One significant activity in Accounts Payable (AP) processes is Invoice Matching. Traditional approaches in this key task may cost time, effort, and human resources to a business. Using innovative technologies and automated toolsets can optimize invoice matching to provide extra leverage and value to a business.
What is Invoice Matching?
When an organization wants to use the goods or services of a vendor, it raises a purchase order with detailed requirements. Upon delivery of the requisitioned goods or services, a product receipt is issued by the buying organization. The vendor then raises the invoice for payment clearance. This is when invoice matching takes place.
Matching invoices ensures that there are no errors or inconsistencies between the PO and the invoice. It facilitates faster settlement of vendor dues and prevents the risk of vendor fraud & payment for fraudulent invoices.
What is a Deviation?
Referred to as invoice exceptions, a deviation occurs when there is a mismatch between the invoice details and its validating documents such as the PO or the goods/product receipt.
Deviations can be of two types - quantity and price
- Quantity deviation: refers to the discrepancy between the amount or number of items on the PO and the billed invoice
- Price deviation: refers to a mismatch between the cost mentioned in the PO and the value mentioned in the invoice.
Identifying and reconciling deviations can be a daunting task for the AP department. Deviations should be assessed to see if they fall within tolerance limits to proceed with invoice processing or revert the invoice to the vendor for corrections.
Tolerance level refers to minor variations that can occur in percentages or amounts in an invoice. Invoices exceeding tolerance levels are put ‘on hold’ and sent for correction to the vendor.
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Need for Invoice Matching
Let’s find out why verifying or matching invoices is so important for a business.
Invoice matching ensures that vendor invoices can be verified against supporting documents before releasing payments. This helps businesses to:
- Confirm that payments are made only for valid goods or services received from the vendor
- Maintain faster and accurate releases of payments
- Facilitate better transparency by eliminating errors and double payments
- Track records of payments for multiple vendors
- Be better prepared for company audits
Different businesses can follow different ways of invoice matching as elaborated in the next section below.
Ways of Invoice matching
The invoice matching process in organizations is normally done in the following ways: 2-way matching, 3-way matching, and finally 4-way matching.
Invoices are validated against other related document workflows that can include purchase orders, receipt of goods, and inspection slips. These ways of matching also check for invoice discrepancies & tolerance levels that need to be resolved before the invoice is cleared for payment.
2 Way Matching
2-way matching is a simple & common way of verifying invoices. It involves matching invoices to purchase orders as well as checking for tolerances. If the invoice meets the required criteria, then it is scheduled for payment.
3 Way Matching
3-way matching is the most popular method of invoice matching. This involves a three-step process. The invoice is checked for accuracy in details listed on the purchase order as well as the receipt of goods. Once tolerance levels are okayed, the invoice is readied for payment.
4 Way Matching
More complex than 2-way and 3-way matching, 4-way matching involves another step of validation. It necessitates matching invoices to purchase orders, receipts of goods and inspection slips as well.
Upon delivery of goods, the receiving department checks for quantity and issues an inspection slip that acknowledges that the quantity received is accurate. Hence, only an invoice that matches the PO, goods receipt, tolerances, and the inspection slip is considered suitable for payment.
These ways of invoice matching ensure that companies pay only for the goods/services ordered and received. It also protects against false invoices and payment errors enabling businesses to have a better hold on their dealings with third parties.
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Matching Invoices to Contracts
Apart from the invoice matching methods, certain purchases may be done using a contract matching process. Also referred to as non-PO invoicing, this type of invoice is used for recurring or utility payments that happen in a cycle.
In contract matching, the invoice is compared and verified against an existing contract. Examples of such contracted purchases can be monthly utility bills (electricity, water, etc.), building rent and maintenance charges, advertisement costs, legal or consulting services, and more.
This type of matching is subject to an internal invoice approval process. If the contract matches and approval is given, then the non-PO invoice gets scheduled for payment.
It eliminates the need for matching invoices to purchase orders and other supporting documents. It also facilitates early clearance of payments of a repetitive nature, saving time, effort, and cost.
