Invoice matching process
What is Invoice matching?
Invoice matching is an Accounts payable process where details in the vendor invoices are compared with supporting documents to check whether there are any disparities, before it is sent for approval.
Why is invoice matching performed?
Basically, it is to ensure that company pays only for those goods that are ordered, received and accepted after quality inspection.
Ensuring that there no deviations with respect to price or quantity between the supplier invoice and received or if there are any deviations: then the deviations are within the tolerance limit defined.
Process:
2-way matching: the most basic form of invoice matching. Verifying the supplier invoice with the corresponding purchase order to ensure description, quantity, price information on both the documents are the same. Deviations if any, are within the tolerance limit set.
Quantity billed < to Quantity ordered
Invoice price is < to Purchase order price
Two way matching is best when applied for non item purchases where there are no receipts.
3-way matching: adds another extra criteria for verification. Involves matching three documents ie Supplier invoice with the purchase order and Goods receipts note (document evidencing the receipt of goods). This ensures that the payment will be made only for those goods that are ordered and has actually been delivered to company.
Quantity billed < to Quantity received
Three way matching is best when applied for purchases involving receipt of goods/materials.
4-way matching: adds further layer of verification on top of 3-way matching. Involves matching supplier invoice with purchase order, Goods received note and Inspection slip/reports (for quality check), before proceeding for payment. 4 way matching ensures that payment will be made only on those invoices that are not only delivered but also meet the required quality standard pre-set by the purchasing company.
Quantity billed < to Quantity accepted
Its the most comprehensive way of invoice matching used where there are strict Quality control norms like pharma industry, food processing industry etc.
Other relevant Info : In ERP, By default, when invoice is matched with purchase order, Payables automatically performs 2-way matching. In Purchase responsibility, the user can choose to additionally perform 3 way or 4 way matching also.
If the invoice and purchase order do not match within the tolerances defined for quantity and price, then the system automatically places a hold on the invoice. The accountant must release the hold, before he proceeds to pay the invoice.