, typically related to quantity tolerance, to ensure the goods meet quality standards.

Remember that each invoice match adds an extra layer of verification to your business. Although the four-way match type is the most comprehensive form of matching to confirm the accuracy and completeness of the vendor invoices and other transactions.

Your company may feel free to choose your appropriate type of matching based on the complexity of your procurement process and the human intervention done by important stakeholders. AP automation makes ensuring accurate payments and smoother financial operations for your business easier.

Companies may choose the appropriate type of matching based on the complexity and criticality of their procurement processes, ensuring accurate payments and smoother financial operations.

How Does Invoice Matching Work With (OCR) Optical Character Recognition?

Optical Character Recognition (OCR) is a technology your company can use to extract data from our invoices. The data you extract can be used to match your invoices to purchase orders and other supporting documentation in your company.

Here is how your invoice matching works with OCR:

1. Your invoice is scanned into a computer

2. Your chosen OCR software extracts data from your invoice. This data includes your invoice number, vendor name, invoice date, quantity, price, and terms.

3. The data you extract is compared to the data on the purchase order and other chosen supporting documentation.

4. If your data matches, your invoice is approved for payment. Investigations must be done in case discrepancies are found before any approval.

The OCR technology can help your business automate the invoice-matching process and even improve accuracy.

How To Use ProcureDesk With OCR Process?

Utilizing OCR technology, ProcureDesk streamlines the invoice processing workflow by automatically reading and extracting essential information from invoice documents. This innovative approach eliminates the need for the accounts payable (AP) team to manually enter invoice data into the system manually, thus mitigating the risk of human errors.

The extracted data encompasses crucial details present in the invoice, categorized into two main sections:

Related: Accounts payable software compatible with QuickBooks

1. Invoice Header Details:
The OCR engine efficiently captures and extracts key information from the invoice header. This includes essential elements such as the unique invoice number, total invoice amount, invoice date, applicable taxes, and other relevant data.

2. Invoice Line Items:
ProcureDesk’s OCR engine goes further by accurately extracting line-by-line details from the invoice. This comprehensive information covers specific aspects like item descriptions, corresponding unit quantities, individual prices, and other pertinent details associated with each line item.

With readily available extracted invoice data, the system is poised to undertake the essential three-way matching process. The AP team’s primary responsibility lies in verifying the accuracy of the extracted information to ensure seamless alignment between the purchase order, goods receipt, and invoice data.

This innovative application of OCR technology expedites the invoice-matching process, improves accuracy, and facilitates smoother financial operations. By reducing manual data entry and potential errors, businesses can efficiently manage their invoices, optimize payment processes, and enhance overall financial control.

To illustrate how the extracted invoice data is incorporated, refer to this example:

Are you curious how ProcureDesk, as an OCR, can help you match your invoices? See it in action today!

What Are The Benefits Of Invoice Matching Process?

Invoice matching offers several significant benefits to your business, enhancing your financial control, operational efficiency, and vendor relationships.

Let’s explore each of these advantages in more detail:

1. Cut Manual Invoice Processing Time: Your business can significantly reduce the time spent on manual data entry and verification by automating your invoice matching process. This streamlined workflow accelerates your payment processing, allowing your company to pay vendors promptly and avoid delays in accounts payable.

2. Pricing And Cost Analysis: Invoice matching provides valuable pricing and cost analysis data. By comparing invoice prices with purchase orders and goods receipts, your business can identify discrepancies, negotiate better terms with your vendors, and optimize your procurement process to control expenses effectively.

3. Supplier Relationships: Efficient invoice matching promotes healthy and transparent supplier relationships. Timely and accurate payments build trust and reliability, leading to potential benefits such as improved payment terms, discounts, and enhanced collaboration.

4. Cash Flow: Matching invoices promptly ensures better cash flow management for your company. By quickly verifying invoices and processing payments, your company can optimize your cash flow, meet financial obligations, and potentially take advantage of early payment discounts.

