When it comes to managing accounts payable (AP), few things are more important than making sure every transaction is accurately accounted for. That's why purchase order (PO) matching is a critical step in the AP process.
PO matching ensures your invoices align with the goods and services you purchased, and helps businesses prevent errors, fraud, and overpayments. But what exactly is PO matching, and how does it work in practice?
From what definitions and types to benefits and best practices, here's what you need to know about purchase order processing:
What is PO Matching?
PO matching is the process of comparing a purchase order to the corresponding invoice before approving payment. This is done to make sure everything matches — from the quantity and price of goods or services ordered, to the amount being invoiced and the goods actually received.
By matching documents, you create a streamlined process for verifying transactions, reducing the possibility of errors and fraud. Because without PO matching, you run the risk of paying for items you didn’t order (or didn’t receive!) and of being overcharged due to pricing discrepancies or quantity errors.
The Process of PO-Based Invoice Processing
PO-based invoice processing involves several steps to make sure every purchase is tracked and verified, including:
- Purchase Order Creation: The buyer creates a PO, detailing the items or services they intend to purchase, the quantities, and the agreed-upon prices.
- Goods or Services Received: The supplier delivers the goods or services, and the buyer receives them. This sometimes generates a receiving report that documents exactly what was delivered.
- Invoice Submission: The supplier sends an invoice to the buyer, which includes the payment details for the goods or services provided, like amount and due date.
- PO Matching: The invoice is compared to the PO and receiving report or receipt to confirm that the details match. If everything checks out, the invoice is approved for payment.
This process might sound simple, but manually your PO-based invoice process can be time-consuming and prone to error.
AP automation solutions, like Nimbello, can help. These tools transform your workflow by streamlining the matching process and enabling faster, more accurate invoice management.
2-Way Match vs. 3-Way Match
A key part of PO matching is understanding the difference between a 2-way match and a 3-way match. While both boost accuracy by putting invoices through a multi-step verification process, each has its own steps and use cases.
2-Way Matching
In a 2-way matching process, the invoice is compared to the PO. This method ensures that the quantity and price of items or services billed match what was ordered. If everything matches, the invoice is approved for payment.
When to use 2-way matching:
- Low-value purchases where the risk of discrepancy is minimal.
- Recurring services or subscriptions where the price and quantity don’t often change.
Two-way matching is simpler and faster than 3-way matching but doesn’t include verification that the goods were received. That's why a 2-way match is best used when the company trusts that delivery will match the PO.
3-Way Matching
Three-way matching adds an extra layer of verification by comparing the invoice to both the PO and the receipt or receiving report. This confirms that the ordered goods or services align with what was actually received.
Three-way matching is especially useful for businesses handling physical goods, as it helps you avoid paying for items that were never delivered.
When to use 3-way matching:
- When purchasing physical goods.
- In industries where mistakes or fraud are more common, like manufacturing or retail.
- High-value transactions that require stricter controls.
While 3-way matching is more secure and reduces the risk of errors, it does take more time than a 2-way match.
Automated tools, like Nimbello’s AP automation solutions, help speed up the process by matching POs, invoices, and receipts automatically — no human intervention needed!
The Benefits of Automating Your PO Match Process
Manually matching POs with invoices works for small businesses with few transactions. But for larger companies or those handling high invoice volumes, automation is essential.
Here are some key benefits of automating your PO-based invoice processing:
- Faster Processing: Automation tools can match documents in seconds, freeing up your accounts payable team to focus on more strategic tasks.
- Increased Accuracy: Human error is one of the biggest risks in manual PO matching. Automation reduces the risk of mistakes, ensuring that invoices are processed correctly the first time.
- Fraud Prevention: Automated systems can flag discrepancies, so you can catch potential errors or fraud before payments are made.
- Improved Cash Flow: Faster invoice processing means you can take advantage of early payment discounts and avoid late fees, improving your company’s cash flow.
PO Matching Best Practices
To get the most out of PO matching, consider the following best practices:
- Automate Whenever Possible: Using automation software can streamline the process, reduce errors, and speed up invoice approvals.
- Define Clear Policies: Make sure your team understands when to use 2-way vs. 3-way matching, and set clear guidelines for how errors should be handled.
- Track Discrepancies: Keep a record of any discrepancies and investigate them right away. This will help you identify trends and prevent future issues.
- Regularly Review Processes: Evaluate your PO matching process regularly to ensure it’s working well. Look for opportunities to improve or further automate steps where possible.
Making PO Matching Magic with Nimbello
PO matching is essential for ensuring that your business only pays for what they’ve ordered and received. Whether you’re using a 2-way match for simple transactions or a 3-way match for more complex purchases, having the right tools in place can make a world of difference.
Automating your PO-based invoice processing with Nimbello’s solutions can save your team time and give you greater control over your accounts payable workflow.
With Nimbello, you can simplify the entire AP process, from invoice to payment, and everything in between. Schedule a Nimbello demo today and learn how you can harness the power of automated PO matching today!