AP Invoice Matching How ERP Payables and Purchasing Can Streamline AP Invoice Entry

Overview

Accounts Payable operates in a demanding environment. The volume of AP transactions is substantial, and the payables process can be difficult to complete, as AP interacts with nearly every department in the company as well as with outside vendors. To successfully meet its processing goals, AP must rely on both streamlined processing and sound controls. When AP’s processing goals are not met, vendors and internal company team members become upset causing rushed processing and, as always, the resulting processing errors.

The inability of AP to process transactions effectively can be traced to specific reasons such as out-of-date procedures, poor review and approval processes, inadequate executive support and not using the ERP to its full capabilities.

Automating the invoice matching process can result in material AP processing improvements and can drastically reduce processing errors. While invoice matching is a major way of streamlining AP processing, it’s often overlooked as many companies are reluctant to implement and use purchase orders, which are required in the matching process.

Generally, these companies view purchase orders as just another task to be completed which offers limited benefits.

I wrote an article awhile back; Making A Case for Purchase Orders to Improve Financial Processing and Controls which explains the benefits of using purchase orders and how they can increase AP processing efficiency, invoice review and approval and internal controls.

Invoice matching is generally classified into three general types two-way, three-way and four-way matching:

• Two-way matching involves matching the vendor invoice to the associated purchase order.
• Three-way matching matches the vendor invoice to the purchase order, as well as the associated packing slip or system receiving transaction.
• Four-way matching involves the same tasks as three-way matching. The fourth matching task is an individual confirmation that the terms of the purchase agreement conform to the goods or services delivered. This process is usually reserved for services and complicated purchases (e.g., consulting services, software, machinery etc.)

In companies using an ERP which supports purchase order functionality, the purchase order details can be pulled into and populate the applicable AP invoice entry screen. This functionality can streamline the invoice entry process considerably. Any post loading changes to the transaction (e.g., account code changes) are easily processed by the user.

When using invoice matching, the user can efficiently match the vendor invoice to the associated purchase order and receiving transaction. Additionally, “match variance parameters” can be set up in the ERP to allow the match to be completed if any variance discovered is below a pre-defined percentage.

An invoice matching conversation can become complicated very quickly. One product which handles purchase orders and invoice matching very effectively is Dynamics 365 BC. If you want to learn more about invoice matching, I found the following information on the Microsoft learning website: Accounts Payable Invoice Matching Overview 

In addition, if you’d like to discuss how D365 BC handles invoice matching and improves your company’s payables processing Contact us today to learn more

Functionality, Measures and Alerts

Measures and alerts are meant to assist the user in keeping abreast of processing status, identifying anomalies, and ensuring that implemented process controls are being effectively employed. The information below illustrates some of the interactions between AP invoice matching functionality, measures and alerts.

Functionality- ERP AP invoice matching

Measures and Alerts-

AP invoices processed but not posted within “n” days

Entering an AP invoice or loading the invoice entry screen from a PO is the first step in AP processing. After entering, the invoice needs to be matched, reviewed, confirmed and approved. After these processes are completed, the transaction is recorded into the GL by posting the transaction.

Use the AP invoices processed but not posted measure and alert to be sure that transaction posting is not delayed. Investigate any transactions not posted within a defined number of days to identify any invoice matching, approval or other processing issues.

 Functionality- ERP AP transaction posting

Measures and Alerts-

Accounts Payable transactions entered but not posted at period end

At first glance, this measure and alert would seem to be same as that described above. While the concept is the same, reviewing unposted AP transactions at the end of an accounting period plays a vital role in the accounting period close process. The key to accurate financial reporting is ensuring that all of the period’s associated transactions are accounted for and posted. Use the AP transactions entered but not posted at period end measure and alert to identify any AP period close issues and/or the need to process any period close accruals.

For additional insight into the accounting period close process. See: Accounting period close

Process Implementation Best Practices

Successfully implementing a new process isn’t always easy. Consider the best practices below to streamline and control new process implementations.

Understand the Process

• Be sure that all AP team members involved in invoice processing understand why invoice matching is used and are familiar with the different matching processes (e.g., two-way, three-way).
• Review the matching process to ensure that AP team members understand the tasks to be completed as well as the applicable ERP functionality.
• If you use different match processes for specific invoices, be sure that AP team members understand which process is used in each circumstance.
• Be sure that the AP manager understands the un-matched invoice reporting and how to use the report information to identify and resolve any matching issues.

Align Resources

• Assign specific AP invoice matching tasks to specific AP team members. Include staffing to support out of office coverage.
• Be sure that any company executives or non-AP team members included in AP transaction review and approval processes are aware of their responsibilities and tasks required, so as not to delay transaction posting.
• Assign measures and alerts review tasks to the applicable AP and accounting team members.

Improve the Process

• Use ERP tools, measures and alerts to assist in identifying and resolving invoice matching processing issues. Resolve any issues identified as soon as possible.
• If the volume warrants, use technology such as automated vendor invoice scanning and entry, auto-invoice routing and approval functionality. A simple internet search will yield several application options. Be sure that your company will really benefit from these types of applications. Try some of the best practices described here first, before making a substantial investment.

• Pay attention to the goods and services confirmation process used in a four-way match situation. Build the confirmation process that best suits your company’s needs. For example, you can use an e-mail template as a tool for simple confirmations. For more complicated confirmations, define confirmation requirements including the level of detail required, documentation standards and testing results when required.
• Save scanned invoice images and confirmation documentation to system directory folders after invoice processing. For example, name the folders using the invoice entry or batch date. Name each record by vendor and invoice number. By following this process, paper invoice filing can be simplified (or eliminated). Tailor the folder structure to suit your company’s needs. Maybe a structure using only a vendor folder and invoice number record names will work for you. Keep it simple, but effective. Future invoice searches become more effective as AP team members can use directory tools such as file search and filtering to find the invoice record and the attached invoice image.
• Use the ERP’s transaction file attachment feature to attach the images to the transaction enhancing the review and approval process.
• AP transaction processing is a multi-step process, invoice entry, invoice matching, review and approval and transaction posting. Some ERPs allow the user to enter and post the transaction at the same time. While this functionality speeds up processing, a lot of companies don’t like it as it may not provide adequate internal controls. In companies using the two step process (processing then posting) the AP manager reviews all the unposted AP activity, resolves any issues and posts the transactions as required.

Process Communication

• When hiring new AP team members, be sure to include invoice matching, invoice review, approval and transaction posting (optional) training as a part of their onboarding. If new AP team member(s) are at a manager level, include any additional tasks.
• Assign a temporary mentor from AP and accounting (if needed) to ensure that training happens.

Common System Permissions

System permissions and security functionality play a vital role in any ERP process. Using these ERP tools allows the user to set up efficient and controlled processes. Common invoice matching functionality, measures and alerts examples are displayed in the tables below:

Conclusion

To successfully meet its processing goals, AP must rely on both streamlined processing and sound controls.

An organized and effective vendor invoice matching process is critical to efficient and accurate AP processing. Remember, purchase orders play a key role in AP invoice matching. If used correctly, POs strengthen AP processing efficiency and accuracy while at the same time improve internal controls, especially in vendor invoice review and approval.

Use the functionality, best practices, measures and alerts described here to avoid rushed processing and considerably reduce the number of AP processing errors.

Process Flow