Have you ever wondered how much time and resources your business could save if invoices matched up without manual effort? You can find out by incorporating invoice matching.
Adopting a well-structured invoice matching system not only simplifies the accounts payable process but also enables teams to focus on strategic initiatives. Understanding how effective invoice matching works is key to maximizing efficiency and driving financial success within your business.
Are you looking to know more about invoice matching? This Rillion guide explores its ins and outs, how to set it up, and why automation is becoming a must-have for modern AP teams.
What is invoice matching?
Invoice matching is the process of comparing invoices received from suppliers with corresponding purchase orders (PO) and delivery receipts to ensure accuracy and consistency. Accounts payable (AP) teams rely on this function to confirm that an invoice is valid, accurate and comes from an authorized vendor providing actual goods or services.
For industries like hospitality, manufacturing, or healthcare, an effective invoice matching process compares and validates essential details, such as:
- Vendor/supplier and recipient names and addresses
- Purchase order number
- Description of goods or services
- Quantity and value of orders
- Delivery dates
Companies will only approve and process invoices after completing the invoice matching process and verifying all the information listed above.
Different types of invoice matching
Invoice matching can take three main forms, each offering a different level of control and accuracy in ensuring invoices align with relevant purchase documents. Let’s take a closer look at each.
Two-way invoice matching
This form of invoice matching compares the invoice with the purchase order (PO) to confirm that the billed items, prices, and quantities match the order details. Two-way matching is ideal for service-based invoices or straightforward transactions where goods receipts aren’t involved.
An example is in service sectors like healthcare, where non-physical goods (e.g., software subscriptions) don’t require receipt validation.
Three-way invoice matching
Commonly used in industries that manage physical goods, like manufacturing and retail, three-way matching compares the invoice, purchase order, and goods receipt to ensure consistency across all three documents.
Rillion’s three-way matching includes several features designed to streamline AP operations, including automated exception handling, mobile approvals, and real-time audit trails. These features help companies quickly spot and resolve discrepancies in invoices.
Four-way invoice matching
Four-way invoice matching is the most rigorous type. Compared to three-way matching, it adds one extra step by verifying against an acceptance or inspection document.
This type is ideal for industries where quality control is essential, such as construction or high-end manufacturing. It ensures the received items not only match the order in quantity and price but also meet the expected quality standards.
Each invoice-matching type supports specific operational needs, with three-way matching being the most commonly automated choice due to its balance of control and efficiency.
Rillion’s automated matching solutions support two-, and three-way matching, helping companies streamline AP processes and minimize manual oversight across various industries.
How automated invoice matching works
Automated invoice matching simplifies a complex process by scanning, routing, matching, and approving (or disapproving) invoices with minimal manual effort.
But how exactly does it work? Let’s walk through an example with a manufacturing company to illustrate how.
1. Invoice capturing
The first step is to capture incoming invoices, whether received as PDFs, emails, or physical copies that need scanning. Manual capture is slow and error-prone, but our invoice data capture solution handles both email and paper invoices with OCR and AI.
It processes files in any format, including paper, PDF, Word, JPG, CSV, and more, with more than 90% accuracy for both paper and electronic formats.
2. Data validation
After capture, the next step is to check that the data is correct and complete. This means ensuring that the vendor is approved, the PO number matches records, and the amounts and item descriptions are accurate.
With our invoice matching software, you can also automatically cross-check the details captured above against company records, verifying that vendor info, PO numbers, and amounts are correct.
For example, the data from Cypress Creek’s vendor invoices is captured and validated automatically with a 98% accuracy rate and the invoices go to a queue, visible in the Rillion dashboard.
3. PO and receipt matching
Once you verify that all the necessary data is included, you can begin the invoice matching process. While specifics may vary by company, the general process includes these key steps:
- Verify key invoice details: Check that vendor details and the order number are correct.
- Identify the purchase order (PO) number: Locate the PO number on the invoice for fast retrieval in the PO system.
- Match with PO in the system: Confirm that billed items align with the original order.
- Resolve discrepancies: Address any mismatches with relevant teams or the vendor.
Manual processing of this workflow can be time-consuming and prone to errors, especially with high invoice volumes.
