3 E-invoicing Steps that Help Ensure an Accurate 3-Way Match
Three way matching is the “gold standard” of accounts payable, the perfect match of PO, Receipt of Goods, and Invoice, but it can be extremely elusive. The purpose of the 3 way match is to ensure accurate invoice processing and prompt payment by reducing invoice processing time. Enter the e-invoicing solution.
How Does A 3-Way Match Work?
Three way match refers to the 3 documents that should be involved in an invoice approvals workflow:
- Purchasing creates a purchase order, 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 or packing list information into the PO system to receive the goods.
- Invoice – Both Purchasing and Accounts Payable will confirm that the PO and receipt of goods match (or at least match within set parameters) and submit the invoice for approval and payment.
This is the way procurement and accounts payable departments would ideally handle every B2B transaction.
Here’s where an attempt at 3-way matching can go wrong
For those companies that still attempt matching through paper and manual processing, here’s what can happen that makes 3-way matching so difficult:
- A paper or emailed invoice is received by Accounts Payable, frequently 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.
- Only then can the processor either complete the 3-way match, sending it on for approval.
However, if the data doesn’t match, this delays the payable process as the Accounts Payable department then needs to chase down the purchasing or receiving department to correct the exception 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 workflow, these time-consuming, error-prone steps are streamlined. Download our 3-way match webinar for more details.
Eliminate the obstacles with e-invoicing
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 in the SaaS-based automated matching system which, in turn, works in conjunction with your ERP or AP system.
3 steps to ensure accuracy in a 3-way match
Once the system is implemented, the process is as follows.
- Purchasing creates a PO as usual and the PO information is used by the SaaS provider’s AP matching automation solution.
- 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 PO line. This receipt against the PO is then passed to the provider’s AP matching automation solution
- 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 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.
Exceptions become the “exception” not the rule
Invoices that match both the PO and Receipt of Goods using your matching rules and invoice tolerances are then sent straight-through 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, then the invoice is again routed through the pre-designated exception process.
Matching all three documents manually is very time and labor intensive and can lead to delays in invoice processing. 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. By having invoices come in electronically as data through e-invoicing, 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.