Spending too much time matching invoices with purchase orders is a hassle.

If your company suffers from this, it might be the perfect time to invest in invoice-matching software.

Automating the invoice matching process in your company means reducing the time you spend on processing anywhere from 30% to 50%.

In this blog, we’ll be sharing with you an in-depth guide about invoice matching software, and the impact it can bring to your business.

By the end of this blog, you’ll understand the answer to the following questions:

1. How the invoice matching process works and how it speeds up the payable process.
2. What to expect from Invoice matching software or invoice matching automation
3. What are the types of invoice matching?
4. The key features you need for invoice matching automation.

What Is Invoice Matching Software?

An invoice matching software is a powerful tool to help you automate comparing invoices with other documents like purchase orders and receipts. This tool ensures that there is accuracy in invoices, preventing unnecessary payments.

To make it easier for you to understand, here’s what an invoice software does:

Automates Document Comparison

An invoice matching software extracts key information from your invoices, such as their amount, vendor, and purchase numbers. This is done through the power of AP Automation.

The invoice’s information is then compared to the purchase order, delivery receipts, and other relevant documents. This is done through leveraging AP Automation.

Improves Accuracy

Since multiple documents can be compared simultaneously, invoice matching software can minimize discrepancies and human error and even easily catch potential fraud or mistakes.

This helps your business avoid overpaying invoices or paying for goods or services they never received.

Improves Efficiency

Undoubtedly, manual invoice matching can be quite a time-consuming process. With automation, you can easily free up your accounts payable staff to focus on other tasks that streamline workflows and improve overall efficiency within your business.

What Is A Two-Way Invoice Matching?

As the name suggests, a 2-way matching process includes matching two related documents.

The two related documents are

1. Purchase order
2. Invoice

When is A Two-Way Invoice Matching Used?

A 2-way matching process is used for non-tangible item purchases—for example, professional services.

When you purchase a service, no tangible product can be received.

Hence, there is no receipt created.

Since there is no receipt, you can only match two relevant documents (Purchase order and Invoice).

Here is how the process works:

1. After the purchase request is approved, a purchase order is issued to the vendor.
2. The vendor generally acknowledges the purchase order, confirming whether they can deliver the product or service as per the buyer’s requirement.
3. The vendor performs the service and issues an invoice to the customer.
4. The customer then matches the purchase order and invoice and sends the invoice for payment.

What Is Matched?

In a 2-way match, you are verifying the following information

• Whether the price mentioned on the invoice matches the amount on the PO, for example. You raised a PO for window cleaning services for $5,000. Then, by matching, you confirm that the invoice is indeed for $5000.
• Whether the quantity matches what you have on the purchase order.

For example, you have requested 5 hours of consulting services at $250/hour. Now, by matching the invoice with the PO, you can verify whether the invoice is indeed for 5 hours.

What Is A Three-Way Matching?

In a 3-way matching process, you match three associated documents to confirm whether the invoice is ready for payment. The three documents are:

1. Purchase order
2. Receipt
3. Invoice

When is A Three-Way Invoice Matching Used?

A 3-way match process is used in the case of tangible products. For example, you are purchasing a new laptop.

Here is how the 3-way process works:

Here is how the 3-way invoice matching works:

1. A purchase order is issued to the vendor
2. The vendor ships the product.
3. The product is delivered, and the buyer creates the receipt in the system, a.k.a GRN (Goods Receipt Note)
4. When the vendor sends the invoice, the invoice is uploaded and matched against the PO and the receipt.
5. If all three documents are matched perfectly, the invoice is sent for payment and paid per agreed payment terms.

What Is Matched?

In a 3-way match process, the following items are matched

Quantity

When a vendor sends the invoice, it mentions the quantity they are invoicing for. You are confirming the following by comparing the unit quantity across purchase orders, receipts, and invoices.

1. Did we receive the product that the vendor is invoicing for?
2. Did they under or the ship the product

Unit price

With the unit price, you are matching the unit price on the PO and invoice so that you can answer the following question.

Are we paying what we agreed to pay on the PO?

What Is A Four-Way Invoice Matching?

A four-way invoice matching follows the existing steps and processes done in a three-way invoice matching. The only difference is it adds one more layer of verification for optimized accuracy and controls over your accounts payable process.

Here’s what it involves:

1. Invoice: The document from the supplier detailing the goods or services provided and the cost.
2. Purchase Order: An official document issued by your company outlining the agreed-upon order with the supplier, including price, quantity, and delivery terms.
3. Goods Received Note (GRN): A document confirming your company’s physical receipt and acceptance of the goods or services.
4. Inspection Report: This documents quality checks or verifications on the delivered goods or services, often including quantity verification and acceptance/rejection of discrepancies.