But Rillion’s intelligent three-way matching included in our AP automation software and purchase-to-pay solution suites simplifies the process. It checks line items in real time, flagging any mismatches beyond acceptable thresholds.
4. Exception handling
Human errors happen, often requiring back-and-forth with vendors to resolve. Manual checks slow things down, but automated exception handling speeds it up.
With Rillion, flagged invoices go directly to the right AP team member, complete with attached documents for quick review.
For instance, Finnish retailer Minimani uses Rillion to process over 120,000 invoices across five locations, with automated flagging and instant AP team alerts ensuring efficient issue resolution.
5. Approval workflow
Validated invoices go through an approval chain once the exceptions are resolved. If everything checks, the authorized person, usually the manager, authorizes the payment release.
With Rillion’s, you can avoid the long paper trail that comes with approval. Our AP automation solutions let you create better, faster, smarter, and simpler invoice approval workflows that route invoices directly to approvers for remote and instant approvals.
6. Archiving
You need to keep a copy of the approved invoice for record purposes. But what’s better than keeping a physical file? A digital record.
Companies like Minimani and Cypress Creek rely on Rillion’s PO matching software to match and send POs, invoices, and goods receipts directly to their ERP or accounting systems for recording — without manual handling.
Why businesses should implement invoice matching
Implementing invoice matching creates a smoother AP process that aligns with business goals by:
- Enhanced accuracy: Matching each invoice with the corresponding PO and receipt eliminates common manual errors. This makes financial records more accurate and helps companies avoid overpayments and other costly mistakes.
- Boost efficiency and save time: Invoice matching automates tedious tasks like data entry and verification, freeing AP teams to focus on higher-value work. Your AP team spends less time on approvals with minimal bottlenecks. This is particularly valuable in high-volume industries like manufacturing and retail.
- Strengthen financial control and compliance: By matching invoices to POs and receipts, your company gains greater visibility and control over payments, minimizing accounting and invoice fraud. Automated tracking and audit trails also make compliance easy, ensuring all your documents align and are ready for audits.
- Optimize cash flow management: Faster and more accurate invoice processing due to automated invoice matching enables you to make timely payments and maximize early payment discounts. It also helps with cash flow forecasting, as clear payment timelines improve financial planning and liquidity management.
- Stronger vendor relationships: Vendors appreciate consistent, timely, and accurate payments, which are direct results of error-free invoicing. With automated invoice matching, you can foster positive relationships with your suppliers and work towards improved business terms over time.
- Support remote work: Automated invoice matching makes remote work easy by giving teams real-time access to financial data from anywhere. With centralized data, AP teams can tackle invoices, solve issues, and handle approvals without delay. This setup reduces the need for local resources, saves costs, and keeps AP operations moving smoothly, even with remote teams.
Invoice matching challenges and how to overcome them
Automated invoice matching is not without its challenges. These problems, if not attended to, can reduce the efficiency of a company’s AP process. Let’s look at some of these problems:
- Complex and time-consuming: Matching complex invoices can be slow, especially with varied formats and detailed requirements. Automating data capture with OCR and using centralized storage simplifies matching, saving time and minimizing errors.
- Partial deliveries: Partial deliveries complicate matching as multiple receipts must align with a single PO. Consolidating records and automating alerts for complete orders make handling partial deliveries faster and more accurate.
- Integration issues: Poor integration between the invoice matching system and existing ERP can lead to fragmented data and siloed information, making it hard to maintain smooth operations. Therefore, opt for a system that integrates smoothly with your ERP, allowing data to flow freely across platforms.
- High volume processing: High invoice volumes can overwhelm systems that aren’t scalable, leading to bottlenecks and delayed payments. To avoid these, companies must adopt a scalable invoice matching system that can handle both current and future volumes.
- Layered approval chains: Organizations with layered or complex approval requirements may experience delayed or missed payments due to stuck invoices. Setting up a simplified, automated approval workflow helps speed things up by routing invoices based on pre-set rules.
Invoice matching best practices
Here are some strategies to create an efficient, reliable invoice matching process:
- Standardize data entry: Record invoice details in a consistent format. Use the same structure for vendor names, item descriptions, and PO numbers to speed up matching and reduce errors.
