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How to make perfect matches between purchase orders and invoices
Purchase orders and invoices have a lot in common on paper, but when their data doesn’t match they cause big business headaches. Learn how process mining helps you get these documents working in perfect union so you can cut costs, optimize working capital, and boost productivity.
Terms and conditions, sales and marketing, start-ups and table tennis tables. So much in business loves to come in twos. Purchase orders and invoices should be no exception. But too often these crucial business documents just don’t match. The fallout: business slowdown, additional costs, and damaged relationships. Find out how process mining makes your purchase orders and invoices a match made in business heaven.
Purchase orders and invoices: the essentials
If purchase orders (POs) and invoices are part of your daily routine – you can probably scroll on. But if you want to know the fundamentals, this is for you.
POs and invoices are critical markers in the Purchase-to-Pay process. Here’s how they work at a glance:
A PO is the document the buyer issues to the seller. It will outline what goods and services the buyer expects from the seller, including a unique PO number and information on quantity, price, and payment and delivery due dates.
An invoice is what the seller sends to the buyer when the seller has met the terms of the PO. It will include descriptions of the goods and services provided, as well as the financial terms from the PO and payment options for the total amount.
There are plenty of other documents that pop up along the way after making a purchase requisition like a PO receipt (confirming you've received the PO); a sales order (generated by the seller for its internal use in processing a customer order); a purchase invoice (showing how much money the buyer owes to the seller); a sales invoice (follows up on the purchase invoice once the seller has delivered the goods and services); a goods receipt (created by the buyer once they're happy with the goods they've received).
Below we'll focus on getting the PO to match the invoice – commonly known as two-way matching.
How two-way matching of POs and invoices should work
When times are good, purchase orders and invoices work perfectly together. Matching purchase orders and invoices, aka two-way matching, goes like this:
The buyer creates the purchase order and issues it to the seller
The goods arrive on time, in full, along with the matching PO invoice from the seller
The buyer pays the supplier’s invoice
Everyone goes on with their day with a spring in their step. Problem is, a process designed to work in three steps can soon spiral out of control. Human and technological errors creep in and the invoice and corresponding purchase order fail to match.
The traditional response is manual intervention, but it’s slow and costly. Really costly. Celonis found the average company spends upwards of $15 to process a single purchase order, while the most efficient organizations spend just $1.35.
However, by using process mining, businesses can move to the more efficient end of the spectrum. Teams can deploy process mining to spot and smooth out the issues that stop purchase orders and invoices matching before they make a negative impact. That means teams trusted with protecting spend and reducing operating costs get to do exactly that.
Two ways to improve the PO and invoice matching process
1. Get master data in check
Teams can’t get far with matchmaking efforts if master data is off. Something as simple as sending a PO with your old billing address or sharing the wrong invoice number can throw the invoice payment process off course – and force people to spend hours digging through documents to find out what went wrong. Avoid reworking POs and invoices by keeping master data accurate and up-to-date.
With Celonis you can fully automate and monitor the master data update process, and use ready-built algorithms and backend automation to automatically detect and correct master data issues in any official document.
2. Use the correct payment terms
Another top culprit is incorrect payment terms. Every time you have to touch a PO to adjust these terms, approval times and operating costs soar. Incorrect payment terms create problems elsewhere. They can lead you to paying the supplier for incoming orders right away. Good for them, not so good for your working capital. When these errors start disputes between you and your supply chain stakeholders, it’s not good for anyone.
Process mining can help you fix this by showing PO and invoice information in granular detail. That allows teams to pinpoint where the payment terms went wrong and then use machine learning and automation to determine the correct values and make the update.
Benefits of making perfect PO and invoice matches
POs and invoices are small but mighty documents. Containing so much information, slip ups happen. Thankfully, whatever the cause of the rift between the documents, process mining can help bring them back together. Here in detail are top benefits of getting two-way matching in shape:
Improve supplier performance and relationships. Process mining finds the POs, vendors, and materials that require frequent changes. And it keeps master data and payment terms up-to-date so buyers and sellers can stay on the same page for matters like a delivery date. If a supplier insists on using the wrong payment terms, you can easily show the source of the confusion. Get the Celonis Accounts Payable fact sheet on improving supplier relationships.
Maximize productivity. By automating resource-heavy steps like manually matching multiple purchase orders and invoices, process mining increases the touchless invoice rate and cuts cycle times. Learn how Tech Data reduced P2P cycle time by 57% and achieved 95% automated invoice processing.
Make maverick buying history. Process mining tells you where it’s happening and why. It can spot, for instance, non-PO invoices. With Celonis you can also automatically convert a free text requisition into a standard purchase order and take advantage of existing contracts. See how Brazil’s food delivery service leader increased maverick buying visibility by 400%.
Optimize working capital. Reduce early payments and smartly prioritize invoices by impact rather than receipt date. Did you know maintaining master data quality is great for freeing up working capital? Accurate master data in an official document means technology, rather than people, can relentlessly double-check vendor payment terms and contract leakage and adjust payments to the right terms and contracts accordingly. Here’s how PepsiCo frees up millions in working capital.
Improve invoice accuracy: three apps at a glance
1. Duplicate Checker
You wouldn’t pay a restaurant bill twice, so why pay a supplier a second time? It’s bad business – and in an inflationary environment it borders on unforgivable. It can easily happen, especially with manual invoice entry or when introducing new Optical Character Recognition solutions. With our Duplicate Checker you can ensure key invoice fields don’t match another you're already paying. At Celonis we commonly find duplicate payment rates between 0.1% to 0.5% and up to 1.5%. Some research puts that number as high as 2%.
2. Shipped Not Invoiced
You wouldn’t let your customer walk out the store without paying, so why are you failing to send every invoice? Each invoice you miss takes a bite out of your P&L, adding up to potentially big losses with every write-off. And it delays incoming cash, which negatively affects cash flow.
With the Shipped Not Invoiced app, Celonis surfaces unbilled orders so teams can get the invoices out at last – and the app sends reminders to ensure the on-time delivery of future orders.
3. Payment Term Checker
AP teams are under constant pressure to get invoices paid and out the door. As a result, many miss the chance to pay according to the best available payment terms. That’s where our Payment Term Checker comes in: it compares payment terms on posted invoices, purchase orders, and vendor master data to unlock free cash flow within the incorrect payment terms on invoices.
Make two-way matches part of your everyday
Purchase orders and invoices are business essentials. Using technology rather than people’s valuable time to make them match has big benefits. It speeds up the procurement process and the purchasing process (Purchase-to-Pay), while also bringing down cost and improving stakeholder relationships.
To learn more about how Celonis can transform your purchase order and invoicing process, check out the links above and below.
How process mining finds and captures value in Purchase-to-Pay
What is Accounts Payable? The process, business objectives and KPIs that matter
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