Here’s how the process works:

The software or manual matching process compares data points across all four documents, ensuring consistency in:

• Prices: Invoice matches purchase order and GRN price.
• Quantities: Invoice, purchase order, and GRN quantities match or fall within predefined tolerance levels for partial deliveries or minor fluctuations.
• Descriptions: Invoice descriptions match purchase order and GRN descriptions.
• Quality: Inspection report confirms acceptable quality or identifies discrepancies.

What Are The Benefits Of AP Automation With Invoice Matching Software?

Having looked at the different types of invoice-matching scenarios, let’s cover the top 3 benefits of automating the invoice-matching process.

Understanding the benefits would help you in building the automation business case. In addition, it would also help your payable team streamline their tasks and responsibilities.

You can also use these as key KPIs to track the impact of invoice process automation. Here are the top 3 benefits:

Productivity Improvement Of The Accounts Payable Department

The obvious benefit is improvement in AP team productivity; here are some additional benefits:

1. The AP team spends less time creating and matching invoices to purchase orders and receipts.
2. You eliminate the need to approve invoices linked to approved purchase orders.
3. There are fewer data entry errors because the system automatically populates the important data from the purchase order.

So, how do we measure the impact of automating the invoice matching software on productivity?

On average, an invoice costs $15 (Accounts Payable benchmark) to process using human intervention alone.

Let’s say you process 200 invoices per month. That is a monthly cost of $3,000 ($15*200).

Let’s say you, on average, can reduce this cost by 30% due to automation and skipping manual intervention.

That is approx—$ 900/month in cost savings.

Better Visibility And Compliance

Invoice matching increases productivity and increases compliance.

By matching the document electronically, you keep an online record of how the document was matched and issues were resolved (if any).

During the audit season, instead of searching for your emails and providing evidence of control. You can point the auditors to the invoice-matching software.

Online audit information provides relevant financial control information to the auditors.

How to quantify results?

Sleeping without worry about cost controls is priceless!

Capture Early Payment Discounts

The third benefit of invoice matching software is that it speeds up the time it takes to process invoices.

Since invoices are processed faster, you can pay your vendors faster.

You pay $500,000 monthly at Net 30 terms, and your vendors offer an early payment discount.

For example: 2% 15 Net 30.

The vendor would offer a 2% discount if the invoice is paid within 15 days.

That is a savings of $10,000.

Some of you might be thinking, what if I don’t have enough cash flow to pay the vendor?

What If I use AR (Accounts receivable) to finance AP (Accounts Payable)? In other words, you are borrowing capital to pay off your liabilities (vendor invoices).

These are valid points; let’s do some math.

Suppose your annual WAC(Weighted Average Cost of Capital) is 15%.

And assume you pay $500,000/month earlier than when it is due.

With the above example of 2% 15 Net 30, you would pay this invoice 15 days sooner.

The cost of capital is $3,082

Cost of capital =( .15/365)*(15)*(500,000)

The savings from early payment discounts = $10,000 (.002*$500,000)

Even with paying 15 days earlier, you are still saving approx. $7,000

That is $84,000 in annual savings!

How Does Invoice Matching Work In ProcureDesk?

Before you get started, download the checklist and review your requirements as you go along:

Download invoice matching software checklist here.

Now, let’s look at the key features of invoice-matching software. In this section, we’ll discuss how invoice matching works in ProcureDesk.

We assume that you either have separate purchase order software or integrated purchase order and invoicing software like ProcureDesk.

Since matching is across 3 different documents (Purchase order, Receipt & Invoicing), having all this data in a single system is critical.

The first three features are focused on receiving the invoice from the supplier. The rest of the features are focused on matching and exception management.

Invoice Data Capture Through Emails

The first step in the invoice matching process is to capture the supplier invoices in one central place.

The most common way for vendors to send invoices is through emails.

The problem is that the vendors might be sending invoices to different stakeholders within your company.

For example, they might send it to operational owners, procurement, or, worse, through snail mail.

You should set up an email for AP invoices so that all vendors can send the invoices to that email. For example Invoices@acmedesign.com

Once the email is set up, your invoice matching software should automatically pull the invoices from the email and create the invoices for you.

The challenge, though, is ensuring that the vendors send the invoice to the central email. We covered more of this here.

Invoice approval workflow

How does this help?

1. By centralizing the invoices in one place, you don’t have to worry about missing ones.
2. You don’t have to spend time downloading invoices from your email and then uploading them to the invoicing system.
3. You don’t have to do data entry because the system can automatically extract the data from your invoice attachment. More on this later.

Automated Invoice Creation And OCR (Optical Character Recognition)

This feature automatically creates the invoice for you.

If the invoice is for a purchase order, the system extracts the data from it and matches it with a purchase order.

This way, you don’t have to spend time matching invoices with purchase order lines and identify which invoice line matches with what PO line.

In the case of non-PO invoices, automated invoice creation is very helpful, especially with recurring invoices.

For example, you have a monthly rent payment. So, instead of creating a new invoice every month, you can use the automated invoice creation feature to generate the invoice and submit it for approval.

Set it and forget it, and let the system do the rest.

