What is Two-Way Matching in Accounts Payable?

For financial management, accuracy and efficiency are paramount. One area where this is particularly crucial is in accounts payable, where errors can lead to significant financial losses and operational disruptions. Two-way matching, a cornerstone process in accounts payable, helps ensure that invoices are accurate and valid before payment is made.

In this blog, we’ll delve into the importance of 2-way matching, its benefits, and best practices for implementation.

What is Two-Way Matching?

Two-way matching is a process used in accounts payable to compare an invoice received from a vendor with the corresponding purchase order (PO) issued by the buyer. The goal is to ensure that the goods or services listed on the invoice were both ordered and received by the buyer. This process involves matching three key documents:

• Purchase Order (PO): A document issued by the buyer to the vendor specifying the goods or services to be purchased, including quantities, prices, and delivery dates.
• Invoice: A document issued by the vendor requesting payment for the goods or services provided, including details such as quantity, price, and any applicable taxes or discounts.

Once the two-way matching process is finished, the invoice can then be approved, paid, or denied. If there are discrepancies between the two documents, the invoice is put on hold until the issues are resolved or corrected. 

Companies typically use 2-way matching to save time on verifying invoices, minimize the risk of mistakes, and make sure that the invoice amounts are accurate.

Benefits of Two-Way Matching

Paying invoices without verifying their accuracy can harm your business by slowing growth, reducing cash flow, and compromising financial health and security. Without two-way matching, businesses can suffer costly mistakes, such as:

1. Challenges in Bookkeeping: When documents and financial records don’t align, it poses difficulties in accurately managing the company’s finances, potentially leading to errors in financial reporting.
2. Employee Integrity Concerns: Instances of employees creating fraudulent vendor accounts or submitting false payment requests can result in financial losses and erode trust within the organization.
3. Risk of Duplicate Payments: Paying for the same product or service multiple times due to duplicate invoices can strain the company’s finances and disrupt cash flow management.
4. Threat of External Fraud: Invoices submitted by external fraudsters for goods or services never ordered or received can cause significant financial harm and damage the company’s reputation.
5. Vendor Oversight Challenges: Dealing with vendors who frequently make errors in their billing can lead to payment discrepancies and strain the vendor relationship.
6. Potential for Unintended Mistakes: Errors such as transcription or calculation mistakes can result in incorrect payment amounts, impacting financial accuracy and vendor trust.

Implementing verification standards, such as two-way matching or more, can help your business, including:

1. Accuracy: Two-way matching helps ensure that invoices are accurate by verifying that the goods or services listed on the invoice were both ordered and received.
2. Cost Savings: By reducing errors and discrepancies, 2-way matching helps avoid overpayments and costly invoice discrepancies.
3. Efficiency: Automating the 2-way matching process can significantly improve efficiency by reducing manual effort and processing time.
4. Compliance: Two-way matching helps ensure compliance with internal controls and regulatory requirements by validating invoices against purchase orders.
5. Vendor Relationships: By resolving discrepancies promptly and accurately, organizations can maintain positive relationships with their vendors.

What is the Two-Way Matching Process?

The two-way matching process typically involves the following steps:

1. Receipt of Invoice: The accounts payable department receives an invoice from the vendor for goods or services provided.

2. Matching with Purchase Order: The invoice is matched with the corresponding purchase order to ensure that the items, quantities, and prices listed on the invoice match those specified in the PO. Two scenarios can arise:

• Scenario 1: If the invoice amount falls within an acceptable range, the invoice is approved for payment.
• Scenario 2: If the invoice amount exceeds the acceptable range or there are discrepancies between the invoice and the purchase order, the invoice is placed on hold. In this case, the accounts payable manager must manually resolve the issue before the invoice can be approved for payment.

3. Resolution of Discrepancies: If there are any discrepancies between the invoice and the purchase order they are resolved through communication with the vendor and internal departments.

5. Approval and Payment: Once the matching process is complete and any discrepancies are resolved, the invoice is approved for payment. Then payment is scheduled, and the transaction between the company and the vendor is completed.

Best Practices for Two-Way Matching

To make the most of the two-way matching process, organizations should consider the following best practices:

1. Implement Automation: Implementing automated accounts payable solutions can streamline the 2-way matching process, reducing manual effort and errors.
2. Perform Regular Reconciliation: Conduct regular reconciliation of invoices and purchase orders to identify and resolve discrepancies promptly.
3. Instill Communication Channels: Foster open communication with vendors to address discrepancies and resolve issues on time.
4. Conduct Proper Training: Provide training to accounts payable staff on the two-way matching process and best practices to ensure consistency and accuracy.

Streamline Two-Way Matching in Accounts Payable

In smart accounts payable processing, matching invoices is crucial for validating payments. However, manual matching can be time-consuming and costly. By using automation tools, businesses can reduce manpower and speed up payment processing.

Choosing an accounts payable automation platform with invoice-matching capabilities can accelerate the validation process. This frees up staff to focus on strategic tasks, such as building supplier relationships. Additionally, automation can help detect errors and fraud more accurately than manual methods.

Peakflo offers a 2-way matching solution as part of its AP automation platform. This feature allows businesses to compare invoices with purchase orders quickly and accurately. By using Peakflo’s solution, companies can improve efficiency and reduce errors in their accounts payable processes.