Accounts Payable - Part 3, Matching Invoices to Purchase Orders in the Accounts Payable System
This is the 3rd article in a series about Accounts Payable. This material is adapted from The Automated Accounting Systems and Procedures Handbook (John Wiley, New York 1991) Chapter 6.
MATCHING INVOICES TO PURCHASE ORDERS
A well-run environment uses an automated matching process to match invoices to purchase orders and receiving information. This makes sense as all of the required purchasing and receiving information is already electronically stored by the purchasing system. The matching procedure helps ensure that the invoice is for goods or services that have been received and that the amount invoiced was previously authorized via purchase order. Many organizations use this as a strict control procedure to ensure that the goods being paid for have been previously authorized.
Automated Matching. With the complete automation of this process, there is no longer a need for a paper voucher form and a packet of matched documents. In this environment the voucher is an automated record in a computer file that was built from vendor invoices and matched against purchasing information. From an accounting standpoint this automated voucher is still the unit record of liability and, therefore, just as important as any paper voucher document.
In a controlled environment the purchase order will precede the arrival of the vendor's invoice. With luck, the goods will too and the accounts payable department will have both receiving information and purchasing information available by the time the vendor invoice arrives.
There are several advantages to using an automated system to match invoices and purchase orders:
- Paperwork is reduced.
- Automated files do not get lost as easily as paper files.
- The searching, sorting, and routing capabilities of an automated system expedite the matching process, replacing the paper handling, filing, and routing that are otherwise necessary in a paperbound system.
- The ability to remotely access a central file facilitates information sharing between distant locations, such as purchasing and receiving.
- The need for the accounts payable department to rematch and review documents already matched in purchasing or receiving disappears.
- Company-level policy and options can be set up to control how, or under what circumstances, matching and exceptions should occur.
- System features allow management and the purchasing department personnel to easily authorize freight and tax charges on an invoice.
The system can use either of two techniques for entering invoices and matching them against purchase order line items (Figure 6-5):
1. Two-Step Process: Allow the invoices to be entered and distributed first and then later matched in a separate process.
2. One-Step Process: Allow invoice entry, general ledger distribution, and matching to occur in one step on the invoice entry screen.
The first approach “decouples” the process of entering vouchers and matching them. This has the advantage of promptly recording the accounting effect of the invoice, for example, by allowing the general ledger information to be recorded in the general ledger without waiting for matching to occur. Unmatched invoices are suspended in an exception status until they can be matched.
The second process requires both general ledger distribution and matching to be concurrent, creating the possibility that the accounting may be delayed, pending information required for a successful match. If, for example, the purchasing agent with the required matching information is sick or unavailable, this delay can be significant.
An Overview of the Matching Process. Automated matching of an invoice to a purchase order can be complicated, particularly because of the number of options and variations that are available. To take the simplest view of this, consider that the process involves two out of the following three steps for each invoice line item:
1. Purchase order processing. Search for the appropriate purchase order. Then select the purchase order line to be matched against this invoice line item.
2. Processing for two-way match. If no receipt is required verifying that goods were received against a purchase order, process the invoice line item according to the steps required for a two-way match.
3. Processing for a three-way match. If a receipt is required, process the invoice line item according to the steps required for a three-way match.
Purchase Order Processing. Typically the operator retrieves the purchase order and displays it on the matching screen by entering the purchase order number. This causes the purchase order line items to appear on the matching screen as shown at the bottom of Figure 6-2. If the vendor has not indicated the purchase order number on the invoice, the system should allow all purchase orders for that vendor to be searched and displayed (Figure 6-6).
Once the purchase order has been found, similar features are available for searching and selecting individual line items to match the invoice line item being processed. The operator can
- Scroll through the entire purchase order and select a particular line when it appears on the screen.
- Directly enter a particular purchase order line number.
- Directly enter the company's part number for that purchase order line.
- Directly enter the vendor's part number associated with that purchase order line.
Processing for a Two-Way Match. When purchasing services or intangible items, the matching process can be completed by entering the dollar amount of the invoice line item. The system applies this against the purchase order line to determine the remaining amount available to pay any subsequent invoices. Following this, the operator can continue matching the rest of the invoice and, when complete, release the invoice for payment.
The system will identify an exception if the amount available to pay becomes negative. The system will then notify the operator and suspend the invoice from further processing until the operator takes corrective action.
Processing for a Three-Way Match. When a receiving process is involved, matching typically takes on several related complexities:
- Line item matching includes the entry of quantities as well as dollar amounts.
- Unit costing is driven by the accounts payable system.
- The matching cannot be complete (and the invoice cannot be paid) until all items invoiced have been received.
Here the matching screen will appear more like the screen in Figure 6-2 with the Available Amount showing what is available to pay future invoices.
Some organizations require an inspection process for received items before they can be paid. In this case, the system may separately track inspected quantities for each purchase order line. The accounts payable system will allow matching invoice quantities against either received or inspected quantities, but it should release the voucher for payment only when all invoiced quantities have passed inspection.
Reports Produced from Matching. Several reports are required for managing and documenting the automated matching process. In one report, the accounts payable system must provide a listing of all unmatched invoices so that these incomplete transactions can be completed and resolved. Similarly, the purchasing system should prepare a list of receipts that do not have a corresponding purchase order. Another report, the matching report (Figure 6-7), provides evidence of the completed matching process and shows all matched invoices that are posted to the accounts payable master file as vouchers.
Manual Matching. Many businesses still process payables by manually matching the invoice with the purchasing documents to verify the amounts and quantities being invoiced. This is a less desirable alternative to automated matching. Businesses that still use manual matching procedures either do not desire to change or their automated accounts payable system does not support automated matching.
To manually match invoices, the accounts payable department maintains a paper file of vouchers in processes. Organized by vendor, this file consists of invoices, purchase orders, packing slips, and, if necessary, inspection documents. These documents are held until the appropriate information is available to complete each voucher. Only then is the completed voucher packet submitted for approval and entered into the system.
As Figure 6-8 shows, manual matching is a very paper-intensive process. For example, unlike automated matching manual matching requires a specific form to be filled out for each voucher. This serially numbered voucher form records information about the invoice, its terms and conditions of payment, the general ledger accounts to be charged, and the authorization for its payment. An accounts payable accountant attaches this form to the invoice, the purchase order, and the packing slip and creates a packet that retains the supporting detail required for payment approval. This paper voucher packet becomes the unit record of liability, replacing the automated complement of this information shown in the matching report (Figure 6-7).
Next Month's topic: Approving Vouchers
| About this article and the author: |
Doug Potter is the owner of The Newport Consulting Group a professional management consulting organization that provides clients with information systems planning, selection, and implementation services. He can be reached at dpotter@newportconsulting.com or through his Web site, http://www.newportconsulting.com.
Note: The contents of this article were excerpted from Mr. Potters book "Automated Accounting Systems and Procedures Handbook" Copyright 1991 by Douglas A. Potter, published by John Wiley & Sons, Inc. New York
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