Typically, the billing process follows a sequence of steps that is common across organizations and industries. However, there may be some variations in this process from team to team. Every billing process includes 3 key elements:
These items will need to be processed through a series of approvals, matching and verification steps to complete payment to the supplier.
What is invoice reconciliation?
Invoice reconciliation is probably the most important step in the entire Accounts Payable process. Matching invoices to purchase orders ensures correct payments are made to suppliers and reduces errors in the payment process. However, when done manually, this process can be quite repetitive and expensive as it takes quite a bit of time to complete. This process can also be quite prone to human error.
Now, with the help of technology, the invoice matching process no longer needs to be manual. Automated systems can match invoices to purchase orders in seconds and automatically approve or flag any discrepancies for review. Automated invoice matching helps organizations reduce errors and costs in the accounts payable process. It also increases productivity by reducing the time needed to collate invoices and reducing human intervention.
Typically, invoice comparison is done with the purchase order. However, several different types of invoice matching can be performed to achieve a higher level of reliability before payments are processed.
Types of invoice matching
Invoices are validated against other documents related to that purchase to ensure that payment is made correctly and only after the good or service has been delivered. There are 3 types of invoice matching:
- Two-way invoice reconciliation: Two-way comparison is the easiest method to verify invoices. In two-way comparison, the invoice is only compared to the purchase order. If the invoice and purchase order details match, the invoice is processed for payment.
- Three-way invoice reconciliation: Three-way reconciliation is the most popular method of invoice reconciliation. There are 3 steps in this pairing process. The invoice is not only compared with the purchase order but also with the receipt of the merchandise. All 3 must match for the invoice to be processed for payment.
- 4-way invoice reconciliation: This is the most complex comparison process since it relates 4 different documents to each other. In this matching process, the invoice is matched with the purchase order, goods receipt, and inspection receipt. Only when the information in all 4 documents matches is the invoice approved for payment.
What is invoice matching software?
A software that can automatically match the details present in invoices, purchase orders, goods receipts, inspection slips and other related documents is called invoice matching software. Normally, in such invoice matching software, we can set a matching threshold below which invoices would be rejected and not processed for payment.
Invoice matching software, like Nanonets, can do this job in seconds, which would take the AP team hours or even days to complete. It can also eliminate most human errors, and with the help of artificial intelligence and machine learning, these systems are becoming even more robust and accurate.
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Benefits of invoice matching
- Improved employee productivity and increased compliance.
- Improved cash flow visibility and less time worrying about audit requirements.
- Pay suppliers early and get early payment discounts.
Features to consider when selecting invoice matching software
Invoice data capture via emails
The most common way companies receive invoices is through emails. Therefore, the invoice matching software must be able to read the invoice data from the supplier's email and upload it for matching and approval.
A common problem this faces is that suppliers may email the invoice to different stakeholders in the organization and therefore consolidation can become a challenge. A simple solution would be to create a common email address that all suppliers should send their invoices to for processing.
Automated invoice creation and OCR (optical character recognition)
This feature would automatically allow the software to read the invoice data and match it to the purchase order and other relevant documents. This can help automate the invoice matching process and save time for the AP team.
For recurring invoices, having an automated invoice creation system is extremely helpful. You can save a lot of time and effort by automating a recurring task for the team.
Automated matching rules and approvals engine
This is an extremely important feature to be able to automate the invoice matching process. As mentioned above, we can have two-way, three-way, or quadruple invoice matching and each type has increasingly more data points to match before approving the invoice for payment. In invoice matching software, the rules engine allows us to define which data points should be checked against each other before moving to approval. The invoice matching software should also allow us to define the approval process, that is, in which case the invoice should be approved automatically or when it should be reviewed and to whom.
Tolerance match
Tolerance matching allows the system to automatically accept invoices when they fall within an acceptable range. Typically, invoices would be invoices if there is not an exact match in data between, for example, an invoice and the purchase order. However, with a tolerance set, in case small discrepancies (due to tax addition or any other reason) are acceptable, the invoice can still be processed for payment.
Conclusion
In the modern business environment, invoice matching software is crucial for the Accounts Payable team to function effectively. By automating invoice matching processes, businesses can look to not only improve productivity but also reduce costs and eliminate errors that could lead to incorrect payments being processed. With the help of ai and machine learning invoice matching software like Nanonets, you can help businesses achieve growth by streamlining their entire AP process.
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