Invoice matching, sometimes referred to as purchase order matching, is the process of comparing invoices with supporting documents to verify that the information is correct prior to payment.
It is an essential part of the accounts payable process that ensures payments to vendors are made accurately and journaled correctly.
An invoice is a document generated by a business that provides a product or service to a customer. It provides the details of the transaction so the customer has a record to support payment for the services or goods received. These items include:
The name of the entity or unit providing the good or service
The recipient of the good or service
The good or service provided
The date on which it was provided
The quantity or amount that was provided
The value of the resource that was exchanged
Typically, invoice matching occurs when a purchase requisition is generated. A purchase requisition is an internal document that is created by an employee who wishes to acquire goods on behalf of the business. The requisition is submitted for approval by a supervisor and the purchasing department.
After it is approved, a purchase order is created. The purchase order will provide the details of the purchase, such as quantity and price. The purchasing department will send the order to the vendor who will then fill the order, create an invoice, and send it to the customer. This is the point at which matching occurs.
Invoice matching can be performed in different ways. It is performed at different levels, or tiers. Each subsequent tier involves a greater number of documents.
At the first tier, 2-way matching is a basic comparison of details in the invoice with the same information provided in the original purchase order.
At the next tier, 3-way matching compares the invoice with both the purchase order and the receipt that is provided after the order has been filled and paid for.
Finally, 4-way matching includes all of the above. Additionally, the invoice is compared to the acceptance or inspection document, prepared by the receiving department once the order has been received by the business.
Invoice matching is intended to identify discrepancies or specific details in a purchase that are not as expected. These are referred to as “deviations” or “exceptions.” Deviations can typically occur in one of two different ways:
Price deviations occur when the price charged for the order as indicated by the invoice does not match the price stated in the other documents
Quantity deviations occur when the quantity of the order stated in the invoice does not match the quantity stated in the other documents
The three different tiers of invoice matching are tailored to find discrepancies in one or both of the deviations. For example, 2-way matching can identify discrepancies in price and quantity. Because it incorporates matching of the invoice to the receipt, 3-way matching is focused on price deviations. Finally, because it looks at acceptance or inspection documents, 4-way matching is tailored to find discrepancies in quantity.
All forms of invoice matching are intended to find discrepancies that are outside of the business’s “tolerance.” An order is within a business’s tolerance if the quantity is equal to or greater than, and the price is less than or equal to, the amounts that were indicated in the original order.
In other words, invoice matching will only identify an exception when a vendor has charged more or delivered less than what was ordered. This puts the burden of accuracy on the vendor.
Financial Operations Management
Intercompany Financial Management
Intercompany Journal Entry
Invoice matching is a complicated but important process in business accounting because it supports accuracy in purchasing. In this way, accuracy applies to both customer and vendor. Invoice matching ensures that the business, as a customer, provides accurate payment to its vendors and that those payments are accurately recorded in the internal accounting process.
Invoice matching also underscores accountability on the part of the vendor by ensuring compliance with purchase orders. In both ways, invoice matching also supports fraud detection by eliminating any unethical manipulation of the purchasing process.
If invoice matching finds a discrepancy or exception, the purchase item will be flagged and accounting staff will initiate an investigation. The investigation will be conducted to determine if the exception is within the business’s “tolerance.” If it is within the business’s tolerance, the invoice will be processed. If it is outside of the business’s tolerance, a hold will be put on the invoice, and it will not be paid. The vendor will be notified so that the error can be corrected.