Optimize Vendor Invoice Processing with Matching Policies Based on Value, GL Account, and Vendor Type

Tailor invoice matching policies by vendor type, value, and GL account using AI-powered automation.

This blog outlines best practices in matching policies for vendor invoice processing, considering various factors like vendor characteristics, purchase value, and GL account specifics.

Why Matching Policies Matter in Vendor Invoice Processing

This blog outlines best practices in matching policies for vendor invoice processing, considering various factors like vendor characteristics, purchase value, and GL account specifics.

1. Core Matching Policy Types in Invoice Processing

Matching policies are controls put in place to ensure that payments made to vendors are accurate, authorized, and for received goods or services. The most common types of matching include:

3-Way Matching: This involves matching the purchase order, the goods receipt note/service receipt, and the invoice before payment is processed. It is the most thorough matching process. The larger % of all payments should go through the 3-way matching process.
2-Way Matching: This matches the purchase order and the invoice, suitable for services or when goods receipt documentation is not feasible. Sometimes, 2-Way is performed between goods delivery notes and invoices if POs are not available.
Manual Invoice Approvals: Used primarily for non-PO-driven expenses, where invoices are approved based on predefined authority metrics.

2. Tailoring Matching Policies Based on Vendor Type

Implementing vendor-specific matching policies can streamline AI-led automation and mitigate vendor risks. Below is a table illustrating different scenarios and suggested policies:

VENDOR TYPE	EXAMPLE SCENARIO	SUGGESTED MATCHING POLICY
Trusted Vendor	Long-term supplier with a consistent delivery record	2-way matching or manual approvals for transactions under a certain threshold
New Vendor	Supplier without an established relationship	3-way matching for all transactions, regardless of size
High-Risk Vendor	Supplier with previous discrepancies in deliveries	3-way matching with additional audits for the first few transactions
Frequent Small Purchases Vendor	Supplier for minor, recurring operational needs	Manual approvals or simplified 2-way matching for efficiency

3. Matching Policies Based on Transaction Amount

The value of the transaction should directly influence the level of scrutiny applied. Here are examples:

TRANSACTION VALUE	EXAMPLE SCENARIO	SUGGESTED MATCHING POLICY
High-Value	Capital equipment or a large service contract	3-way matching to ensure accuracy and prevent financial discrepancies
Medium-Value	Office furniture, mid-size projects	Marketing Manager
Low-Value	Office supplies, minor services	2-way matching or manual approvals, prioritizing efficiency. This could be Invoice & GRN or Invoice & PO.
Micro-Transactions	Snacks for office, minor app subscriptions	Manual approvals with periodic review for patterns or policy adjustments. Manual approval authority matrices for such purchases typically can be just 1 or 2 levels.

4. Aligning Matching Policies with GL Account Types

The nature of the expense also dictates the appropriate matching policy, as demonstrated in the table below:

GL ACCOUNT TYPE	EXAMPLE SCENARIO	SUGGESTED MATCHING POLICY
Capital Expenditures	Purchasing new machinery or buildings	3-way matching to ensure accuracy, given the long-term impact
Operating Expenses	Monthly utility bills, rent payments Monthly utility bills, rent payments	2-way matching or manual approvals for regular, expected expenses
Research and Development	New project development costs	3-way matching to closely monitor and control investment in innovation
Marketing and Advertising	Campaigns, promotional materials	2-way matching, considering the varying scales and flexibility needed

5. Best Practices for Implementing Matching Policies

Automate Where Possible: Leverage technology to automate matching processes, reducing manual errors.
Regularly Review Policies: As business relationships evolve and transaction patterns change, regularly review and adjust matching policies to ensure they remain effective and efficient.
Educate Your Team: Ensure that all team members involved in the procurement and accounts payable processes understand the matching policies.
Monitor and Audit: Regularly monitor transactions for compliance with matching policies and conduct periodic audits to ensure policies are being followed and remain effective.

6. Leveraging AI to Automate and Enhance Matching Policies

AI algorithms will automate the extraction of relevant data from purchase orders, invoices, and receipts, regardless of format. AI can match these documents at scale, identifying discrepancies or mismatches between purchase orders, delivery notes, and invoices, thus enforcing the chosen matching policy without manual intervention.

AI systems can learn from historical transactions and adapt to the company's purchasing patterns over time. This means that the system can identify which vendors or transaction types are more prone to errors and adjust the matching policy level accordingly. For instance, if a certain vendor frequently has discrepancies in invoices, the AI system can flag transactions with this vendor for more detailed reviews.

AI systems offer a high degree of customization, allowing companies to tailor matching policies based on specific criteria, such as vendor category, transaction size, or expense type. This flexibility ensures that the matching process is both efficient and aligned with the company's risk management strategies.

Smarter Invoice Processing Through Tailored Matching and AI Integration

In conclusion, adopting a strategic approach to matching policies in vendor invoice processing can significantly enhance financial accuracy, improve vendor relationships, and optimize operational efficiency. By considering vendor characteristics, transaction value, and GL account types, and layering in automation and AI, finance teams can streamline approvals, reduce manual intervention, and minimize errors. Tailored matching policies not only strengthen internal controls but also empower companies to scale operations with confidence and precision.