What is the Two-way invoice matching process?

kbadmin

1 year ago

Two-way invoice matching process

Invoice matching is a crucial component of the accounts payable process. It helps businesses maintain accuracy in their financial records and ensures they are paying only for the goods or services received. Among the various types of invoice matching, the two-way invoice matching process is widely used for its simplicity and efficiency.

What is Two-Way Invoice Matching?

Two-way invoice matching refers to the process of comparing two key documents before making a payment. These documents are:

1. Purchase Order (PO): A document issued by the buyer to the supplier, specifying the quantity and type of goods or services to be purchased along with the agreed price.

2. Invoice: A document sent by the supplier to the buyer requesting payment for the goods or services provided.

In a two-way match, the purchase order is matched with the invoice to verify that the amount billed matches the order details. The goal is to ensure that the buyer is paying for the correct items, in the correct quantities, and at the correct price.

How Does the Two-Way Matching Process Work?

Here’s a step-by-step breakdown of the two-way matching process:

1.Receiving the Purchase Order: When a company places an order, a purchase order is created, listing all the details of the goods or services, including descriptions, quantities, unit prices, and terms of the agreement.

2. Receiving the Invoice: Once the supplier fulfills the order, they send an invoice requesting payment. This invoice contains the same details as the purchase order, such as item descriptions, quantities, and the total amount to be paid.

3. Matching the Documents: The accounts payable team or software compares the details in the invoice with those in the purchase order. This includes matching the item names, quantities, and prices. If there are any discrepancies between the two documents (e.g., if the invoice lists a higher price than what was agreed in the PO), the payment is withheld until the issue is resolved.

4. Approval of Payment: If the two documents match without discrepancies, the invoice is approved, and the payment process begins.

Why is Two-Way Matching Important?

Two-way matching is essential for businesses for several reasons:

1.Accuracy and Fraud Prevention: The process ensures that a business only pays for what it has ordered. This reduces the risk of overpayment, duplicate payments, or paying for goods and services not received. It also helps prevent fraudulent invoices from being paid.

2. Simplified Accounts Payable: Two-way matching is easier and faster than more complex matching processes, such as three-way matching (which involves a goods receipt note). For companies dealing with low-risk purchases or services that do not require detailed delivery documentation, this method streamlines the process.

3. Cost-Effective: Since two-way matching involves fewer documents, it is less resource-intensive and more efficient than other matching processes. This can reduce processing costs and time for businesses, especially those handling a high volume of low-value transactions.

4. Improved Supplier Relations: By ensuring invoices are processed and paid accurately and on time, two-way matching can help maintain good relationships with suppliers. Prompt payments mean suppliers are more likely to prioritize future orders and continue offering favorable terms.

Limitations of Two-Way Matching

While the two-way matching process is beneficial for its simplicity, it may not always be suitable for all types of transactions. In situations where the risk of receiving incorrect goods or services is higher, or where delivery discrepancies are common, businesses may opt for a more comprehensive matching system, such as three-way matching. This process involves an additional step of matching a goods receipt note (GRN) with the PO and invoice to ensure that the correct items were delivered.

To visit: https://www.gst.gov.in/