What is Automated Invoice Matching?
Automated invoice matching refers to digitizing a company’s invoice matching process with the help of advanced tools and technology; invoices are processed automatically without the need for human intervention.
Automated invoice matching technology can change the way AP departments work. Invoices received are scanned, converted to a digital form, matched using algorithms, and checked against tolerance settings, and if approved, are processed for payment -- all without human dependency.
The task of validating or matching invoices and processing them using automation can provide a host of benefits. AI-driven automation technologies such as OCR and RPA can enhance touchless invoice processing to be efficient and error-free.
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Using AI in Automated Invoice Matching
Using machine intelligence to handle processes can make complex tedious work, simple and easy. AI-driven technologies such as OCR and RPA can be effective tools to automate AP processes and improve business efficiency.
Optical Character Recognition
OCR is a technology that reads and extracts information from digital documents for editing. Useful for industries dealing with a heavy volume of data, OCR capabilities using artificial intelligence is a boon for AP automation.
OCR can perform effective data capture, extraction by pulling out relevant data. It then routes it for matching the invoice with the PO automatically. After this stage, the invoice matching process can be completed using 2, 3, or 4-way matching. All this reduces manual tasking efforts, time, and cost ensuring better process efficiency.
But while OCR can make a huge contribution to optimize automation of AP processes, OCR alone may not be enough to complete the automation process. Using another powerful technology in conjunction with OCR can prove to be more beneficial to achieve complete process automation.
Robotic Process Automation
Robotic process automation is a popular and useful software technology that can act as a virtual assistant in conjunction with OCR to automate digital processes. The software allows users to create ‘bots’ that mimic human actions.
These reliable robots are used in many industries to operate 24/7 with high speed and precision. By interacting with system applications, these bots can automatically perform cognitive data capture, extract, and analyze data as humans do. Besides this, they can communicate and route the extracted data to appropriate processes to initiate accurate action in a matter of seconds.
RPA with OCR can assist an AP invoice matching process with speed, accuracy, and shortened time-frame right from the time the invoice is received. It uploads, scans, performs information extraction, initiates 2, 3, or 4-way matching, checks for set tolerances, and marks invoices for correction or payment processing.
Benefits of Automated Invoice Matching
Automating invoice matching helps with the easier processing of invoices for payments. With the need for human intervention eliminated, the complications of maintaining paperwork and manual validations are also ruled out.
Some of the notable benefits offered by touchless invoice processing are:
- Time-saving - Manual invoice matching is tedious and time-consuming. Checking invoice details individually and validating with 2,3, or 4-way processes takes a considerable amount of time. Hence, it allows company employees to dedicate their valuable time to other key tasks and improve overall productivity.
- Accuracy - Automating the AP process reduces the incidence of errors and ensures a smooth workflow between processes. Mismatches or discrepancies are detected easily and only when an invoice is cleared at all levels, it is scheduled for payment.
- Protection against duplicate and fraudulent invoices - Automating invoice matching entails consistent validation between invoices and supporting documents. Any exceptions too are detected and flagged for manual verification. This ensures protection against fraudulent or duplicate invoices and better business control.
- Promotes vendor relationships - Automating invoice processing can quickly match invoices with purchase orders and expedite faster payment to vendors to keep them satisfied. In turn, the business can also benefit from better contract offers and early payment discounts for increased profitability.
- Efficient cost analysis - Touchless invoice processing provides information on individual line items that helps to identify the ones offering the highest value. This reliable data helps in better cost analysis and selection of relevant vendors to bring in more value to the company.
- Good for audits - Invoices with other supporting documents are mandatory for audits. Using automated invoice matching ensures purchase orders, goods receipts, inspection slips, and invoices are available in a digitally centralized location that can be accessed easily during audits to expedite the process.
Accounts payable invoice matching and processing is a complex process. AI-enabled technology can provide leverage to businesses through customizable automation. By automating, companies can look to seamlessly integrate document management workflow processes, create better transparency, maintain good business relationships for optimized business efficiency and growth.