When the procurement function of any business is aligned with the accounts payable (AP) function, processes move along more smoothly, benefitting the entire company. In a perfect world, a purchase order is issued, the items ordered arrive on time, and an invoice goes out for exactly what was ordered. Daniel Andrew, senior vice president of sales for Corcentric, provides more detail on just how that should happen:
- Procurement generates a purchase order, which goes to the supplier, while a digital copy remains in the PO system.
- When the goods are received, the person receiving the product enters the PO or packing list information into the electronic PO system to receive the goods.
- An invoice is received and once the AP department ascertains that the invoice matches the PO and the receipt of goods (or at least matches within set parameters), that invoice will be submitted for approval and payment.
Unfortunately, the world is not perfect and when a manual accounts payable system is used, there are likely to be a fair number of mismatches between those three important items. Not only does a decentralized and manual system for managing AP lead to delays and errors, but it impedes operational efficiencies, which can deplete working capital.
In general, here’s what can go wrong with this three-way match when using a manual process:
- AP receives a paper or e-mailed invoice before the goods are actually delivered.
- In order to verify a match, someone has to enter certain information — PO number, vendor information or item code — in order to find the original PO.
- If the data matches, the invoice can be sent on for approval and payment
- However, if the information does not match, the invoice cannot be processed and someone has to spend time and effort determining what the problem is. Only when the issue is resolved can the invoice be processed.
All this takes time, adds inefficiencies and is labor intensive.
The best way to ensure matching is a combination of e-invoicing, supplier portal and a cloud-based approval workflow solution. When invoice data is sent electronically or through a supplier portal, it will flow directly to a cloud-based system where the PO, receipt and invoice will be matched using pre-determined matching rules.
Even if invoices are not sent electronically, they still can be processed through the cloud-based approval workflow solution. If shipments are split or involve multiple POs, an AP automated workflow approval system can be used to complete a match between PO and invoice.
Once you have a system in place, here is how the process will work:
- Purchasing will create a digital PO and the info on the PO will be used by the SaaS provider’s AP matching automation solution and then sent to the supplier in the format they need.
- When goods are received, the receipt of the transaction will be sent to the service provider who will keep the receipt to use later in the three-way matching.
- Data from the e-invoice interfaces with the automated matching system for electronic capture of every line item. The automated matching system uses the e-invoice data to match the invoice to the PO and receipt of goods detail.
If you want to achieve what Andrew calls “the gold standard of accounts payable” — perfectly matching PO, receipts of goods and invoice — you need to automate your approval workflow process. The outcome will be operational efficiency and greater visibility into working capital, which benefits the business overall and elevates the Procurement and AP functions in strategic value.
