Invoice matching: Definition, process, and examples

Invoice matching involves comparing and verifying the details and quantities listed on an invoice with corresponding purchase orders, receipts, and other relevant documents. The purpose of invoice matching is to make sure that the invoice accurately reflects the goods or services received and the agreed-upon terms and prices. 

‍

By matching invoices with purchase orders and receipts, businesses can identify and resolve any discrepancies or errors before proceeding with payment, helping to maintain accurate financial records and prevent overpayments or incorrect charges.

2-way invoice match vs 3-way invoice match

There are two types of invoice matching: 2-way match and 3-way match. 

3-way match

Most companies use the 3-way match method. In a 3-way match, three documents are compared: 

1. Purchase order: This is the document the buyer issues to the supplier, specifying the goods or services to be purchased, quantities, prices, and any terms or conditions.
2. Invoice: This is the document issued by the supplier to the buyer, requesting payment for the goods or services provided, including details such as quantities, prices, and any additional charges or discount
3. Receiving report or good receipt: This document is created when the buyer receives the goods or services from the supplier. It includes details such as quantities received, date of receipt, and any discrepancies or damages.

High-level example of 3-way matching: 

1. A car manufacturer needs steel to make their cars. The car manufacturer placed an order for 100,000 tons of steel. The purchase order is sent to the supplier. 
2. The supplier fulfills the order and ships the steel to the car manufacturer. 
3. Once the product is shipped to the car manufacturer, the supplier will send an invoice to their accounts payable department based on the purchase order. 
4. Upon receiving the steel at the car manufacturer’s plant, the receiving department will confirm that the quantity (100,000 tons) is correct and check that the quality is free of defects or damage. This confirmation process generates a goods receipt. 
5. Before payment is issued to the supplier, the manufacturer’s Accounts payable department will match the purchase order, goods receipt, and invoice. Any discrepancies will require adjustments to the payment and may involve communication with the supplier. 
6. Upon completion of the 3-way match, payment is sent to the supplier based on their payment agreement. 

2-way match

In a 2-way match, two documents are compared: 

1. Purchase Order 
2. Invoice 

High-level example of a 2-way match: 

1. A car manufacturer needs seatbelts for their cars. The car manufacturer makes seatbelts at one of their other plants since they use a proprietary design. The car manufacturer placed an order for 10,000 seatbelts from their distribution center. The purchase order is sent to the distribution center. 
2. The distribution center fulfills the order and ships the seatbelts to the car manufacturer. 
3. Once the seatbelts are shipped to the car manufacturer, the distribution center will send an invoice to their accounts payable department based on the purchase order. 
4. Since the seat belts are being sent from their trusted supplier’s distribution center, the receiving department does not perform the goods receipt check-in process. The receiving department will still look for defects and damages but does not produce a goods receipt document. 
5. Before payment is issued to the supplier, the manufacturer’s accounts payable department will match the purchase order and invoice. Any discrepancies will require adjustments to the amount.
6. Upon completion of the 2-way match, the intercompany payment is sent to the accounting department. 

‍

Since the 2-way match involves trust regarding receiving materials precisely the same as the purchase order, this process is only used with trusted suppliers. Most trusted suppliers are related to the purchasing company through joint ventures, subsidiaries, or parent companies.

Example of the invoice matching process 

The above process was a high-level example of 2-way and 3-way invoice matching. Most companies have a very detailed process regarding invoice matching. The exact process is as follows: 

1. Receipt of invoice: The purchasing company receives an invoice from the vendor via mail, email, or electronic data interchange (EDI).
2. Verification and validation: The invoice is checked for accuracy and completeness, such as the vendor’s name, invoice number, date, and amount. The 2-way or 3-way matching process is completed. 
3. Approval process: Once the matching process is completed, the invoice is routed via email or automated workflow to the appropriate department or personnel for review and approval . Most companies have approval thresholds where only a manager can approve invoices over an amount such as $25,000. The approval process ensures that the invoice adheres to company policies and procedures.
4. Coding and classification: An approved invoice is assigned the appropriate expense codes or chart of accounts to the invoice based on the nature of the goods or services provided. For example, the steel that's purchased to make cars is the “Raw Material” and would be assigned to the raw materials payables account. 
5. Data entry or automation: The invoice is ready to enter the company’s accounting system or enterprise resource planning (ERP) software. The accounting team will input relevant information such as vendor details, invoice number, amount, and payment terms. Payment terms are the conditions that determine how and when your customers should pay you. For example, net 30 means the total amount is due 30 days from the invoice date. 
6. Invoice matching with purchase orders/receipts using a 2-way or 3-way match: Refer to the above definitions. 
7. Discrepancy handling: Resolve any discrepancies or issues identified during the matching process. Examples of differences could be mismatches between purchase order and invoice pricing, damaged goods, missing goods, or shipping charges. Coordinate with the vendor or relevant department to resolve pricing or quality issues.
8. Approval and payment: Obtain final approval from authorized personnel for payment processing and schedule the payment according to agreed-upon payment terms, such as net 30, net 60, etc. 
9. Record and documentation: Maintain a proper record of the invoice, transaction, and related documents for future reference and auditing purposes.‍
10. Reporting and analysis: Generate reports to track invoices processed, outstanding payments, and vendor performance. Analyze metrics and key performance indicators to identify process improvement and cost savings areas.‍
11. Vendor communication: Communicate with the vendor regarding payment status, inquiries, or any other relevant issues.

Key takeaways of the invoice matching process

In summary, invoice matching is essential for accurate financial management, involving the verification of invoices against purchase orders and receipts. It comes in two forms: 2-way and 3-way matching, chosen based on transaction type and supplier trust. This process ensures the correctness of financial records and transactions, preventing overpayments and maintaining supplier relationships. Thoroughly conducted, invoice matching enhances financial accuracy, operational efficiency, and vendor relations.

Automatically match and process invoices with Ramp

Discover the power of Ramp Bill Pay, AP automation software that does more. Ramp leverages AI to automate the entire AP process, from invoice matching to payment. Say goodbye to manual data entry and hello to efficiency, as Ramp Bill Pay extracts invoice details and learns your coding preferences. It's not just about processing invoices faster; it's about enhancing financial accuracy and control. 

‍

With features like duplicate invoice detection, diverse payment methods (check, card, ACH, international wire), and seamless integration with accounting systems, Ramp Bill Pay automates your entire accounts payable workflow so every bill is recorded, approved, and paid without any data entry or repetitive tasks. Try Ramp for free.