The Procedure to make sure that there is no inconsistency between Purchase orders and invoices are called Invoice Matching. Invoices should be in a hold state if there is any mismatching and the system indicates a mismatch alert.
There must be an agreed tolerance level or a condition that must be met to avoid Invoice Hold. So, this process runs frequently without any need for human involvement. All invoices must be matches with this set tolerance level, if there is a mismatch, a hold will be placed and payment will not be made automatically, but it can be manually released.
In this article we will discuss about Two-way and Three-way matching
This happens When an invoice from the supplier is matched with the buyer’s purchase order, that amount in the invoice is equal to the purchase order sent to the supplier. In case of no mismatching invoice entered into a database.
If the Two-way Matching result is negative. The system indicates mismatch alert and invoice will be in a Hold state.
Three-way matching is when an invoice is matched with a Purchase order, deliveries, and vendor’s invoices. All three components must be matched then entered into the system.
Two-way matching is the simplest way to match invoices with purchase orders using the e-procurement system.
Step 1: A vendor or a supplier sends an invoice to the Buyer or Purchaser for an indication that payment had to be paid. The invoice specifies Items, Prices of items, payment terms, and payment methods.
Step 2: Create an invoice and match it with the existing Purchase order including Price and Quantity of items.
Step 3: If the Invoice amount matches with the Purchase order’s amount the invoice will be scheduled for payment, otherwise if there is a difference occurs between the invoice and Purchase order invoice payment will behold. No payment should be sent to the supplier until the hold will be released.
Step 4: Once the hold is released, the invoice approval process will be starting again and the invoice will be scheduled for payment.
In three-way matching, 3 components are involved so it is a bit complicated as compare to Two-way matching. In a Three-way matching system compare Vendor invoices, delivery of items concerning the existing purchase orders.
The benefit of Three-way matching is that company will only pay for what they ordered and received.
Step 1: when products/items or goods are received, the relevant department should enter invoices details into the system.
Step 2: Detect Purchase order in the system.
Step 3: Mark the invoice as Received or fully delivered in the system.
Step 4: Compare the invoice against the purchase order and delivery items.
Step 5: if no mismatch occurs, the invoice should be clear for payment. And in case of mismatch hold the invoice.
Step 6: Clear the mismatch issue, release the hold on the invoice, after invoice release from hold, the whole process will be starting again until all three components are matched.
To make sure that all the payments are verified against a purchase order. In three-way matching, the system verified payments against PO, delivery items.