5. Early Payment Discounts: Invoices that are matched and processed promptly allow your business to take advantage of early payment discounts offered by vendors. This can lead to cost savings and improved working capital management.

6. Accuracy And Security: Automated invoice matching systems reduce the risk of human errors in data entry and ensure greater accuracy in financial records. Additionally, modern systems provide robust security measures to safeguard sensitive financial information.

7. Protection Against Duplicate And Fraudulent Invoices: Invoice matching is a crucial defense against duplicates or fraud. By cross-referencing invoices with purchase orders and receipts, your business can detect and prevent payment for unauthorized or fictitious transactions.

8. Good For Audits: An organized and accurate invoice matching process provides a clear audit trail for your business. During internal or external audits, companies can easily present comprehensive records and demonstrate compliance with financial regulations.

Related: 5 Tips For Faster Invoice Processing Through Better Exception Management


What Happens When Invoice Matching Finds An Exception?

An invoice matching finds an exception must be placed on hold in such case. After which, an investigation is done. The investigation process involves the following steps:

  1. Identifying the nature of the exception.
  2. Contacting the vendor to clarify the exception.
  3. Reviewing supporting documentation, such as the purchase order and receiving report.
  4. Making a decision on whether to approve or reject the invoice.

If the invoice is approved, it will be released from hold and paid. If the invoice is rejected, the vendor will be notified and asked to correct the exception.

How Can Invoice Matching Prevent Fraud?

Invoice matching can help to prevent fraud in several ways. Here are some of the ways invoice matching can prevent fraud:

1. Invoice matching can help identify not supported invoices by comparing invoices to purchase orders and receiving reports.

2. Invoice matching can help identify invoices outside of normal limits by setting up tolerances for invoice amounts and quantities.

3. Invoice matching can help deter fraudulent activity by requiring the invoices to be approved by a supervisor.

What Are Some Of The Challenges To Invoice Matching?

There are several challenges to invoice matching, including:

  • Missing or incomplete invoices: Invoices that are missing or incomplete can make it difficult to match them to purchase orders and receive reports.
  • Invoices received in different formats: Invoices received in different formats can make it difficult to automate the invoice matching process.
  • Invoices not properly matched to purchase orders or receiving reports: Invoices not properly matched to purchase orders or receiving reports can lead to errors and fraud.

What Are Tolerances And Holds In The Invoice Matching Process?

Tolerances refer to limits that are set for invoice amounts and quantities. If an invoice falls outside the tolerances, it will be placed on hold.

Holds are done to prevent invoices from being paid until exceptions have been investigated.

Remember that tolerances and holds can help your business prevent fraud and errors in invoice matching. Setting tolerances will help your organization identify invoices that are outside the normal; limits and immediately place them on hold for investigation.

The Bottomline

Having efficient financial management is the lifeblood of a successful business. Invoice matching processes can help your business achieve it.

By automating your invoice matching process, you will experience many benefits for your business, helping you streamline your financial workflows and improve our payable invoice matching better. We are confident that embracing payable automation will help you skip the time-consuming manual invoice matching and allow you to focus on more productive tasks to help your business improve its bottom line.

What you should do now

Whenever you’re ready… here are 4 ways we can help you scale your purchasing and Accounts payable process.

  1. Claim your Free Strategy Session. If you’d like to work with us to implement a process to control spending, and spend less time matching invoices, claim your Free Strategy Session. One of our process experts will understand your current purchasing situation and then suggest practical strategies to reduce the purchase order approval cycle.
  2. If you’d like to know the maturity of your purchasing process, download our purchasing process grader and identify exactly what you should be working on next to improve your purchasing and AP process.
  3. If you’d like to enhance your knowledge about the purchasing process, check out our blog or Resources section.
  4. If you know another professional who’d enjoy reading this page, share it with them via email, Linkedin, Twitter.