What is a 2 Way Match? Definition, Process, Examples and Automation

What is a 2 Way Match?

A 2 way match is defined as an accounts payable invoice verification process for goods and services purchased in credit from vendors, where the raised invoice is matched with the corresponding purchase order.

For example, a team in a company requires a new software that is to be billed on a post-paid monthly cycle. After vendor selection and deal finalization, a purchase order (PO) is created and sent to the vendor. This PO document entails the details of the item to be purchased, at what price, when and how much. At the time of the monthly payment, the invoice is generated by the vendor company. This invoice is then received by the accounting team for verification against the initial purchase order and matched for validity and accuracy in a 2 way match.

The purpose of a 2 way match is to ensure proper verification before processing invoices, thereby preventing incorrect billing by vendors or any fruadulent attempts. If the match is a success, the payment is processed by the accounting team. Whereas, in case of a mismatch the issue is investigated for resolution, and the payment is kept on hold.

Role of Automation in 2 Way Match

In the above example, between the purchase order being created and the final match with the vendor invoice, the entire process is repetitive and manual. Any task that is both repetitive and manual leaves room for automation that can save incredible amounts of effort and money.

Rever enables companies to fully automate the the accounts payable process, where every billing field is matched with precision for accuracy, instantly.

Related: What is 3 Way Matching?

Key Components in a 2 Way Match

2 way match has two core components - the purchase order and the vendor invoice.

For enterprises, the data of both these components typically rest in the Enterprise Resource Management (ERP) system or accounting software. Let us dig deeper into both these components and how they flow through typical enterprise operations:

• Purchase order:

The purchase order is the result of a purchase decision, which can come from any department or team in an organization. The purchase order is the final result after approvals from stakeholders based on need. This PO is typically created and executed by the purchase team, in smaller organizations, the team leads may have execution authority to purchase.

Let's take an example of an enterprise, where, let's say the sales team wants to purchase a new customer relationship management (CRM) software. This requirement is first approved by the team lead/ manager, followed by the Director of Sales. Once the team vertical leader has given the approval, the purchase order (PO) is generated by the purchase team. As per the software package that has been negotiated with the seller, the formal purchase order (PO) is sent to this seller and is executed in the form of the software package's delivery.

• Vendor invoice:

Vendor invoice is raised by the seller of goods/ services and is generated at the time of delivery to receive the payment. This invoice is then received by the accounts payable team, and is processed through record matching with the PO.

Continuing with the above example, the vendor/ seller of the software raises an invoice with the buyer on a periodic basis as billing payment.

2 Way Match Process: Key Steps

The 2 way match process is triggered when accounting team receives a vendor's invoice for payment. Here are the key steps in this process:

• Step 1: Purchase order extraction based on vendor invoice

The 2 way match process is triggered when a vendor sends an invoice for payment processing. Upon receiving this invoice, the accounts payable team extracts the corresponding purchase order. For enterprises, this record is typically stores in an enterprise resource planning (ERP) software or accounting software.

• Step 2: Purchase order and vendor invoice match

Once the purchase order is extracted, the vendor invoice is matched for billing accuracy based on what was ordered and what is being billed as payment.

In case of a discrepancy, an investigation is launched to understand the error. In case of a match success, where no issues are found, the purchase is authorised for payment.

• Step 3: Payment processing

Based on the 2 way match success, the accounts payable team proceeds with the processing of the payment.

Now, this entire process we just described is a manual process with repetitive elements and is based on system-readable data. Rever automates your entire accounts payable process by seamlessly integrating with your ERP or accounting software. It then extracts and matches the records using a 2 way or 3 way match with no manual effort required.

Related: What is Invoice Approval Workflow?

