“Better Materials Planning” is the first chapter of Kojo’s groundbreaking book, “7 Steps to Better Procurement for Trade Contractors.”
The sixth step in the 7-Step Procurement process is Invoice Matching. Invoice matching is the practice of comparing your invoices with their original POs and delivery receipts to catch billing errors and prevent overpaying.
Unfortunately, mistakes on invoices are prevalent, with as many as 27% of them containing errors that can lead to overpayment. It's essential to establish a dependable and efficient invoice matching system to avoid these costly errors. However, traditional 3-way invoice matching processes have been notoriously manual and time-consuming. Discover how to identify inefficiencies in your current system and transform them into a streamlined process.
Inefficient 3-way match process often involves:
If your purchasing process involves hard-to-access POs, paper delivery receipts, or Order Acknowledgements (OAs) that aren't updated into your accounting system, it is nearly impossible to do a 3-way match between your invoice, PO, and delivery receipt without introducing massive amounts of manual work. This can often become a full-time job, which creates expensive overhead that eats into your organization's margin. As a result, many contractors skip invoice matching and knowingly accept paying for errors, which could be as high as 20% of all invoices, leading to a direct hit on cash that's' mistakenly spent on materials. There is a better way.
As covered, Order Acknowledgements (OAs) that aren’t entered into your accounting system PO records, can cause significant inefficiencies in the procurement process. OAs are critical documents that capture pricing and the specific parts you can expect to show up on the jobsite. However, many procurement teams fail to update these OAs due to the time-consuming and manual nature of the task. This can lead to discrepancies between the PO and the corresponding invoice, resulting in invoice matching errors, that might not be errors at all. Therefore, it's crucial for procurement teams to prioritize updating OAs to ensure accurate and efficient invoice matching, ultimately leading to cost savings for the organization.
Effective Invoice Matching starts with ensuring your POs are updated with the pricing, quantities, and line item descriptions in the OA. Contractors can streamline this process using OCR (Optical Character Recognition) technology, which can read the OA information and convert it into a digital, editable system. Robust purchasing or procurement software comes equipped with OCR technology that makes this step quick and easy.
By ensuring that POs are updated with OA changes, contractors can eliminate one of the most common reasons for finding discrepancies when matching invoices with POs. In fact, companies with best-in-class invoice matching processes reduce their invoice error rates to as low as 0.5%.
Invoice matching doesn’t have to be manual. Technology exists today that can match your PO, delivery receipt, and invoice for you. Automated Invoice Matching, which can be found in purpose-built procurement software for contractors, will convert the three documents (PO, delivery receipt, invoice) into a digital format. From there, it will automatically flag any discrepancies for you, eliminating the manual work of going line by line. Once a discrepancy has been flagged, the team can send the exception to the vendor in a way that has proof of error and is structured in a clean, easy-to-read format.
This technology is not only more accurate, but it can also save contractors time and money. By using Automated Invoice Matching, contractors can also reduce the risk of overpayment, as well as disputes with vendors. According to a survey by Ardent Partners, a research and advisory firm that specializes in supply management, procurement, sourcing, and financial operations, companies who automate their invoice management processes see a 29% reduction in invoice processing costs and a 63% reduction in invoice processing time.