For every job, once materials have been sourced and purchased, the next step is to match invoices and catch errors. The sixth step in procurement, invoice matching, can be a time-consuming process that’s easy to overlook.
Without dependable and efficient invoice matching, mistake costs can rapidly erode your profits. Data recently collected by Kojo shows as many as 27 percent of vendor invoices contain errors. To avoid expensive and inefficient gaps in your invoice processing, let’s look at what it involves, where it can breakdown, and how to improve your system.
What is invoice matching?
Invoice matching compares purchase and delivery documents with invoicing to identify exceptions and prevent overpayment. In two-way matching, accounting teams compare the supplier invoice and purchase order for discrepancies before processing payments.
What is three-way invoice matching?
In three-way invoice matching, the accounting department will also cross-check the delivery receipt to ensure the materials received are consistent with the purchase order and invoice. This additional check allows payment to be held until any price or quantity discrepancies are resolved.
What is a price deviation?
When a vendor’s invoice reflects a different price for materials than the corresponding purchase order, it’s a price deviation.
What is a quantity deviation?
When the purchase order, invoice, or receipt of goods reflects a different quantity of materials, it’s a quantity deviation.
Whether a change order wasn’t recorded, prices increased by a small margin, or materials were partially delivered—or not at all—the impact can add up to thousands of dollars in billing errors, making reconciliation essential to protect your bottom line.
How does precise invoice matching pay off?
Regardless of how invoice processing takes place, it does much more than save money to reconcile accounting exceptions with a verified paper trail. Thorough matching can also:
- Protect the integrity of your relationships with suppliers.
- Eliminate the risk of invoice fraud.
- Facilitate compliance with government oversight.
- Act as a form of quality management.
In many ways, comparing purchasing documents for complete and accurate data will support the rest of the seven-step procurement process, saving time and money and catching errors before they escalate to more serious levels.
How does manual invoice matching limit efficiency?
Traditional matching processes don’t scale very far. Paper-based purchasing with physical documents can take countless hours to match and identify errors. Chasing down documents from the field, manually reviewing every line for deviations—it’s no surprise that teams skip some of these manual tasks to save time and resources regardless of the mistake costs.
Invoice matching is a challenge for many procurement teams when:
- Processes aren’t standardized, creating more mistakes.
- Communication delays disrupt vendor fulfillment and resolution.
- Purchase orders (POs) are siloed ,limiting access to purchasing information.
- Order acknowledgments (OAs) aren’t used to update POs earlier in procurement.
- Documentation is misplaced, incomplete, or inaccurate.
Itemized reconciliation is time-consuming, and when OAs aren’t reflected in accounting and PO records, the discrepancies cause matching errors that may not be errors at all.
How can you refine invoice matching with automation?
Prioritizing streamlined, accurate purchasing reconciliation can reduce these pain points, leading to significant benefits for your organization. Effective invoice matching starts with these three opportunities to integrate technology:
Streamline PO accuracy with OCR technology.
Optical character recognition (OCR) can read and convert OA information into a digital, editable system. This will help you keep POs updated with OA changes by eliminating the most common reason for discrepancies with invoice matching.
Automate the three-way matching process.
Purpose-built procurement software for contractors can easily eliminate the manual work of three-way invoice matching. Even if your process is paper-based, it can convert documents into a digital format, analyze the data, and flag discrepancies for review. It can even format proof of errors in a structured, easy-to-read format for vendor resolution.
Connect invoice matching to accounting and accounts payable.
Once matching has been automated, the information should be able to sync with your accounting system without adding any more manual data entry. By simplifying reconciliation, you will also enable more effective materials payments and time management for the back office.
What are the benefits of automated invoice management?
Automated invoice management offers a multitude of benefits, including:
- Effortless document conversion with OCR.
- Little to no data entry required.
- Reduced processing overhead.
- All information in one place.
- Reduced discrepancies between OAs and POs.
- Accurate information exchange between purchasing and accounting.
- Delivery receipts won’t disappear.
Eliminate needless overpayment with automation.
Automation transforms invoice matching into a process that reliably upholds quality and service standards and manages costs and resources. The accuracy of AI reduces the need for manual review of exceptions, simplifying the workload for your team members so they can better utilize their time.
There are more opportunities to refine your project outcomes from start to finish. To learn where else your construction planning can benefit from better procurement strategies, read 7 Steps to Better Procurement for Specialty Contractors.