Invoice approval with three-way match: PO, receipt and invoice

Accounts payable flowchart: screen a supplier invoice, three-way match it to the PO and goods receipt, handle variances, approve by limit and pay.

Invoice approval with three-way match: PO, receipt and invoiceAPRequesterApproverRECEIVE AND SCREENMATCHAPPROVE AND PAYYesNoBank details changedYesNoNot sureNo PONoHas a POYesNoYesNot yetYesPrice differsYesNoQuantity differsYesNoNoYesNoYesYesSupplier invoice arrivesFor accounts payable teams.Matches a supplier invoice to the POand goods receipt, sorts outvariances, and routes it for approvaland payment.This is common practice, not law.Tolerances and approval limits beloware examples. Use the numbers inyour own policy.Log the invoice and the dateyou received itHave suppliers send invoices to oneAP address, not to individual staff.Payment terms often count from theinvoice date or the date you receivedit.Is the vendor set up andactive?Look the vendor up in your vendormaster by legal name and tax ID, notjust the name on the letterhead.Vendor foundHold the invoice until vendorsetup is doneCollect a W-9 from a US vendor.Confirm bank details by calling aphone number you already had, notone printed on the invoice.Verify the change beforepayingA request to change bank details is acommon fraud pattern. Confirm witha known contact at the vendor, andhave a second person approve thechange.Has this invoice already beenentered or paid?Search by vendor, invoice number,amount and date. Look for nearmatches, such as an extra dash, aleading zero, or a copy marked"statement".Reject the duplicate and tellthe vendorContinue with the invoiceCompare both invoices lineby lineSame goods, datesand amounts?Does the invoice citea purchase order?Send it to the requester toconfirmCommon for utilities, rent,subscriptions and one-off services.Many policies allow non-PO invoicesonly for listed categories and needan after-the-fact PO for anythingelse.Did the requesterconfirm receipt andthe account tocharge?Return the invoice to thevendor with questionsPull the PO and the goodsreceiptThe PO shows what you agreed tobuy and at what price. The goodsreceipt, or receiving report, showswhat actually arrived.Has the goods receipt beenrecorded?For services, the receipt is therequester confirming that the workwas done.Receipt on fileAsk the requester to confirmdeliveryDon't pay for goods that nobody hasconfirmed. Many systems hold theinvoice until someone enters areceipt.Were the goods orservices received?Record the receiptHold the invoice and recheckon deliveryCompare invoice, PO andreceipt line by lineThree-way match: the invoicequantity and amount must agreewith the PO and with what wasreceived.Check quantity, unit price, itemdescription, freight and tax on everyline.Do all lines match withintolerance?Example tolerance: up to 5% over thePO unit price or quantity on a line, ora small fixed amount for rounding.Set yours and apply it the same wayevery time.An invoice outside tolerance goes onhold. It can't be paid until thevariance is fixed or someone withauthority releases the hold.Mark the invoice matchedAsk the requester about thepriceLook for a price change agreed afterthe PO was issued, or freight, fuel ortax that wasn't on the PO.Was the higher priceagreed in advance?Amend the PO to the agreedpriceAsk the vendor for a creditmemo or corrected invoiceCheck what was actuallyreceivedBilled for more than arrived: ask for acredit memo, or pay only for whatwas received. Billed for less: paywhat was billed and leave the rest ofthe PO open.Get a corrected invoice orcredit memoRoute for approval byamountExample limits: department managerup to $5,000, director up to $25,000,CFO above that. Use your ownapproval matrix.The approver should not be theperson who entered the invoice orset up the vendor.Does the approverapprove it?Schedule the payment forthe due dateTake an early-payment discount,such as 2% off for paying within 10days, when it beats your cost ofcash.Return the invoice to AP withthe reasonCommon reasons: wrong account,disputed work, or an invoice thatbelongs to another department.Can AP fix theproblem?Reject the invoice and tellthe vendor whyPay to the bank details in thevendor masterHave a second person review thepayment run before release. Neverpay to bank details printed on aninvoice.Mark the invoice paid andfile the documentsKeep the invoice, PO, receipt andapproval together so anyone cantrace the payment later.

Receive and screen

  1. Supplier invoice arrivesAP

    For accounts payable teams. Matches a supplier invoice to the PO and goods receipt, sorts out variances, and routes it for approval and payment.

    This is common practice, not law. Tolerances and approval limits below are examples. Use the numbers in your own policy.

  2. Log the invoice and the date you received itAP

    Have suppliers send invoices to one AP address, not to individual staff. Payment terms often count from the invoice date or the date you received it.

  3. Is the vendor set up and active?AP

    Look the vendor up in your vendor master by legal name and tax ID, not just the name on the letterhead.

  4. Vendor foundAP

    Then go to step 7, Has this invoice already been entered or paid?

