The importance of 2 way matching in Accounts Payable

How 2-way matching in Accounts Payable helps your company

There are many different options for improving your AP department. In this guide, we will walk through a few “quick wins” to improve your AP department, such as 2-way matching in Accounts Payable, and how you can help your company remain competitive.

2-way matching in Accounts Payable

What is 2-way matching in accounts payable? All over the world, businesses rely on the accounts payable process to provide the foundation for their purchasing activities and hence their growth. Without accounts payable (AP), organizations would be unable to manage their invoices and pay their vendors. 

The overall accounts payable cycle begins with invoice data capture. Most invoices arrive at an organization in a PDF or paper format, which the automated accounting systems cannot recognize. 

Using an AI-enabled OCR solution like Rossum can be a great way to streamline this first step. After that, the digitized invoices are coded with the correct account and cost center. Once categorized, invoices are then approved. After the approval phase, invoices are then matched to purchase orders. This is what is meant by 2 way matching in accounts payable. 

Matching is a vital element of the accounts payable process because it ensures you only pay for what you bought. If there is a mismatch between the purchase order or sales receipt and the invoice, then there is a problem that needs to be addressed. 2-way matching is also required to comply with the IRS’s paper trail requirements. 

In addition to 2-way matching, there is also 3-way matching and 4-way matching. We will explore the specific attributes of these matching methodologies, but the basic principle to remember is that they all follow the same rules of 2-way matching, just with additional verification checks. How much matching you use primarily depends on the requirements of your industry and the level of trust you have in the vendor. 

The final stage of the accounts payable process is posting invoice payments. 

However, this stage can only be reached if the 2-way matching process is successfully carried out. The key difficulty is that this matching doesn’t need to occur on one or two invoices. At a large organization, there may be hundreds or thousands of invoices that need to be quickly processed and promptly paid. 

Manually, this is almost impossible and merely results in huge piles of paperwork and demotivated employees. This leaves companies scrambling to meet deadlines and not lose valuable talent.

Fortunately, there is a better solution. Rossum is an intelligent document processing (IDP) platform that uses AI-enabled OCR technology to accurately extract data from a variety of sources, including invoices. 

Plus, Rossum also features a data matching extension that makes it easy to automatically match the data within invoices to the data within purchase orders, saving you valuable time and money. 

Accounts Payable process

From our simple outline of the accounts payable process, it should be clear that several tasks need to be performed on every single invoice to ensure full compliance and correct payment. Doing these tasks manually takes far too long and can result in unnecessary delays in payment. This can damage your relationship with your vendors, who are left waiting to be paid. 

Delayed accounts payable processes can also slow down other departments’ projects and lead to the derailment of time-sensitive strategic initiatives and projects. 

What is the solution? Automate your accounts payable. The time has come to move past the days of paper and enter the digital age, where unprecedented efficiencies can be unlocked.

To achieve automation, you’ll need to understand the benefits it can bring to your organization. Here’s a quick list of benefits you can expect:

1. Cost Savings
2. Value Generation
3. Better Information Sharing
4. More Actionable Insights.

The time saved through automation results in serious cost savings for your organization. For example, by reducing the hundreds of hours your team may have been spending on invoice processing, you can lower your cost per invoice. 

Some suppliers offer early payment discounts. With an automated system, you could tap into these savings with every single invoice. Secondly, automation can create more value generation for your organization by freeing up your AP team to focus on higher-value tasks. 

Examples include fraud prevention, improving payment operations, spending management, and supplier relationship management, to name a few. 

Better information sharing is a third benefit of relying on a cloud-based automation solution for invoice processing. This gives one central place where your team members can access the invoice information they need quickly and easily.

Finally, an AI-powered data capture platform gives you more actionable insights through its financial reporting dashboards and easy-to-understand analytics. It should be clear from these benefits that automating AP should be a top priority for your organization. One of the major aspects of this automation should include a way to streamline the invoice-matching process. 

Invoice matching: 2-way vs. 3-way vs. 4-way matching

• The 2-way match process is what most businesses use regularly, but this process is not as capable of detecting fraud as the 3-way match.
• 3-way matching is a method of verification that companies use to validate invoices before making any payments. It uses three different documents to verify invoices.
• In 4-way matching, the invoice is compared with the purchase order, then with the receipt of goods, and finally with a quality inspection document.

As we have already described, invoice matching is a verification process that is a crucial component of the accounts payable cycle. It’s a process that’s used when the buying organization has already created a purchase requisition describing exactly the goods or services they need. 

Once this requisition is approved, a purchase order is sent to the vendor. Invoice matching can sometimes save the need to approve the invoice because the requisition approved the initial price previously.

There are two main ways invoices can fail to match their purchase orders. These are quantity deviation and price deviation. Quantity deviation refers to the number of goods not matching the number on the purchase order, and price deviation refers to the prices not matching the invoice and the purchase order. 

Sometimes, these deviations are minor and not worth halting the payment process. Other times, the deviations are serious enough to warrant an investigation to correct the errors found on the invoice. Unfortunately, errors are more common than might be expected. 

Addressing these errors is a task that can take up a great deal of time on the part of AP teams. However, the entire process can be streamlined, and errors can be reduced through an automated system that automatically extracts the data and matches it up with the correct purchase order. The next level of verification above 2-way matching is called 3-way matching. 

What is 3-way matching in Accounts Payable?

3-way matching in Accounts Payable can protect companies against:

• Accidental overpayment
• Fraud and scams
• Duplicate payments

What is 3-way matching in accounts payable? 3-way invoice matching, as you might expect, adds a third document to the two that are checked with two-way matching: the goods received note (GRN).

Goods received note is a record of goods received from suppliers and is used to prove that the ordered products have been received. When the ordered goods arrive at the buyer, they are checked, and the goods received note is generated. 

By matching the invoice to both the purchase order and the goods received note, you can be even more sure that you are only paying for the goods you have received. 

Examples of 3-way matching do cover purchases of services as well. A 3-way match for services relies on the services received note (SRN) instead of the GRN to verify the invoice.

Rossum features a data-matching extension that can make this process much more efficient. All you have to do is upload the document you want to match data with, along with the invoice or invoices you want to verify. The system will do the rest. 

4-way matching in Accounts Payable

There is an even higher level of verification that businesses employ in their accounts payable workflows. It is called 4-way matching. 4-way matching in accounts payable is validating the invoice by comparing its data to the data in the purchase order, the goods or service receipt, and inspection slips. 

What are inspection slips? They are the documents created by the receiving department of the buying organization. When the goods are delivered, they are inspected to ensure that their quantity is accurate. Once verified, an inspection slip is created with the quantity recorded. This matching process provides the strongest validation of the three methodologies we discussed.

As you might imagine, 4-way matching is primarily used for large purchases of expensive goods rather than services. Unfortunately, all of these validation methods have the same problems in that they can be extremely time-consuming and expensive to do manually. 

Plus, attempting 4-way matching on hundreds of invoices is highly likely to be error-prone. That’s why many organizations look for solid invoice-matching software. 

Invoice matching software

There are several different alternatives for invoice matching software that you can find out there. It’s important to research and read plenty of reviews before deciding which software to buy. 

Furthermore, we’d encourage you to think about whether you want a single tool that will help with invoice matching or a more comprehensive platform that can help you take control of all your document-based processes. 

An automated document processing platform like Rossum can make it easier for you to automatically match invoices to purchase orders and extract data from invoices so that it can be sent to accounting for payment. 

Suppose an invoice does not match the purchase order. In that case, the visibility and analytics provided by the Rossum platform make it far easier and faster to identify the cause of the problem and address it.