Thinking to Automate Purchase Order Matching? Here’s What You Need to Know

For procurement and purchasing leaders, purchase order matching feels like a never-ending chase. But it doesn’t have to be that way.

Heaps of POs need to be compared against invoices and receiving reports – a process that's not only time-consuming but also error-prone. And with large businesses often generating thousands of POs and invoices per year, those errors can cost heavily.

Efficient PO matching ensures accuracy in vendor payments, aligns procurement with the invoicing process and mitigates fraud and error risks.

In this guide, we’ll explore different types of purchase order matching, how to optimize the PO matching process and practical steps for implementing it in your organization.

Types of PO Matching

There are three primary types of PO matching, each offering varying levels of verification depending on the needs of the business:

1. 2-Way Matching

This is the simplest form of PO matching. Here, the vendor invoice is compared with the purchase order. The goal is to see that the invoice details match with the agreed on terms from the PO, including quantity, price and item descriptions. This method is useful for straightforward transactions but may not capture more details like delivery or receipt discrepancies.

2. 3-Way Matching

A more comprehensive form of PO matching, 3-way matching adds a third layer of verification: the receiving report. In this case, the accounts payable team compares the purchase order, vendor invoice, and the delivery receipt to ensure the correct goods or services were delivered as ordered. This method provides an extra level of accuracy, reducing the risk of paying for incomplete or incorrect orders.

3. Multi-Way Matching

For more complex procurement scenarios, businesses may use multi-way matching, which introduces additional layers of verification beyond just the invoice, purchase order, and delivery receipt. This method can include verifying inspection reports, contract terms, or even quality control checks. Multi-way matching provides a deeper validation of the procurement process, confirming not only the receipt of goods but also that they meet the required specifications before payment. This method ensures that payments are made only after all aspects of the purchase meet the company’s standards.

The Drawbacks of Manual PO Matching

While PO matching is an important process to ensure financial accuracy and efficiency in operations, there are challenges to carrying out the activity manually. Fully depending upon paper systems or on manual data entry takes a lot of time and introduces the possibility of errors. In large organizations that deal with hundreds or thousands of POs, manual matching of invoices with purchase orders and receipts may cause overpayment, missed discount opportunities or even fraudulent transactions.

Furthermore, manual matching adds unnecessary time and therefore increases the period within which the AP work is done. This may lead to delayed payments and poor supplier relationship management.

Also Read: Supplier Relationship Management Guide

Why Automate PO Matching?

1. Accurate Calculations:

PO matching software can automatically match purchase orders, invoices and receipts and flag any discrepancies for review. This lessens the chances of instances that may lead to overpayments, underpayments or even duplicate transactions.

2. Time Saving:

The automated processes cut down processing time of invoices remarkably. Each document does not have to be manually verified, as these documents are verified instantly and matched, making any internal approval or payment quicker. This not only helps businesses take advantage of early payment discounts but also strengthens vendor relationships.

3. Detection of Fraud:

Automation technology also identifies fraud by noting mismatches in documents, like the purchase order and the invoice. This may involve changes such as the price changing to higher than normal, changes in the quantity delivered or fake invoices. By preventing such behavior, these technological systems help mitigate fraud and drive savings.

4. Cost Savings:

Automating the PO matching process leads to considerable cost savings. By reducing the time spent on manual tasks, organizations can lower labor costs, process more invoices in less time, and focus their resources on more strategic activities. The reduction in errors and fraud risk also translates into financial savings.

How to Implement Automated PO Matching

1. Choose the Right Software

Deciding on the right type of PO matching software is essential. Look for software that will easily integrate with your existing ERP system and support various types of matching. Key features to prioritize could be optical character recognition (OCR), real-time matching and customizable workflows.

2. Standardize Procurement and Invoicing Processes

Before implementing automation, you need to standardize your procurement and invoicing processes across the organization. This will help the software match documents accurately. You must define clear guidelines for purchase orders , receipts and invoices, including item descriptions, units of measure and even pricing formats.

3. Train Your Team

Ensure that your AP team is well-versed in using the new technology. They must know how to address flagged discrepancies and escalate issues when needed. Offering ongoing training as the system evolves to ensure smooth adoption is also helpful.

4. Monitor and Optimize the Process

Once your automated PO matching system is in place – it is now time to monitor its performance, continuously. Use the system’s reporting features to track KPIs such as processing time, accuracy rates and cost savings. Make sure to regularly review these numbers to identify areas for improvement.

Also Read: Streamline Accounts Payable with Invoice Matching

It’s Time to Streamline Your PO Matching

Efficient matching of a purchase order helps the business to maintain accuracy and avoid errors and offers proper financial management. The process of PO matching is very tedious if done manually since it leads to discrepancies easily. Automating the process comes with tremendous benefits attached. Key benefits are increased efficiency, reduced risk of fraud and substantial cost savings. PO matching can be streamlined by selection of appropriate software, standardization of procedures, and ongoing training of staff.

Finally, the use of automation in matching PO presents the key to higher efficiencies in procurement processes with minimal or no errors.

Explore how GEP can help with your PO matching.