Approving and submitting payments are foundational tasks for any AP office. When the AP team successfully completes these tasks, they catch billing errors (saving their company money) and they preserve relationships with vendors by submitting early or on-time payments. To pay an invoice, AP teams usually have to match it with supporting documentation in order to confirm that the amounts are correct. Sometimes they match only between an invoice and the purchase order (2-way matching), but some businesses have guidelines that require their AP team to match the data between more documents (3-way and 4-way matching). When is 2-way matching not enough?
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Let’s define what documents are required in 2- way, 3-way, and 4-way matches and discuss the scenarios each would be appropriate.
A 2-way match involves matching an invoice to the purchase order. It is the most basic comparison system that can be used, but for many AP offices relying on manual processing, matching between just 2 documents may be the only viable option. 2-way matching is most appropriate for recurring (regular) purchases (software subscriptions, for example), because you are familiar with the costs and less likely to have a matching mix-up. Still, with all of their other duties, does your AP staff have time to track down the original purchase order and receipt for every item that requires payment? Even after they collect those documents, they still have to manually key in the data from each document into your accounting software or ERP system. Without the help of automation, 2-way matching is time-consuming and vulnerable to human errors.
For non-recurring or one-time purchases, 3-way matching is recommended. 3-way matching provides an increased level of accuracy and visibility that is more likely to catch discrepancies between documents and thus is favored by accountants. Like 2-way matching, it requires the invoice and purchase order, but it also matches those amounts to the packing slip or receipt of goods that have been delivered. To physically gather these papers, and manually key in the numbers on these 3 types of documentation for every single payment that an AP team has to make would be a monumental commitment of hours and effort for the employees. It also would inevitably lead to errors and late payments.
For most services, 4-way matching is necessary. A 4-way match involves the invoice, purchase order, and receipt. The fourth element required is an inspection or confirmation from an individual who can confirm the terms of the agreement and delivery of the goods or service. For example, the employee who originally contracted with a lawn care business to maintain the parking lot and landscaping around your building would also be able to confirm that that company should be paid the agreed-upon amount because they did fulfill their contractual obligations. Obviously, as more documents are added to the manual matching process, processing time and the likelihood of human error both increase.
Moving away from manual matching
Automation of the invoice approval process, for 2, 3, and 4-way matching, is one of the best ways to lower your invoice processing costs and improve your staff productivity while streamlining your AP functionality.
Autovouch by DataServ allows for matching based on user-defined thresholds and tolerances to move the invoices that pass the test for accuracy through the payment process while targeting exceptions for a quick resolution. How is the matching possible without human intervention? Autovouch uses the latest SaaS OCR technology to get all the various paper documents into digital data. This type of technology performs two or three-way matching using the digitized invoice data plus your PO and receiving data, rules, and tolerances.
Every invoice is evaluated against multiple criteria including Vendor ID, Invoice Date, Total, Subtotal, etc. Price and quantity variances are identified and compared against acceptable levels which can be routed for exception processing based upon your pre-set tolerances. Autovouch has an exception workflow that not only automatically routes invoices that need further processing to the appropriate person but also provides process statistics for managers.
Contact us today to learn more about how Autovouch can save make your AP department productive while saving you money!