Purchase Order Matching, or PO Matching, is the process of “matching” or comparing an invoice to a purchase order for goods or services acquired during procurement. In the procure-to-pay cycle, PO matching is the first step of the accounts payable invoice processing, which should ultimately result in the timely payment of the supplier who submitted the invoice.
In accounts payable, invoice matching is the reconciliation of documentation to identify discrepancies and ensure that invoices submitted for payment fall within the acceptable thresholds defined by accounts payable. A purchase order can include terms regarding types, quantities, prices, discounts, payment terms, date of performance or shipment, and always identifies a specific seller. Depending on a business or organization’s accounts payable procedures, PO matching can be a two-way, three-way, or four-way process. These are typically defined as:
- Two-way PO Matching: Compares two documents—the purchase order (PO) and the invoice to verify that 1) the quantity billed is less than or equal to the quantity ordered and 2) invoice price is less than or equal to purchase price.
- Three-way PO Matching: Compares three documents—the purchase order (PO), the invoice, and the receiving or delivery receipt to verify that 1) invoice price is less than or equal to purchase price 2) quantity billed is less than or equal to quantity ordered and 3) quantity billed is less than or equal to quantity received.
- Four-way PO Matching: Compares four documents—the purchase order (PO), the invoice, the receiving or delivery receipt, and inspection record to verify that 1) invoice price is less than or equal to purchase price 2) quantity billed is less than or equal to quantity ordered 3) quantity billed is less than or equal to quantity received and 4) quantity billed is less than or equal to quantity accepted.
Once the proper documents are matched and are within the established thresholds, the invoice is approved for payment. Since POs are buyer-generated documents issued to a seller, used to authorize a transaction and control the purchase of products and services from a supplier, the PO matching process is important to ensure proper purchasing methods and proper payments are met.
In the procure-to-pay cycle, it is important to understand the relationship between the purchase order (PO) and the invoice. Integrating and streamlining the invoice matching process through accounts payable automation can translate to return on investment — both in cost and time savings.
Perhaps the most important KPI (Key Performance Indicator) for a procurement and accounts payable department to measure is the First-Time Match (FTM) rate. This indicates how often the invoice quantity and amount “matches” — or is equal to or less than — the quantity and amount on the purchase order (PO). If two-way PO matching is a success on the first try, it can reduce the amount of time and effort needed to resolve discrepancies and release payment to vendors. Automating the procurement process streamlines the matching process, and removes the manual matching need and the chance for human error or negligence.
Other best practices for two-way PO matching include:
- Monitoring and improving the First-Time Match (FTM) percentage
- Tracking the number and type of invoice discrepancies to identify trends and new ways to reduce resolution time
- Define a set amount of time to address invoice discrepancies
- Tracking number of days it takes to go from invoice to payment
- Track cost to process an invoice; find ways to increase efficiency
Source: Running the Matching Process (Oracle Peoplesoft)
Source: Next Practices for Accounts Payable Automation (Basware)