Automated payables matching
/Traditional Payables Matching
The classic approach to managing the accounts payable paper flow is to match three documents against each other, as follows:
Compare the supplier's invoice to the company's authorizing purchase order to ensure that the pricing terms are correct
Compare the purchase order to the receiving documents to ensure that the quantities received match the authorized amount
This comparison process, known as three-way matching, is slow, so many companies try to avoid it by shifting small-dollar payments to procurement cards, or by waiving the matching requirement if the amount of a supplier invoice is small. Yet another alternative is to pay based on the quantity received, and not bother with any supplier invoices.
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Automated Payables Matching
If, despite taking these alternative steps, a company still has a fair number of purchases requiring three-way matching, it can consider doing so through an automated process. Doing so requires that the following system components be present:
A document management system into which all supplier invoices are scanned as they are received.
An automated matching system, as is found in some enterprise resource planning (ERP) systems.
A data capture system that extracts information from scanned documents and stores this information in a database for use by the automated matching system. Data capture requires that a number of rules be loaded in advance, detailing such issues as where information is located on a supplier invoice, for each supplier invoice template.
Ideally, this combination of systems should scan all incoming invoices, extract information from them, load it into the ERP system for matching purposes, and schedule the invoices for payment.
A large amount of customization is required before these systems can be relied upon to consistently conduct three-way matching with minimal operator intervention. Typically, the system begins with a low success rate, which gradually increases as the data capture rules are improved to match the requirements of each supplier's invoice.
Given the cost of the systems themselves and the time required to customize them, this solution is only cost-effective in environments that must handle very large quantities of supplier invoices.
Example of Automated Payables Matching
A manufacturing company, Stetson Auto Parts, purchases raw materials from multiple suppliers. To ensure accurate payments and prevent fraud, the company implements an automated payables matching system that compares invoices, purchase orders, and goods received before processing payments. A typical transaction using this system is as follows:
Purchase order creation. Stetson places an order for 1,000 steel rods from Terminal Metals Ltd. at $10 per rod, totaling $10,000. The purchase order (PO) is generated in the company’s ERP system and sent to the supplier.
Supplier invoice submission. Terminal Metals ships the steel rods and sends an invoice for $10,000 to Stetson. The invoice enters the company’s automated accounts payable system.
Goods receipt confirmation. Upon delivery, the warehouse inspects and logs the receipt of 1,000 steel rods into the inventory system. A Goods Received Note (GRN) is generated, confirming the delivery matches the PO.
Automated three-way matching. The accounts payable system automatically compares three documents, which are the purchase order, supplier invoice, and goods receipt. Since all three records match exactly, the system approves the payment automatically.
Exception handling. If Terminal Metals had invoiced $10,500 instead of $10,000, the system would flag the discrepancy. The invoice would be sent for manual review before approval.
Payment processing. After successful matching, the system schedules and processes payment to the supplier per the agreed terms (e.g., net 30 days).
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