3 e-invoicing steps that help ensure an accurate 3-way match

Made up of the PO, receipt of goods, and invoice, a 3-way match of these components ensures accurate invoice processing and prompt payment by reducing invoice processing time. Utilizing the 3-way match essentially streamlines the entire approval process, ensuring that payment terms are met, including on-time payments as well as early payments that enable capture of early payment discounts. Utilizing the 3-way match also reduces the potential for fraudulent invoices, duplicate payments, and overpaying invoices.

As part of an AP automation solution, the three-way match process refers to the three documents that should be involved in an invoice approvals workflow:

• Purchase order – Procurement creates a PO which goes to the supplier, while a digital copy remains in the PO system.
• Receipt of goods – When a company receives its goods at a distribution center, loading dock, or remote location, the person receiving the product enters the PO and receiving report or packing slip information into the PO system to receive the goods.
• Invoice – Both Procurement and Accounts Payable will confirm that the PO and receipt of goods match (or at least match within set parameters) and submit the vendor invoice for approval and payment.

This is the way the purchasing department and accounting departments (specifically AP) would ideally handle every B2B transaction.

For those companies that still attempt matching through paper and manual processing, here’s what can make 3-way matching so difficult:

• When it comes to supplier invoices, a paper or emailed invoice is received by Accounts Payable, usually before the delivery of the goods, which causes a delay in the matching process. If this is a supplier that a company does considerable business with, invoices could be coming in constantly, making it difficult to match.
• Since the line-item detail from the invoice is on paper or image, an AP processor will have to key in information, such as PO number, vendor information, or item code in order to bring up the PO and receipt data in the system to match. Even with internal controls, this process is susceptible to human error.
• Only after these steps are completed can the processor finalize the 3-way match, sending it on for approval.

However, if the data doesn’t match, this delays the payable process as the AP department then needs to chase down the purchasing or receiving department to resolve the discrepancies to then process the invoice. These steps take time, and with the ever-present possibility of human error, mistakes can and do occur. With e-invoicing and automated AP invoice approval workflow, these time-consuming, error-prone steps are streamlined. Download our 3-way match webinar for more details.

For AP departments struggling with the matching process, the solution that makes the most sense is a combination of e-invoicing and a cloud-based approval workflow SaaS solution. One that is easily configurable, easy to learn, and needs little IT involvement.

During the implementation stage, the service provider is given all of the company’s matching rules and PO and receiving data and then integrates them into the SaaS-based automated matching system which, in turn, works in conjunction with your ERP or AP system.

Once the system is implemented, the process is as follows:

1. Procurement creates a PO as usual and the PO information is used by the SaaS provider’s AP matching automation solution.
2. When goods are received, the person receiving the goods opens up the PO in your PO or ERP system and checks off the goods received by the PO, line by line. This goods receipt against the PO is then passed to the provider’s AP matching automation solution.
3. When the e-invoice arrives, all of the data is electronic down to the line-item level and is interfaced with the automated matching system. Since the most difficult part of the match is not having the invoice data to automate the match, e-invoicing solves that problem. This is due to the fact that the data comes directly from the supplier’s billing system, eliminating the need to manually look at paper or an image from an email. Using the e-invoice data, the automated matching system can complete the third part of the match (invoice to PO and receipt of goods detail) using the workflow’s algorithms, eliminating the need for a person to do the match.

Invoices that match both the PO and receipt of goods using your matching rules and invoice tolerances are then sent straight to the automated matching system to the company’s AP system or ERP to complete the match, all with no processor involvement. Exceptions like price and quantity variances are recorded and can be routed, using workflow technology, to either purchasing or receiving through an exception resolution workflow. This allows the issue to be resolved without AP having to seek anyone out.

In cases where shipments are split or multiple PO’s are used for a single invoice, a best-in-class AP automated workflow system will attempt to reconcile these scenarios and auto-complete the invoice when the matching rules are met. When that cannot be accomplished, the invoice is again routed through the pre-designated exception process for final validation and approval.

Matching all three documents manually is very time and labor intensive and can lead to delays in invoice processing and an increase in processing costs. Since an automated matching and workflow solution has all the matching rules within the system, it has the capacity to immediately recognize exceptions and route for resolution automatically. Ultimately, this matching streamlines the next step: the payment process. When companies adopt electronic payments or e-payments, the flow of invoices through the approval process should become seamless. By having invoices come in electronically as data through e-invoicing and by establishing matching rules and exception handling workflows, the AP department realizes cost and time savings that go straight to the company’s bottom line.

Download the white paper Why automating the 3-way match matters.