The complete guide to 2-way matching in accounts payable

Two-way matching is an accounts payable (AP) process where the details of an invoice are compared and verified against a corresponding purchase order (PO). This ensures that the goods or services billed match what was ordered in terms of quantity, price, and other specifications. It's a crucial step in the accounts payable workflow, helping to prevent errors, overpayments, and potential fraud.

The process begins when the AP department receives an invoice from a vendor. The team retrieves the corresponding PO from the procurement system. The core of the process involves a detailed comparison between the invoice and PO, checking for alignment in vendor information, item descriptions, quantities, prices, totals, and terms. If all details match, the invoice is approved for payment.

However, if discrepancies are found, the invoice is flagged for further investigation. The AP team then works to resolve any mismatches, which may involve contacting the vendor or consulting with the purchasing department. Once resolved, or if there was a full match initially, the invoice moves to the payment queue. Throughout this process, all actions and results are documented for audit purposes, with both the invoice and PO typically stored together. These steps all help ensure payment accuracy, reduce errors, and provide a crucial control mechanism in the accounts payable workflow.

Implementing 2-way matching in your accounts payable process offers several business advantages:

Error reduction

Implementing 2-way matching is a safeguard against payment errors. By comparing invoices to POs, discrepancies in quantities, prices, or terms can be identified and addressed promptly. This proactive approach saves time and resources that would otherwise be spent correcting mistakes after payments are made. It ensures your company maintains accurate financial records, leading to more reliable reporting and better-informed business decisions.

Fraud prevention

Two-way matching serves as a robust defense against accounts payable fraud. Cross-referencing every invoice with its corresponding purchase order makes it difficult for fraudulent invoices to go undetected. This process will flag unusual charges, duplicate invoices, or bills for goods never ordered. By creating a verifiable paper trail for each transaction, your company protects itself from both external fraud attempts and potential internal misappropriation of funds.

Improved vendor relationships

Two-way matching will help you maintain positive vendor relationships by ensuring accurate and timely payments. That’s because this extra verification step reduces payment disputes by aligning payments with agreed-upon terms, quantities, and prices. Vendors appreciate working with companies that consistently pay the correct amount on time, which often leads to stronger, more cooperative business relationships. And when discrepancies occur, the 2-way matching process provides a clear basis for resolution.

Enhanced financial control

Two-way matching offers companies better spending oversight by creating a clear audit trail for every payment. It allows finance teams to verify that all purchases trace back to approved budgets and company policies before payments are made. This level of control helps prevent unauthorized spending and ensures your resources are allocated as intended. The data gathered through this process can also be analyzed to identify spending patterns and make more informed financial decisions, contributing to effective cash flow management.

As you can see, 2-way matching offers multiple opportunities to elevate your company's financial operations. From reducing errors and preventing fraud to improving vendor relationships and strengthening financial controls, this process is a cornerstone of efficient and accurate payment management.

While 2-way matching compares invoices to purchase orders, 3-way matching adds an additional layer of verification by including the receiving report. Here's a quick comparison:

2-Way Matching

• Compares invoice to PO

• Faster process

• Suitable for services or low-value goods

• Less resource-intensive

3-Way Matching

• Compares invoice to PO and receiving report

• More thorough, but time-consuming

• Better for high-value or quantity-based orders

• Requires more resources and coordination

Both 2-way and 3-way matching bring tangible value to the AP verification process, which one you use depends on your company's specific needs and resources.

Opting for two-way, three-way, or four-way matching depends a lot on the type of order placed, the associated costs, and the resources you have available.

Two-way matching works well for low-value purchases because they pose less financial risk. It also makes sense for service-based invoices since you’re not comparing a shipping quantity or product quality. You may also consider two-way matching for invoices that don’t have many line items or for relationships with trusted vendors.

However, two-way matching comes with more risk when shipping and receiving goods. In this case, three-way matching is a better fit — provided you have the resources to do the additional comparison.

Four-way matching matters most if you’re in an industry that must meet safety standards or if accepting low-quality products would impact your customers. However, this is the most time-consuming of all invoice-matching methods since an employee would need to perform the inspection and provide the necessary documentation.

You also need to consider the invoice processing bottlenecks that additional matching requires. It means additional time from your team and the potential that you can’t pay your vendors or suppliers as quickly.

You don’t want to risk damaging vendor relationships due to invoice processing delays. You may even benefit from early payment discounts.

When implementing 2-way matching in accounts payable, you’ll want to address mismatches effectively to maintain accuracy and efficiency. Many companies establish tolerance levels for minor discrepancies, recognizing that not all variations warrant the same level of scrutiny. For instance, a policy might allow for a 1% deviation from the contract or purchase order (PO), accommodating small differences due to factors like currency fluctuations or slight bumps in shipping costs. This approach will help you handle insignificant discrepancies without compromising overall financial integrity.

For discrepancies exceeding the set tolerance, a more thorough investigation is required. The process typically begins with an internal review, often involving the employee who initiated the contract or PO to verify the expected invoice amount. If questions remain, the next step is to contact the vendor or supplier to discuss and resolve the discrepancy. Careful communication is essential, as changes may have occurred between the original order and the final delivery. In the cases of simple data entry errors or similar mistakes, vendors usually will issue a corrected invoice promptly. Once all discrepancies are resolved and the invoice matches the PO, the payment can be approved and processed. Systematically handling mismatches ensures payment accuracy but maintains positive vendor relationships, which is core to vendor management best practices.

While invoice matching requires document comparisons, those comparisons don’t have to be manual. Brex can automate your invoice matching by easily importing your invoices, comparing invoices with supporting documentation, and detecting discrepancies.

Brex bill pay software makes it easy to automate invoice capture, line itemization, bill drafting, PO matching, and approvals, saving your AP team hours while increasing accuracy. Brex AI will match your imported invoice to an open PO in your ERP, helping to simplify the procure-to-pay process and further automate accounting. And because our bill pay solution is integrated with our total spend management platform, you can track every type of spend in one place for total transparency and improved operational efficiency.

Brex also enables you to drill down into itemized invoices, suggest the matching PO, and draft a vendor payment. You can then route the invoice to the right person for approval, saving your AP team time and freeing your employees up for more high-value work.

Brex bill pay also helps enforce standardized procedures and creates a clear trail of your approval, discrepancy, and resolution processes. You’ll reduce risks in your spend management while also making your invoice processing more efficient.

Further, Brex’s customizable policies give you control over all your purchases. Brex will auto-enforce your policy across all your Brex card, bill pay, travel, and reimbursement transactions and reject or flag any transaction that violates the policy. This reduces the likelihood of discrepancies between POs and invoices and makes the matching process more efficient.

Are you ready to automate your invoice matching today? Easily integrate your bill, payment, and vendor data with your ERP accounting systems to eliminate manual data entry, improve purchase order management, and close the books faster.

It’s important to use your AP team’s time wisely, and core to that is determining when to use automation to modernize traditionally manual matching processes.

Brex bill pay software simplifies your end-to-end AP through automated invoice capture, line itemization, bill drafting, PO matching, and multi-level approvals, saving your AP team hours and increasing accuracy.

Say goodbye to manual data entry and the risk of human error, and say hello to accurate payment details and simplified payments at scale only with Brex. Sign up for Brex to get started, or book a demo today.