Invoice matching: What is it, and how does it work?
Don’t miss an article.
Invoice matching is an important aspect of the accounts payable process. It ensures that payments are made only for goods and services that were actually ordered and received, making it an essential part of maintaining a healthy cash flow in your business.
Traditionally, invoice matching is done manually. However, many businesses have taken to automating their invoice matching, saving time and reducing costs throughout the process.
In this article, we’ll cover what invoice matching is, the different types of invoice matching and how the invoice matching process works.
What is invoice matching?
Invoice matching is the process of comparing invoices with supporting documents to verify the accuracy of the information before the payment is processed. It’s an essential part of the accounts payable workflow – and with good reason.
Typically, invoice matching occurs when the invoice is processed. First, a purchase requisition is generated by a team member or department in need of goods or services.
When the purchase requisition is approved, a purchase order (PO) is created to provide the details of the purchase, e.g. quantity and price.
Next, the PO is sent to the vendor. When the vendor has fulfilled the order, they create an invoice and send it to the buyer – and this is when the invoice matching takes place.
Types of invoice matching
Invoice matching can be done in several ways and in varying degrees of detail. Specifically, there are four primary types of invoice matching:
- Invoice totals matching
- Two-way matching
- Three-way matching
- Four-way matching
Let’s take a closer look at them.
Invoice totals matching
Invoice totals matching matches the total amounts on the invoice to the total amounts on the purchase order.
This type of invoice matching includes the least amount of detail and is often used to set up controls that minimise the time required to review invoice matching information.
Two-way matching
Two-way matching goes into greater detail than invoice totals matching, comparing the information on the invoice with the information on the purchase order.
This type of invoice matching is suitable for smaller businesses where goods are delivered and consumed – e.g. service contracts or digital purchases.
Three-way matching
Three-way matching matches the price information on the invoice to that on the purchase order, as well as the quantity information on the invoice to that on the product receipts selected for the invoice.
Three-way invoice matching is used by most businesses.
Four-way matching
Four-way matching cross-references the information on the invoice with that on the purchase order, delivery receipt and inspection reports prior to payment.
This type of invoice matching is particularly used in industries where payment depends on the quality of the goods or services received.
Step by step: How invoice matching works
Traditionally, invoice matching is a manual process. Today, however, most companies are turning to automation to optimise their invoice matching process – and with good reason.
It streamlines your operations and accelerates your processing cycles, enabling you to approve and pay invoices faster and with greater accuracy.
Here’s how automated invoice matching works:
- Invoice receipt: First, the invoice is received. Invoices come in a variety of formats, including paper, fax, e-mails with PDF attachments and other electronic formats.
- Data capture and extraction: Next up are data capture and extraction. For electronic invoice formats, relevant data can be directly extracted. For scanned invoices, OCR technology is used for capture and extraction, converting text into searchable data.
- Invoice matching: The system automatically matches the invoice with purchase orders, delivery receipts and other supporting documents that meet your predefined criteria. If the information is found to be accurate, the invoice is routed for approval. Any discrepancies identified are flagged for further review.
Once the invoice has been matched and approved, it’s sent on to payment processing – it’s that simple.
Why is invoice matching important?
Invoice matching is important because it ensures that the invoices you receive accurately reflect the terms outlined in the relevant purchase orders and delivery receipts.
With effective invoice matching, you minimise the risk of errors and overpayments, reducing the amount of time you spend on correcting these issues. Invoice matching also supports fraud detection by ensuring accuracy throughout the purchasing process.
But invoice matching isn’t just an asset for your business – it’s great for your vendors, too. By eliminating errors and double payments, invoice matching expedites the accounts payable process and ensures that your vendors are paid accurately and on time, always.
This way, invoice matching helps to foster relationships between you and your vendors built on trust, transparency and ease – in other words, professional relationships that last.