The process of matching Purchase Orders (POs) is crucial for an effective Accounts Payable (AP) department, enabling businesses to track and manage outstanding invoices and payments owed to vendors or suppliers. By optimising the workflow with automated invoice processing, companies can reduce costs, improve their financial performance and better maintain a positive cash flow. And establishing efficient management practices begins right from the start.
Ensuring that all information - especially costs - on vendor invoices align with the agreed-upon contract details in the corresponding Purchase Order (PO) is essential. In the past, matching required manual labour from accountants or accounting departments. Fortunately, with advancements in technology such as AP automation, software solutions now streamline the process, eliminating the need for manual intervention and helping to ensure accuracy from the very start.
It doesn't matter whether you operate a small company or a large corporation, the fact is, implementing a reliable PO matching process offers numerous benefits. But what exactly are these benefits? And how can you successfully implement a proven PO matching system?
Here we present a guide to PO matching, providing insights into key benefits and answering frequently asked questions. Whether you are considering automating the process in the near or distant future, this guide will help you to evaluate whether it could benefit your organisation and provide practical steps for implementation.
When a company procures goods or services from a vendor, a purchase order is created to outline the terms of the transaction. In response, the vendor submits an invoice requesting payment for their products or services. During PO matching, also known as Purchase Order matching, the Accounts Payable department compares the details on both the purchase order and the invoice to ensure that they are consistent and accurate. Any discrepancies or exceptions discovered during the matching process are promptly flagged for further investigation.
Whether done manually or via automation, there are various types of PO matching available to help streamline your Accounts Payable (AP) process. Selecting the most suitable approach for you depends on factors including operational requirements, desired level of accuracy (or just reassurance) and security levels. Let's explore the three major types of PO matching in detail:
This type of matching involves comparing information from the vendor invoice and the Purchase Order (PO). By verifying key details on these two documents, you can ensure that the transaction is accurate.
This type of matching incorporates information from the sales or delivery receipt, as well as comparing the vendor invoice with the PO. By cross-referencing data from three different sources, the chance of fraudulent activities or errors is significantly reduced. This method adds an extra layer of confidence to the matching process.
Similar to the 3-way matching process, 4-way matching involves comparing information from the PO, vendor or supplier invoice and the sales or delivery receipt. However, it goes a step further by introducing an additional level of security. In this case, the fourth matching step verifies that the correct quantity of the product or service was delivered and accepted. For example, organisations using a 4-way approach will confirm that they have received the correct number of products before payments are sent to the vendor. This thorough validation minimises the risk of discrepancies or unauthorised charges.
Understanding the differences between these types of PO matching helps you to make an informed decision about which approach best aligns with your business requirements. Regardless of whether you prioritise accuracy, fraud prevention or operational efficiency, implementing the right PO matching method can greatly enhance your AP process.
Implementing an efficient and accurate invoice matching - PO matching - process is crucial for organisations to ensure a smooth procurement operation. Here are some effective strategies for implementing an effective PO matching process:
The catch? In a manual process, there is a direct correlation between the number of invoices received and the amount of time required to complete the matching process. The greater the number of invoices, the more time that is required and the more matching that needs to be done... You get the idea. For this reason, implementing automation in the PO matching process offers several advantages.
Rather than requiring the AP department to manually create, input and cross-reference important data, automated PO matching uses software. This brings numerous advantages to organisations, including improving accuracy, efficiency and cost-effectiveness. Here are several ways that automating PO matching can benefit any organisation:
Automating the PO matching process reduces the risk of human error associated with manual processing of financial documents. This in turn helps organisations avoid costly mistakes that can impact turnover and require significant - and costly - effort to rectify. For example, research shows that invoice processing blunders can cost businesses approximately $53.50 per document to rectify.
Automation enhances efficiency by reducing the need for manual approval and streamlining the overall PO matching process. With automated systems, vendor invoices can be settled more quickly compared to manual AP processes, ensuring timely payment and smoother operations.
Automated PO matching software quickly and automatically validates all data entered into the system, regardless of whether it involves 2-way, 3-way, or 4-way matching. Any errors or discrepancies are automatically flagged, allowing for swift resolution and ensuring accurate matching.
Automating the PO matching process not only lowers the risk of errors but also reduces the need for manual labour. While automation can't entirely replace human involvement, leveraging technology and automation can lead to substantial savings by minimising manual effort and associated cost. Note that in this case, reduced spending specifically does not refer to reducing the workforce.
Another benefit of automating PO matching is the ability for organisations to use the newfound time to provide employees with additional training in using automation software and other business aspects. This opportunity to upskill contributes to greater employee retention and satisfaction, in addition to allowing employees to focus on more meaningful and strategic tasks.
As you can see, automating the PO matching process offers many benefits, helping organisations to streamline their operations, enhance accuracy and improve overall efficiency. By leveraging automated systems to capture and match data from various document formats, organisations can optimise their AP processes and drive better financial management.
| Key Benefit | Description | Impact on Business |
| Greater Accuracy | Automated PO matching reduces human error by automatically cross-referencing financial documents, ensuring accurate processing of invoices and payments. | Avoids costly mistakes, improves financial performance and enhances accuracy in transaction processing. |
| Increased Efficiency | Automation streamlines the PO matching workflow, reducing manual intervention and speeding up invoice processing. | Ensures timely payments to vendors, smooths operations and reduces processing times. |
| Enhanced Data Validation | Automated systems validate all data and flag discrepancies quickly, enabling swift issue resolution. | Strengthens compliance, reduces errors and increases confidence in financial data integrity. |
| Reduced Spending | Automation minimises manual effort, reducing labour costs and improving overall cost-effectiveness. | Lowers operational costs and increases profitability without reducing workforce. |
| Improved Employee Retention and Satisfaction | Employees can focus on more strategic tasks with less manual work, leading to higher job satisfaction and opportunities for skill development. | Enhances job satisfaction, improves retention rates and fosters a more skilled and engaged workforce. |
According to the Annual Fraud Report by UK Finance, over £1.2 billion was stolen by criminals through authorised and unauthorised fraud in 2022, equivalent to over £2,300 every minute. In fact, according to the National Crime Agency (NCA), fraud is the most commonly experienced crime in the UK, affecting both consumers and business alike.
As mentioned earlier, automated PO matching significantly enhances accuracy and nearly eliminates the risk of errors by promptly identifying any inconsistencies between data entries, purchase orders, supplier invoices and receipts. Not only does this help prevent organisations from making mistakes, such as overpaying or underpaying vendors, this process also serves as a powerful tool to detect potential instances of fraud.
Whether your aim is to reduce manual labour, mitigate fraud risks or improve overall operational efficiency, implementing PO matching can help. If you would like to find out more, contact us today or request a private demonstration. Our three-way matching process, integrated within our Automated Invoice Processing system, is ready and waiting to support your organisation, ensuring accuracy and compliance throughout the invoice approval process.