- Set tolerance levels for discrepancies: Define acceptable limits for price or quantity differences. For example, set a 2% tolerance for price differences to avoid delays on minor discrepancies.
- Integrate with your ERP: Link your invoice matching software to your ERP system to keep data in sync and make tracking invoices and verifying payments easier. Integration keeps records accurate and simplifies audits.
- Enable partial matching for split deliveries: Use partial matching for orders delivered in multiple parts. This feature lets each delivery match the same PO without confusion, making it easier to manage multiple shipments.
- Use real-time alerts for exceptions: Set up automated alerts to notify the AP team of any discrepancies, like mismatches between the invoice and PO. Real-time alerts help solve issues quickly and avoid delays.
- Archive invoices for easy retrieval: Store all processed invoices in a searchable digital archive. This makes audits simpler, ensures compliance, and lets your team quickly retrieve past invoices.
- Review and update policies regularly: Keep matching policies up to date. As your business grows, regularly review policies to make sure they’re effective for your current workflow and volume.
How to implement PO matching
Implementing PO matching can transform your AP team’s efficiency. Here’s a step-by-step guide to ensure you set it up effectively:
Step 1: Understand your needs
Start by clarifying what you need from a PO matching solution. Consider your invoice volume, the complexity of your vendor relationships, and the matching tasks required.
For example, high-volume businesses with frequent, complex purchases might need advanced three- or four-way matching. On the other hand, smaller operations with fewer transactions may only need two-way matching.
Step 2: Define your PO matching workflow
Decide how you want your PO matching workflow to operate. For example, in a three-way matching process, the system compares the invoice with both the purchase order and the goods receipt to ensure accuracy. A four-way matching process adds another layer by checking quality inspection records as well.
Think through each stage in your workflow — where invoices will enter the process, who handles approvals, and how exceptions are managed.
Step 3: Determine your stakeholders
Identify the key players in your PO matching workflow, such as AP team members, approvers, and managers. Define each person’s role and responsibility in the process, and communicate these clearly. Knowing who is responsible for each step keeps everyone on the same page, ensuring smooth coordination.
Step 4: Choose your PO matching software
Select a PO matching solution software that meets your requirements and offers flexibility as your business grows. The ideal solution should handle your specific matching needs, integrate well with your ERP, and offer user-friendly automation features.
Rillion is an excellent choice for PO matching, providing key features such as:
- Automated three-way matching: Matches invoices, purchase orders, and goods receipts within minutes, saving time and reducing errors.
- Scalable line-item matching: Matches hundreds of line items at once, ideal for high-volume AP processes.
- Flexible matching levels: Matches can be set at header or line level, adaptable to various needs.
- Built-in exception handling: Automatically routes unmatched invoices to the correct approver, streamlining issue resolution.
- Complete audit trail: Provides time-stamped audit trails for each transaction, aiding in compliance and transparency.
Step 5: Set up your PO matching software
Get your software running by setting up essential features, including:
- Data capture: Enable automated data capture to pull essential details from invoices.
- Auto-matching: Activate PO matching to compare invoice data with PO and receipt information automatically.
- Exception handling: Set up rules to route flagged invoices to the appropriate person.
- Approval workflows: Configure approval chains to route invoices based on set thresholds.
- ERP integration: Link the software with your ERP to maintain consistent, real-time data across systems.
Step 6: Assess and optimize
Once your PO matching process is live, gather feedback from your team. Review the workflow regularly to identify any slow points or common errors. Use this information to adjust settings, update workflows, or provide additional training, ensuring your PO matching remains efficient and effective.
Transform your AP process with automated invoice matching
The difference between an efficient and poor AP team is often the PO matching workflow adopted. Companies can improve their overall accounts payable process by implementing the right purchase order matching system.
Start by understanding your needs and designing a workflow that works with an excellent PO matching solution. This sets the stage for a faster, more accurate matching process that ensures automated data capture, exception handling, and integration with ERP systems.
Book a free demo today to see how Rillion’s PO matching capabilities can benefit your organization and, check our blog for more insights into AP automation and solutions.
