Automated Invoice Matching Explained: A Deep Dive into Efficiency and Savings

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Content and Process Automation

Invoice matching plays a pivotal role in the world of Accounts Payable (AP), and the execution of this vital task can substantially impact your organization’s operational and financial health. As traditional methods of invoice matching can be labor-intensive, leveraging technological advancements can offer significant efficiencies and advantages.

This article offers an in-depth exploration of invoice matching, its various forms, the imperatives of automation in invoice processing, and the various benefits that come with it. By the end of the article, you’ll know all there is to know about automated invoice matching and the role it could play in your organization.

Understanding Invoice Matching

Invoice matching is a fundamental part of the accounts payable process, where the data on a vendor’s invoice is validated and cross-verified with the related purchase order (PO) and delivery receipts.

The process begins when an organization generates a purchase order outlining the specific goods or services required from a vendor. The organization acknowledges this with a receipt once the goods or services are delivered. The vendor then issues an invoice for the delivered goods or services, which triggers the process of invoice matching.

The main aim of invoice matching is to ensure complete alignment between the purchase order and the invoice. This process allows for prompt settlement of vendor payments, reducing the potential for errors and even vendor fraud.

Accounts payable automation encompasses multiple technologies such as Optical Character Recognition (OCR) for data extraction, machine learning for invoice matching and anomaly detection, document management solutions for storage, and data analytics tools for analysis.

When there’s a mismatch between the purchase order, invoice, and receipts, there is what’s often called a “deviation.” This can be a quantity deviation (wrong number of items) or a price deviation (incorrect price). Identifying and rectifying these deviations is a manual job for most AP departments, but, as the name suggests, automated invoice matching performs these tasks automatically.

With automated invoice matching, any deviation falling outside an established “tolerance level” is flagged and put on hold, awaiting correction.

Invoice Matching in Detail

Invoice matching ensures goods or services ordered were delivered and that the invoices received are accurate. This matching process has several levels, often referred to as 2-way, 3-way, and 4-way matches. Let’s go through each of them.

2-Way Matching

At the most basic, there’s 2-Way matching. This involves comparing the invoice with the purchase order. The aim is to ensure that what the supplier has invoiced aligns with what was ordered by the buyer. While seemingly simple, the repetitive nature of comparing prices, quantities, and item descriptions can be a considerable drain on labor.

3-Way Matching

Stepping up in complexity, we encounter 3-Way matching. This method throws another document into the mix–the goods receipt note (GRN). Now, along with the invoice and the purchase order, we’re also verifying that the goods or services were indeed received. The additional layer of scrutiny means an increased workload and more potential for discrepancies.

4-Way Matching

In 4-Way matching–the most burdensome matching task of all–the documents used in 3-way matching have to be referenced against an inspection or acceptance report. This ensures goods or services received meet the required standards.

How Does Invoice Matching Software Work?

Invoice matching software automates the entire invoice matching workflow–from invoice receipt to the eventual payment. It can be a standalone software application or integrated into a broader enterprise resource planning (ERP) system, like how DocStar integrates with Epicor.

Let’s take a look at how invoice matching software works in this step-by-step example:

Automating the Invoice matching Workflow

Let’s take the example of a manufacturing company that orders raw materials from various suppliers and uses an automated invoice matching system. We’ll call our company “Widget Industries.”

Let’s take a look at how invoice matching software works in this step-by-step example:

Invoice Receipt: Widget Industries receives a paper invoice from its steel supplier, SteelWorks, for a shipment of steel they ordered.
Invoice Digitization: Widget Industries’ automated invoice matching system scans the invoice, converting it into a digital format.
Data Extraction: The system uses OCR and AI (discussed in the next section) to identify and extract relevant details from the digitized invoice. This includes the supplier name (SteelWorks,) invoice number (001), date (12/25/2030), description of the materials (steel), quantity (50,000 pounds), price per pound, the total amount due, etc.
Invoice Matching: The system then attempts to match this information to the corresponding PO that Widget Industries previously issued to SteelWorks. The PO should also be numbered 001 and specify an order of 50,000 pounds of steel. If the system does a three-way match, it also checks the goods received note (GRN), confirming that Widget Industries has indeed received 50,000 pounds of steel from SteelWorks.
Exceptions Handling: It just so happens that the quantity on Invoice 001 is 55,000 pounds, which is higher than the PO. The system flags this for review. A member of the AP team at Widget Industries reviews the deviation and realizes that the PO had an outdated price. They confirm with a purchasing manager. The exception is resolved. And the price difference is approved.
Approval: With the exception resolved, the invoice is approved for payment. The system automatically schedules a payment to SteelWorks based on Widget Industries’s payment terms.
Payment: Finally, the system makes the payment at the appropriate time.

Advanced Technologies Involved in Invoice Matching Solutions

Technologies like Optical Character Recognition (OCR), Artificial Intelligence (AI), and Robotic Process Automation (RPA) are fundamental to modern invoice-matching software. Let’s run through some of these acronyms to understand the role they play:

OCR

PDF files, and photographs, into digitized versions. Once digitized, these documents become more “useful” as they can be searched, edited, analyzed, and matched.

AI

It can be trained to extract data from invoices (even when the data is in different places on different invoices.)
It can use natural language processing (NLP) to understand and interpret the textual data in the invoices.
It can be used to automate the matching process itself. It can learn from past matches (machine learning) to improve its performance over time.

RPA

RPA is used to automate routine tasks that would typically require human intervention. Think of it like having a team of software-based robot agents. In the case of invoice matching, RPA could automate tasks such as retrieving invoices from an email or a digital repository, inputting invoice data into the accounting system, or initiating payments for approved invoices.

What Are the Benefits of Automated Invoice Matching Software?

Automating the invoice matching process makes it faster and easier. It eliminates the need for human intervention and reduces the hassle associated with paperwork and manual validations.

Here are some of the key benefits:

Time-and Cost-Saving

Manual invoice matching is laborious and time-consuming. Automating it boosts productivity, letting businesses process more invoices without increasing headcount.

Accuracy

Automation reduces errors and ensures a seamless workflow transition between stages. Overpayments, duplicate payments, and other costly mistakes are detected and weeded out in real time.

Fraud Detection

Fraudulent invoices are automatically flagged for manual verification. This heightens control and reinforces the safeguarding of financial resources.

Stronger Vendor Relationships

Faster invoice processing fosters positive business relationships, which can evolve into better contract terms and early payment discounts.

Data-Driven Insights

Analyzing data stored in paper invoices is a lot of work. Once digitized, this data can be manipulated to identify trends, spot weaknesses, and make better vendor decisions.

Audit Readiness

Automated invoice matching ensures crucial documents are stored digitally and centrally, making them easier to manage and accessible for audits.

Scalability

With automated invoice matching, you never have to worry about overburdening your accounts payable department. Your solution grows with you as your business expands.

In Conclusion

Invoice matching is a slow, manual, and error-prone procedure that automation can significantly simplify. Get it right–by implementing software like DocStar–and you can supercharge productivity, enhance transparency, maintain strong relationships, and dramatically reduce costs.

If you’re ready to embrace this technology and achieve a future-proof competitive advantage, reach out to one of our AP automation experts. We’ll be happy to guide you through the process and answer any questions you might have.

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