  5. Hold the invoice until vendor setup is doneAP

    Collect a W-9 from a US vendor. Confirm bank details by calling a phone number you already had, not one printed on the invoice.

    Then go to step 7, Has this invoice already been entered or paid?

  6. Verify the change before payingAP

    A request to change bank details is a common fraud pattern. Confirm with a known contact at the vendor, and have a second person approve the change.

  7. Has this invoice already been entered or paid?AP

    Search by vendor, invoice number, amount and date. Look for near matches, such as an extra dash, a leading zero, or a copy marked "statement".

  8. Reject the duplicate and tell the vendorAP
  9. Continue with the invoiceAP

    Then go to step 12, Does the invoice cite a purchase order?

  10. Compare both invoices line by lineAP
  11. Same goods, dates and amounts?AP

Match

  1. Does the invoice cite a purchase order?AP
  2. Send it to the requester to confirmRequester

    Common for utilities, rent, subscriptions and one-off services. Many policies allow non-PO invoices only for listed categories and need an after-the-fact PO for anything else.

  3. Did the requester confirm receipt and the account to charge?Requester
  4. Return the invoice to the vendor with questionsRequester
  5. Pull the PO and the goods receiptAP

    The PO shows what you agreed to buy and at what price. The goods receipt, or receiving report, shows what actually arrived.

  6. Has the goods receipt been recorded?AP

    For services, the receipt is the requester confirming that the work was done.

  7. Receipt on fileAP

    Then go to step 23, Compare invoice, PO and receipt line by line

  8. Ask the requester to confirm deliveryRequester

    Don't pay for goods that nobody has confirmed. Many systems hold the invoice until someone enters a receipt.

  9. Were the goods or services received?Requester
  10. Record the receiptRequester

    Then go to step 23, Compare invoice, PO and receipt line by line

  11. Hold the invoice and recheck on deliveryRequester
  12. Compare invoice, PO and receipt line by lineAP

    Three-way match: the invoice quantity and amount must agree with the PO and with what was received.

    Check quantity, unit price, item description, freight and tax on every line.

  13. Do all lines match within tolerance?AP

    Example tolerance: up to 5% over the PO unit price or quantity on a line, or a small fixed amount for rounding. Set yours and apply it the same way every time.

    An invoice outside tolerance goes on hold. It can't be paid until the variance is fixed or someone with authority releases the hold.

  14. Mark the invoice matchedAP

    Then go to step 32, Route for approval by amount

  15. Ask the requester about the priceRequester

    Look for a price change agreed after the PO was issued, or freight, fuel or tax that wasn't on the PO.

  16. Was the higher price agreed in advance?Requester
  17. Amend the PO to the agreed priceRequester

    Then go to step 24, Do all lines match within tolerance?

  18. Ask the vendor for a credit memo or corrected invoiceAP

    Then go to step 24, Do all lines match within tolerance?

  19. Check what was actually receivedAP

    Billed for more than arrived: ask for a credit memo, or pay only for what was received. Billed for less: pay what was billed and leave the rest of the PO open.

  20. Get a corrected invoice or credit memoAP

    Then go to step 24, Do all lines match within tolerance?

Approve and pay

  1. Route for approval by amountApprover

    Example limits: department manager up to $5,000, director up to $25,000, CFO above that. Use your own approval matrix.

    The approver should not be the person who entered the invoice or set up the vendor.

  2. Does the approver approve it?Approver
  3. Schedule the payment for the due dateAP

    Take an early-payment discount, such as 2% off for paying within 10 days, when it beats your cost of cash.

    Then go to step 38, Pay to the bank details in the vendor master

  4. Return the invoice to AP with the reasonAP

    Common reasons: wrong account, disputed work, or an invoice that belongs to another department.

  5. Can AP fix the problem?AP
  6. Reject the invoice and tell the vendor whyAP
  7. Pay to the bank details in the vendor masterAP

    Have a second person review the payment run before release. Never pay to bank details printed on an invoice.

  8. Mark the invoice paid and file the documentsAP

    Keep the invoice, PO, receipt and approval together so anyone can trace the payment later.

Outcomes

Reject the duplicate and tell the vendor

You get here from step 7, Has this invoice already been entered or paid? (Yes), step 11, Same goods, dates and amounts? (Yes).

Return the invoice to the vendor with questions

You get here from step 14, Did the requester confirm receipt and the account to charge? (No).

Hold the invoice and recheck on delivery

You get here from step 20, Were the goods or services received? (Not yet).

Reject the invoice and tell the vendor why

You get here from step 36, Can AP fix the problem? (No).

Mark the invoice paid and file the documents

Keep the invoice, PO, receipt and approval together so anyone can trace the payment later.

You get here from step 38, Pay to the bank details in the vendor master.