The Importance of Purchase Order Matching to Invoice in Procurement
Uncover the importance of purchase order matching to invoices in modern procurement. Explore the benefits of automation, real-world examples, and strategies to prevent costly errors and ensure seamless financial operations.
Do you work in procurement and finance? Then you know that accuracy is king. A robust purchase order (PO) matching process ensures that invoices align with original orders, reducing errors, preventing fraud, and streamlining financial operations.
But how does PO matching work, and why is it critical for organizations aiming to refine their procurement processes? This guide will break down the concept and introduce actionable insights to enhance your understanding of PO matching to invoices. You will learn:
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Purchase order matching, commonly referred to as invoice matching, is the process of comparing purchase orders, goods receipt notes (GRNs), and supplier invoices to ensure consistency across all documents. The objective is to confirm that an invoice is valid and should be paid.
2-Way Matching: Compares the PO with the invoice.
3-Way Matching: Compares the PO, invoice, and goods receipt.
4-Way Matching: Adds a quality inspection check to the 3-way process.
The degree of matching depends on the organization’s control requirements and the nature of the procurement. For example, a retail company might prioritize 3-way matching, while a pharmaceutical company might rely on 4-way matching for stricter compliance.
Manually processing invoices introduces room for human error. Studies show that over 3% of invoices contain discrepancies, which can lead to overpayment or disputes with suppliers. Implementing PO matching reduces these risks by automating checks.
Invoice fraud is a significant concern for businesses. By validating that each invoice corresponds to a legitimate purchase order, companies can mitigate risks associated with duplicate or fraudulent invoices.
Matching POs and invoices is tedious when done manually. Automated solutions significantly reduce processing time, allowing finance teams to focus on strategic tasks.
Accurate and timely invoice processing ensures suppliers are paid promptly, fostering trust and collaboration. A Deloitte survey found that 82% of suppliers prioritize working with buyers who have transparent payment systems.
LEARN MORE: Procurement vs Purchasing: Differences and Best Practices
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The process begins when the buyer creates a detailed purchase order. The document should include:
Once goods are delivered, the receiving department verifies the quantity and quality, generating a “goods received notice” (GRN) or delivery receipt.
Suppliers submit an invoice, which must match the original PO in terms of quantity, pricing, and terms.
An automated or manual system compares the PO, GRN, and invoice. Discrepancies, if any, are flagged for resolution.
Once verified, the invoice is approved, and payment is issued according to agreed-upon terms.
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Even with the best systems, companies face hurdles in implementing efficient PO matching.
Mismatch errors occur when suppliers deviate from the original PO terms. This could be due to pricing changes, shipping errors, or incorrect item descriptions.
Large organizations deal with thousands of POs and invoices daily. Without automation, tracking and matching these documents is nearly impossible.
Some suppliers fail to include POs on their invoices, complicating the matching process. Clear communication and supplier education can mitigate this issue.
Legacy ERP systems may lack the sophistication to handle 3- or 4-way matching, leading to inefficiencies.
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Several businesses exemplify excellence in purchase order (PO) matching by leveraging technology to streamline procurement and enhance operational efficiency. Here are some noteworthy examples:
This rapidly growing candy producer implemented procurement automation to overcome challenges with manual processes, such as delayed requisition approvals and errors in supplier management. By automating their PO matching, they ensured smooth production flows and accurate procurement.
Tools like Stampli helped streamline supplier selection, automate PO creation, and enable seamless three-way matching between POs, invoices, and goods receipts, reducing errors and improving cash flow.
Businesses using Revv’s Data Studio feature achieve exceptional efficiency in PO matching. This tool automates data mapping from external sources like ERP and CRM systems into purchase order templates, ensuring accuracy and speeding up the matching process. Revv also enables real-time collaboration, which minimizes errors during PO creation and ensures alignment between departments.
FIND OUT MORE: Streamline PO Processing with Purchase Order Automation
Known for its advanced supply chain practices, Amazon excels at PO matching by integrating automation tools to handle massive volumes of orders. The company’s use of AI-driven procurement systems ensures high levels of accuracy and compliance, allowing them to maintain robust vendor relationships while managing costs effectively.
Walmart utilizes automated systems to support three-way matching, a core component of their procurement strategy. By cross-referencing purchase orders, goods receipts, and invoices, Walmart minimizes discrepancies and enhances its ability to handle high transaction volumes efficiently.
These companies showcase how automation tools like Stampli, Revv, or custom AI-powered systems can transform PO matching processes, improving speed, accuracy, and vendor relationships. Businesses adopting these strategies can significantly reduce costs and errors, setting benchmarks in procurement excellence.
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Yes, with modern procurement software, companies can automate the entire process. Tools like SAP Ariba, Coupa, and Artsyl’s InvoiceAction use AI and machine learning to identify discrepancies, reducing manual intervention.
In the case of discrepancies, the invoice is flagged for review. The procurement or accounts payable team resolves the issue by communicating with the supplier or the receiving department.
Not always. For low-value or recurring expenses like utilities, companies often bypass the matching process to save time. However, this practice should be monitored to prevent fraud.
Accurate PO matching simplifies audits by maintaining a clear trail of approvals and verifications. Auditors rely on this documentation to validate the legitimacy of expenses.
PO matching might not seem directly linked to environmental, social, and governance (ESG) goals, but it plays a role. By ensuring compliance with agreed-upon terms, companies can reduce waste (e.g., overordering or incorrect deliveries) and foster ethical supplier practices. Additionally, automated PO matching reduces paper usage, supporting sustainability initiatives.
READ MORE: Procure-To-Pay (P2) Process: A Complete Guide
AI algorithms can detect patterns and anomalies across invoices, POs, and GRNs, identifying mismatches more accurately than manual methods.
Blockchain ensures transparency and immutability in procurement transactions, reducing disputes over mismatches.
Modern purchase order matching tools seamlessly integrate with ERP systems like Oracle or SAP, streamlining workflows and improving accuracy.
Purchase order matching is more than a mundane finance task—it’s a critical process that drives accuracy, trust, and efficiency in procurement. By leveraging technology, fostering supplier collaboration, and addressing discrepancies proactively, companies can transform their PO matching processes into a competitive advantage.
Are you ready to optimize your procurement operations? Start by rethinking your approach to purchase order matching. The results will speak for themselves.
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