Here is how this works in ProcureDesk:

How does this help?

• Needless to say it helps improve the productivity of your team. Your team can process invoices faster without any manual data entry.

• It leads to a lower error rate because the system pulls data from the purchase order and then matches it with the purchase order for accuracy.

Supplier Portal

What if you can completely avoid entering and reviewing invoices?

Then, a supplier portal is a must-have feature for you.

A supplier portal enables self-service for your suppliers.

Suppliers don’t need to email or mail invoices. They can log in to a portal to see all the open Purchase orders.

Example of supplier portal:

They can then create an invoice by simply flipping the purchase order to an invoice and attaching a copy of the invoice.

Once the vendor submits the invoice, the system does the rest.

All you have to do is review the invoices in case of a mismatch between purchase orders, invoices, and receipts.

How does this help?

1. With vendor self-service, a vendor can submit their invoice faster, and as a result, they can get paid faster.
2. Since the invoices are processed faster, you now have the opportunity to avail any early payment discounts from the vendor.
3. The vendors can easily track the status of the invoice, and they don’t have to reach out to your team to know the invoice status.

Doesn’t your team love answering vendor payment inquiries?

Automated Matching Rule Engine And Approvals

So far, we discussed features that help you speed up the invoice creation process.

Now, let’s discuss what helps you speed up the matching process between invoices and documents like purchase orders and receipts.

There are two types of matching scenarios – as we have discussed above.

2-Way Matching

If you are purchasing services, then there is no receipt.

So, the invoice system should be able to match the purchase order to the invoice and identify any discrepancies.

For example, whether the unit price matches or not.

In case there is a mismatch, the system should be able to route the invoice for approval.

We recommend that approvals should come from the person who requested the service because the person who requested the service would know if the service has been delivered or not.

The system should also allow you to route the documents for exception approval.

For example, if the invoice amount is over the approved amount, the system should be able to route the invoice document for approval.

3-Way Matching

With a 3-way matching, the system can match purchase orders, receipts, and invoices.

The Invoice-matching engine should be able to handle the following scenarios.

• If a receipt is missing, automatically route the invoice for exception approval.
• If the quantity exceeds the received amount, route it to the buyer for review and approval.
• If the unit price doesn’t match, then route for review and approval to the purchasing team so that they can work with the vendor to resolve the discrepancy.

Here is an example of a 3-way match:

How does this help?

With an automated invoice matching engine, your team benefits as follows:

1. Increased productivity as you don’t have to chase stakeholders for invoice approvals. The system automatically does the routing for you.
2. There is a complete audit trail of why an exception was approved and who approved it. This information is very handy when the auditors want to review the controls.

Tolerance Matching

Tolerance matching allows you to automatically accept certain invoices if they are within an acceptable range.

Let’s say you don’t add taxes on purchase orders; vendors always add taxes on the invoice.

With the added tax, the total invoice amount is always greater than the purchase order amount.

Normally, a stakeholder must be approved before the supplier can pay.

With a tolerance engine, you can set a tolerance so the system ignores this exception while matching.

You can set tolerance not just for taxes but also for unit price, quantity, etc.

Here is an example of tolerance matching:

How does this help?

With an automated tolerance engine, you can:

1. Automated the exception review process for certain invoices
2. You can process invoices much faster because now fewer invoices need additional approvals.

Automated Reminders

It is not uncommon for the stakeholders to forget to approve the invoices in their queue. We all are busy!

So rather than the AP team chasing stakeholders for invoice approval, let the system send automated reminders to employees who have not yet approved their invoices.

How does this help?

Automated reminders help you with the following:

1. Free your team from chasing stakeholders for invoice approvals.
2. Speeds up invoice processing and allows you to close books on time.

Approval workflow For Non-PO Invoices

Not all invoices have a purchase order. For example, you are paying for legal or other professional services.

So, the invoice matching process doesn’t work here because there is no other document to match the invoice.

You don’t want another system to manage non-PO invoices, so your invoice-matching software should have the following capabilities:

1. Allow a non-PO invoice to be created and coded to the right chart of accounts.
2. Allow an invoice to be routed for approvals based on different conditions. For example, route the invoice based on the dollar amount or the department to which it belongs.
3. Post-approval, send the invoice to the accounting system for payment. The system should support integration with our accounting or ERP system so that you don’t have to enter the data into the system manually.

Here is an example of an invoice workflow:

How does this help?

With non-PO invoice approval, you can streamline your invoice matching process:

1. Employees don’t have to use a different system for PO and non-PO invoices. You have one system to manage and approve all your invoices.
2. With the non-PO invoices in the same system, it is easy to keep track of spending against the budgets.

The Bottomline

Undoubtedly, an invoice matching software is a game-changer for your business. Not only does it offer you with accuracy and efficiency, but can even boost your company’s cost savings.

Whether you’re a small startup or a large corporation, it’s about time you start exploring the benefits and advantages that an invoice matching software can bring your business!