Listen to this blog

Before we get into the automation part, let’s first simply try to understand – what is a 3 Way Invoice Matching process in ap teams. A three-way matching solution, powered by Invoice Matching Software, ensures payments to suppliers are accurate while protecting the business from unnecessary spending. Having an appropriate matching process builds confidence in the firm’s supply procedures and minimizes any adverse impact on cash flow.

According to an ACFE (Association of Certified Fraud Examiners) report, rooting out unauthorized or fraudulent invoices can save a company an estimated 5% of its annual revenue.

3 Way Invoice Matching Process

So how does it work? And how can organizations automate this process? Let’s take a deep dive – The supplier ships the goods and once received, the receiving department does a quality check and notifies the Accounts Payable staff about the arrival of the shipment. This notification is often accompanied by a goods receipt note, which confirms the acquisition of goods or services.

The invoice contains all the relevant details such as a description of goods, purchase order number, quantity, unit prices, etc. The supplier’s Invoice Matching Software is then used to verify the details against the purchase order and goods receipt note.

This comparison of data is called ‘invoice matching’ and is a vital step in the Accounts Payable process. It involves cross-checking all the documents to ensure consistency and accuracy in the payment process.

The 3-way match principle establishes that data points in all 3 documents must match for a successful 3-way matching. These three documents are the purchase order, goods receipt note, and supplier’s invoice.

First, We Need to Understand the Procure-to-pay Process

The first step in this process is to place the order with a supplier through a purchase order (PO). This document will contain detailed information about the required goods/services along with their pricing. Once the PO is approved by the required authority it is sent to the supplier and the order is placed.

The supplier ships the goods and once received, the receiving department does a quality check and notifies the Accounts Payable staff about the arrival of the shipment. As soon as AP receives this information, they start working on creating a supplier invoice. The invoice contains all the relevant details such as a description of goods, purchase order number, quantity, unit prices, etc.

Once the invoice is generated, it is then compared to the purchase order. This comparison of data is called ‘invoice matching’ and is a vital step in the Accounts Payable process. After the invoice is matched with the PO, it is then routed for approval. Once it is approved, the payment is processed

The 3-way match principle establishes that data points in all 3 documents must match for a successful 3-way Invoice Matching Software. If any of it fails to match, then the invoice payment is put on hold until a resolution is achieved.

Let’s see what the pain points in manual invoice matching and fraudulent invoices are

Time-consuming– The entire process from receiving the PO to making the payment can take up to 30 days. A significant portion of this time is spent on manual matching of invoices with purchase orders and other documents.
High risk of errors– With so many documents and data points to invoice match, there is a high chance of human errors. These errors are often a result of the manual matching process, which is prone to mistakes and inconsistencies. This can lead to incorrect payments and cause delays in the process.
Lack of visibility– Since the entire process is manual, it is difficult to track the status of invoices and payments. This includes tracking documents like the packing slip, which can be easily misplaced or overlooked in a manual system. This lack of visibility can lead to inefficiencies in the process.

3 Way Invoice Matching with Goods Receipt Note

3 way matching process can be automated using a touchless invoice processing powered by Artificial Intelligence (AI). This automation empowers the accounts payable team to focus on more strategic tasks rather than manual data entry.

Zycus’ supplier management portal empowers suppliers to create and share digital invoices with the buyers. With the help of Zycus configurable workflow management software invoices, purchase order, and receiving documents are at a central location. This data is captured into invoice matching software that uses AI to match, manage, receive, and approve, all supplier invoices, irrespective of source or original format. This streamlined approach significantly improves the efficiency of processing vendor payments.

Download our whitepaper: E-invoicing Maturity Model for AP Process Improvement

Benefits of 3 Way Invoice Matching Automation

This automation of 3 Way Invoice Matching can help organizations in multiple ways –

Time savings: Automating the process can help organizations save a lot of time as it eliminates the need for manual data entry and invoice match.
Reduced risks of errors: Automating the process helps reduce the risks of errors as it removes the human element from the equation.
Increased visibility: Automating the process helps increase visibility into the accounts payable process as it provides real-time insights into the status of invoices and payments.
Improved supplier relationships: Automating the process helps in improving vendor relationships as it leads to timely payments. This, in turn, helps organizations get early payment discounts and improve their cash flow.
Streamlining workflows: Approvals for purchasing and invoices are faster, reducing the risk of errors. Vendor invoices, delivery status, and purchase order are auto-tracked in real-time to ensure the elimination of long email chains.

Download our research report: Invoice Workflow Automation (IWA) Report

Conclusion

Having an AI-powered autonomous AP function can save up to $300K annually just out of FTE costs. (According to a Purchase to Pay performance study, top performing organizations employ 5.3 FTE per billion vs. 17 FTE for peers).

Zycus’ 3-way invoice matching automation process helps organizations not only save time and money but also helps in improving the accuracy of data and gives organizations better visibility and control over their procure-to-pay process.

We invite businesses to schedule a free demo and take a step toward transforming procurement functions to be more strategic and efficient, boosting the business bottom line.

Related Read: