PO & Invoice Matching: The Stampli Guide

Fraudulent invoices and human error cost businesses big.

According to a report by the Association for Finance Professionals in January 2023, 65% of organizations fell prey to payments fraud in 2022. 

Almost half (44%) were unable to retrieve the stolen funds.

If your business isn’t protected against payments fraud and human error, it’s putting money at risk. Invoice verification is your first line of defense against fake, duplicate, or erroneous invoices. It’s also the best way to prevent data entry, coding, and shipping errors that can slow down your entire AP process and cause headaches.

Read on to discover the benefits of implementing an invoice-matching process for your accounts payable department. We’ll examine the different matching types, their costs and benefits, and how to set up an effective invoice verification workflow. Also, we’ll look at how invoice processing automation gives your business the best protection against fraud and errors. 

Let’s start with a business scenario explaining how invoice management works and why it’s so important.

Why is invoice matching so important to accounts payable?

In a nutshell, invoice matching involves cross-checking the details on an invoice with other supporting documents, such as purchase orders, contracts, and shipping documents, to ensure they match. If the details match, the invoice is verified, and AP sends it for approval. However, if there are discrepancies, the invoice fails the validation process, and AP investigates further to confirm the details.

I run a sports gear manufacturer in the Midwest. We make fishing, hunting, and adventuring gear sold in stores worldwide. I’m taking the company over from my father, who built the business from scratch and is now enjoying a happy retirement. 

We’re doing well, but we’re running into some challenges with the business that could affect our profitability. 

First, we’re falling behind our competitors on pricing and turnaround times, partly because we have been slow to implement process automation technology to streamline our production processes. Second, growing consumer demand for sustainable and recyclable products means we need to improve our manufacturing processes and work with our suppliers to ensure our products comply with certifications and standards. And finally, we took a big hit when COVID disrupted our supply chain, so we’re looking for a better way to integrate our suppliers through supply chain automation.

This would be a big challenge for any business, but I have another problem – Dad. 

Let’s just say my father is “old school.” Most of our accounts payable processes are paper-based, and most of our staff have been here forever. The majority of our suppliers have been here forever too, and things have always “just worked.” The problem is we’re falling behind the market, and struggling to keep up with the changes. I need to find a way to bring the business back up to speed while retaining the character and vision my father worked so hard to build – and which our customers love.

I’ve been looking for automation solutions to improve our core manufacturing and business processes. We’re considering SAP to help manage the manufacturing and sustainability side, and we’re looking for an accounts payable solution to help us bring our procure-to-pay workflows up to speed. One of the challenges we need to solve is improving our invoice verification process.

How the invoice and purchase order matching process works

We run a complicated business. First, there are our raw materials: textiles, mechanical components, plastics, you name it. Then there’s our machinery, which constantly needs retooling, maintenance, and upgrading. On top of that is the rest: logistics, storage, delivery, and design.

With all this detail comes a complicated supply chain. This is where invoice verification is crucial for us. We run tight margins, so we need to watch our costs very closely. We have over 1,000 suppliers worldwide, and most of them invoice us monthly. To ensure the invoices are correct (and verify our supply costs), we need to check them against the other documents. Today, that involves our AP team manually checking the paper invoices against a bunch of other paper documents. Easy if you’re only talking about one fishing rod.

Not so easy if you make 114 different types of fishing rods.

Here’s how we check our invoices today.

Documents used in the invoice matching process

We use three different methods to verify invoices, depending on the type of purchase and what details we want to check. But first, let’s go through the documents we use in our P2P processes:

Purchase Orders (PO) 

We send a PO whenever we want to order something from a supplier. Our POs are very detailed. For example, a typical PO for a textile order could contain 100 separate line items, each with a description of the textile type, color, and amount. Each PO also includes pricing, quantities, PO number, and other information.

Shipping Receipt

When a supplier sends us a shipment, it always contains a shipping receipt (goods receipt or packing slip). Usually, this is a paper document dropped off by the truck driver at our receiving dock. The shipping receipt contains a detailed list of the products in the shipment. In the case of a partial shipment, there may be more than one shipping receipt to a PO, or one shipment may contain products from multiple POs.

Supplier Invoice

The supplier sends us an invoice after the completed shipment. Usually, the invoice contains the details from the PO, line items listing each product, quantity and price, the PO number, taxes, and any discounts or credits. Like shipping receipts, invoices can be for partial shipments or may cover more than one PO.

In addition to these three documents, our business sometimes uses other documents to verify invoices. Sometimes we use the vendor contract to verify pricing and terms, especially for orders made without a PO or when we purchase services. We may also compare invoices against our customer specs to ensure our supplier is charging us for the right products. 

Our matching process begins after the supplier invoice arrives at our accounting department. Once the invoice arrives, the AP clerk locates the transaction documents they need for the type of invoice matching they want.

Here’s how the matching process works.

Types of invoice and PO matching processes

We’ll use one of the following invoice matching methods, depending on what details we want to verify.

2-way matching

Two-way matching is verifying an invoice by comparing it against the corresponding purchase order. Usually, this means our AP clerk gets the PO from Purchasing and checks the details and each line item against the invoice. For example, they’ll check that the PO and invoice amounts match and include our supplier’s correct name and address, matching GL codes, and accurate product descriptions and specs.

3-way matching

The three-way matching process is identical to 2-way matching, except we add a step to verify the shipping receipt against the invoice and PO. We use 3-way matching for large or complex orders or verify invoices with multiple POs or partial shipments. To verify the invoice, our clerk checks the shipping receipt to confirm the products and quantities received match those on the PO and invoice. 

If we receive a partial shipment, our clerk will check the shipping receipt to see if there’s an explanation (out of stock, back ordered, etc.). They may also confirm whether the supplier is asking for partial or full payment on the invoice.

4-way matching

In cases where our clerk finds a discrepancy using 2-way or 3-way matching, the AP team may physically confirm that we actually received the shipment. They can do this by checking with our receiving department or floor managers to confirm the shipment actually arrived, or in the case of services, checking with the employee who purchased the services to see if they were delivered. 

Unfortunately, our AP team falls back on 4-way matching a lot. We’re a close-knit organization, and sometimes it’s easiest to just pick up the phone or send an email to confirm a delivery. The problem is that every request ties up a bunch of people and causes delays. And, of course, if we can’t find the shipment right away, it can kick off a wild goose chase.

Why manual invoice matching doesn’t work

Manual invoice matching is great when documents match. However, that’s not the case when things don’t match. For example, if the product specs for a textile shipment on the invoice don’t match the specs on the PO, it can be very hard to match the line items, even if the GL codes for the category are the same. The mistake could be a GL coding error on the PO or invoice, or the vendor could have included the wrong specs. Either way, the AP clerk needs to figure it out.

Discrepancies aside, manual matching isn’t ideal. It’s time-consuming to sort through file cabinets and emails to find invoices, POs, and shipping receipts and visually compare them to see if they match. And to be honest, if we’re in a busy cycle, we don’t check invoices as often as we should because our team is focused on getting vendors paid on time. It wouldn’t surprise me if we were paying for stuff we never ordered. What we really need is a way to check every invoice as soon as it arrives.

That’s where AP automation comes in. Automated invoice processing solutions use AI and machine learning to automatically scan, enter, and code vendor invoices as soon as they arrive. By integrating the right AP automation solution, we can automatically perform two and three-way matching on every invoice we receive. Even better if the solution can do it without us needing to change our existing processes.

The advantages of automated invoice matching

Apart from automatically verifying every invoice we receive, automated invoice processing has other significant advantages to our business. Here are a few of the big ones:

Faster invoice processing

By automatically scanning and entering every invoice and transaction document, we can eliminate manual processing from our P2P workflow. Not only does this speed things up and improve relationships with our vendors, but it also frees our employees to do more interesting and valuable work.

Better profitability

By confirming every line item on every invoice, we can drill down into our product costing. For example, if we know that a jacket requires a certain type of waterproof textile, we can easily find the cost of that textile from the invoice and work out the cost allocation for the jacket.

Improved cash flow

Verifying invoices means fewer invoice errors and less chance of overpayments, which is great for managing cash flow. Also, by shortening the time it takes to pay our suppliers, automation makes it easier for us to obtain early payment discounts.

More protection against fraud

Our paper-based processes made us vulnerable to payments fraud. Automated matching gives us a first line of defense by detecting and flagging invoice discrepancies that human reviewers might miss. 

Seamless ERP integration 

Many accounts payable automation solutions integrate with ERPs to automatically sync communications and PO, shipment, and invoice data. This provides our company with a single source of truth and access to accurate, real-time accounting data.

With these benefits in mind, let’s walk through how automated invoice-matching processes work and how to build an effective matching workflow.

How automated invoice matching works

We followed a four-step, high-level process to implement automated invoice matching at our company.

Step 1: Define your invoice-matching process, thresholds, & tolerances

The first step in designing an automated invoice-matching workflow is to map and document your current matching processes. Doing this will allow you to select the automated invoice processing solution that best fits your business.

At the same time, decide on the tolerances for when your AP automation system should flag a discrepancy. For example, a small quantity deviation or price deviation between the PO and invoice is normal on some of our invoices. So we set our system to ignore discrepancies under a certain threshold. 

In the same way, you can set your system to automatically verify high-value invoices, as those invoices are the most prone to fraud. You may also want to set thresholds for other variables like vendor past performance or new vendors.

Step 2: Identify stakeholders

After you’ve mapped your existing processes, identify the stakeholders involved in your procure-to-pay process and list their roles and responsibilities. For us, this includes our accounts payable team, purchasers, receivers, vendors, floor managers, and approvers. 

Step 3: Define communication channels

The next step is to set up how you want everyone to communicate with each other. This is a key step. Good communication keeps everyone on the same page and keeps things from falling through the cracks. For us, this meant moving from emails, phone calls, and coffee chats to a simple, centralized communication channel. We also wrote down our policies and institutional knowledge on tasks like confirming line items and details for our POs and invoices, when we accept or reject an invoice, how to investigate invoices, and when to include vendors.

At the same time, we implemented an online vendor portal that brings our vendor communications into our AP solution. This has been a game changer for us and our suppliers. Team members and vendors can ask questions about invoices and share information all in one place.

Step 4: Choose what tasks to automate

Finally, look at what tasks you can automate with the invoice management solution. As we developed our invoice-matching workflows, we identified tasks like touchless invoice scanning, data entry, and vendor document management, which we could optimize with automation software. This information helped us find the best AP automation solution for our needs.

Once you’ve finished these steps, you’ll have what you need to begin looking at tools to automate your invoice management processes. As mentioned, we went with an AP automation solution that provides end-to-end automation for our invoice management processes and integrates seamlessly with our ERP.

Let’s talk about how that helped us improve our invoice matching.

How AP automation improves PO & invoice matching

Our chosen Accounts Payable Automation solution provides automated two and three-way matching that lets us verify every invoice we receive. It also facilitates four-way matching through collaborative features like centralized communication and vendor document management. 

AP automation makes it easier for our AP team to investigate, identify, and correct discrepancies. For example, if an invoice and PO show different quantities, the AP clerk can send a direct message to our receiver to check the inventory or to the supplier to confirm the shipment. Best of all, the system logs every communication so we maintain a complete audit trail.

The ability to automatically verify every PO and invoice also helps us manage our P2P process and global supply chain. For example, we can identify vendors who consistently send incorrect invoices and work with them to resolve the problem.

Finally, our AP solution integrates with SAP to sync real-time transaction data across our company. This makes it easier for us to verify invoices and lets our finance team see if an invoice has been verified and approved before they make payment. 

Stampli: your ideal match for invoice matching

Stampli is the only Accounts Payable Automation solution designed to meet the evolving needs of modern AP departments. Stampli simplifies invoice management by removing the need for external communication, ad-hoc solutions, and manual AP tasks. It allows AP teams to see every transaction and makes invoice matching, audits, and invoice approval processes effortless, enabling you to make informed strategic business decisions.

Human-in-the-loop invoice verification with Billy the Bot

Stampli is easy to learn and user-friendly with the help of Billy the Bot™. Powered by AI and machine learning, Billy efficiently captures and categorizes data from paper and electronic receipts. He can also understand different line types, including general ledger, charges, and resources, and handle partial payment workflows and multiple POs.

Billy is a powerful ally against fraud. He detects signs of fraud and errors that are often easily missed, such as slight changes to invoice information or inflated line items, and flags them for further investigation by AP team members. Combined with Stampli’s industry-leading collaboration and analysis functionality, this empowers AP and procurement team members to catch and stop fraudulent invoices before they get paid.

The case studies speak for themselves. Stampli delivers real results by helping businesses optimize invoice processing without changing their ERP system or AP processes. Contact us today to set up a free demo.