Benefits of 2 Way Match

2 way matching provides several significant benefits for enterprise accounts payable accuracy:

• Prevents unauthorized or excess payments

2 way match provides a foundational check for any outbound payment from the company. It helps filter out any unauthorized payments or excess payments billed by a vendor. This way, a 2 way match provides a reliable financial gateway and ensures a certain level of reconciliation. Ofcourse, in comparison, a 3 way match is a more reliable form of maintaining accounts payable accuracy.

• Provides a traceable financial recording system

The 2 way matching method is a traceable financial recording method that lays down the key foundation for financial reconciliation. It allows for data-based budget monitoring, resolving accounting discrepancies, identifying potential financial fraud and keeping books ready for external reporting etc.x

• Provides outflow data for budget monitoring and financial forecasting

Budget monitoring and any degree of financial forecasting requires inflow and outflow data. The 2 way match process provides a reliable method for ensuring data accuracy around company cash outflows in the form of payments and helps create a clearer picture for monitoring planned-to-actual spend. This data in turn helps create reliable financial forecasting reports, which is key for enterprise financial planning.

• Helps companies stay audit-ready

Effective financial reconciliation is key for any company’s expense book. Ensuring a clear and verifiable record on how much is paid, when and for what, is key for healthy financial book keeping. The 2 way match provides all the essential elements required to maintain an audit-read book keeping.

Related: What is Accounts Receivable?

Potential challenges of 2 Way Match

While the 2 way process clearly has some key benefits, it is not a fully sealed process and has some gaps:

• Does not include good received note (GRN)

Unlike a 3 way match, a 2 way match does not include a 3rd key element in matching accounts payable - the goods received note (GRN). This is a note from the team/ team member who required the item for which the purchase order (PO) to be raised.

This 3rd element of matching ensures that the goods/ services promised were actually delivered. Without this, a PO may have been raised, the delivery never made it through, but if the vendor raised an invoice, it may get paid in error because the GRN was never included in the process.

Including a GRN, on the other hand, does increase the effort and time required to match them manually, which Rever does effortlessly through automation.

• Leaves room for delivery errors

Often an item may have been sent by the vendor, but due to transit issues the delivery may not have happened or got delayed. Without the GRN verification, the 2 way match leaves room for delivery errors that may go unaccounted, leading to early or excess payments to vendors.

This process is also not accounted for in the 2 way match methodology.

2 Way Match Automation using Rever

2 way matching, although not fully an air-tight process, does provide small and mid-sized enterprises the ability to have an agile, audit-ready and fast accounts payable process. However, the time and effort spent by your accounting team on such a repetitive and non-creative task, is better spent on other more critical work that requires creative decision making.

Rever takes the burden of the accounting team’s most cumbersome and manual task, and automates it with ease and accuracy. With Rever, you can achieve higher financial accountability and audit-readiness with a fraction of the time and cost involved to maintain your books.

Best practices for 2 Way Matching

• Setting detailed purchase order formats

The first step to ensure an effective 2 way match process is to have detailed, pre-set and mandatory fields for raising a purchase order. This ensures that all essential fields of data capture are present when a PO is processed, such that it leaves no room for quantity, quality or pricing related discrepancy during 2 way match when the vendor invoice is received.

• Setting financial tolerance threshold based on budget

Setting a financial tolerance limits based on the company's budget helps prevent any significant straying away from the expense plan. In case of purchase requirements that cross the set tolerance threshold, they can be sent through an exception handling process for approval or rejection.

• Setting exception handling process

An exception handling process is required for purchases that go beyond the set financial tolerance limits. This allows for flexibility with essential verification of need through an additional invoice approval process. Typically the company's CEO/ CFO or financial principal may be involved in approving such expeditures, and helps ensure a tighter budget control.

• Ensuring reliability of data storage and retrieval systems

Both purchase orders and vendor invoices need to be stored in such a way that they can be easily extracted for matching and reconciliation.

At the very minimum, strong authentication based access and retrieval data systems should be used. And on an advanced level, Rever provides multi-layered data protection for storage and retrieval, and automation of the accounts payable process.