Two-way matching is an automated process that checks for discrepancies between purchase orders and their associated invoices before invoices are approved and paid. Two-way invoicing, also known as purchase order matching or PO matching, compares specific figures on both the purchase order and invoice. If they don’t align, the invoice is held without being paid until the discrepancies can be addressed or rectified.
Two-way invoice matching is used by companies to reduce time spent by owners or employees on manual invoice oversight, avoid the risk of human error, and above all ensure that invoice amounts are correct and no overpayments
Two-way matching is the simplest form of invoice matching that still provides an effective protection against incorrect payments or failed procedures.
The first step of two-way invoice matching is the receipt of an invoice from a vendor.
Next, the invoice is transferred into the purchaser’s database and matched to a corresponding purchase order. If the tolerances set by the invoice matching system line up, the invoice is scheduled for payment. If not, the invoice is placed in an invoice hold. No payment is sent, and the hold is manually resolved.
From that point, the invoice is either approved manually or sent back through the automated invoice matching process for approval. The invoice is then scheduled for payment and the transaction between vendor and purchaser is completed and recorded.
Two-way match is an essential tool for ensuring that mistakes, discrepancies, or outright dishonesty don’t result in incorrect payments made to vendors.
For example, say a business sends a purchase order for a set of supplies from a vendor for the price of $3,000.
The vendor reviews and accepts the purchase order, then delivers the requested supplies. Then, either by mistake or deliberate bad business, they submit a receipt for $4,000.
Two-way invoice matching will help ensure that the invoice isn’t simply paid immediately, which would result in an unnecessary loss of $1,000 for the business. The process ensures that only invoices for the correct amount are paid.
While two-way invoice matching is the most straightforward form of invoice matching, it isn’t the only way. Some companies opt for three-way and even four-way invoice matching, which raise the level of complexity and the level of security in proper invoice processing.
Here’s how each of these additional invoice matching methods works.
Three-way matching follows a similar process to two-way invoice matching, but in this case the invoice and corresponding purchase order are also paired with a receipt. Only when all tolerances between the receipt, purchase order, and invoice are met is the invoice approved and paid.
In four-way invoicing, the receiving department saves the packing slip that accompanies a purchase and stores its data, as well as ensuring that all items are inspected for the correct quantities to produce an inspection slip. Then, the purchase order, shipping slip, inspection report, and invoice are all matched against each other.
If the invoice aligns with the information on all of these documents without any discrepancies and meeting all tolerances, only then is the invoice approved and paid.
To understand and discuss invoice matching, there are some general and commonly used terms that must be defined. While not every business or individual who manages invoices will deal with all of these specific terms, they’re worth understanding on a basic level in order to understand the invoice matching process.
In a touchless invoice processing system, no manual input is required from start of the process to finish. In this process, no human contact is required for an invoice to be matched, verified, and either held or approved.
A tolerance is any condition that must be met in order to approve an invoice and keep it from experiencing an invoice hold. There are multiple examples of tolerances, but one of the most common is confirmation that the amount of the invoice matches the details found in a purchase order.
An invoice hold occurs if an invoice doesn’t match the corresponding purchase order after an invoice matching process has taken place. This occurs when one or more of the required tolerances isn’t met— for example, when an invoice amount doesn’t match the amount on the purchase order.
A purchase order is a document generated by a buyer and sent to a vendor before goods are delivered or services are rendered. It’s a confirmation of a purchase, and is usually the last step before the vendor delivers the agreed-upon goods or services. Purchase orders are an essential part of the invoice matching process, as information on invoices is matched to that found on purchase orders before invoices can be approved.
A quantity deviation describes any event where the details found on an invoice don’t match the details found on the connected purchase order, receipt of goods, or supplier invoice. If the terms one an invoice don’t match up with the terms on one of these documents when it comes to the amount of goods delivered, this is an instance of quantity deviation.
Like a quantity deviation, a price deviation describes an instance of the details on an invoice not matching the details on a purchase order or other related document. But in this case, the deviation occurs on price— the listed price on a purchase order doesn’t match what’s on the invoice. In the invoice matching process, this will result in an invoice hold.
Avoid manual matching mistakes and make the entire process more efficient with BILL.
BILL can help businesses automate their invoice matching process to avoid illegitimate invoices or overpayment and maintain positive buyer-supplier relationships. Learn more about how your business can benefit from accounts payable automation.
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