Automated purchase order to invoice reconciliation for retailers

by | Mar 28, 2018

The retail industry is changing at lightning-fast speeds. Consumers want more variety, cheaper, faster. Retailers and their trading partners are expected to keep up.

With every link in the supply chain accelerating, manual processes which are required before business can move forward become a bigger and bigger drag on a company’s success. Incorrect documentation, manual data entry mistakes and other human errors weigh down on what is already a touchy situation for retailers.

Reconciling business documentation for transactions takes valuable time and resources. When something is incorrect, a retailer can end up missing out on valuable discounts and even paying for products they never received. Automation of the purchase order to invoice reconciliation process, or the three-way match process, between purchase orders, invoices and receiving documentation can ensure retailers are only paying for what they actually receive and empower them to take advantage of timely payment discounts.

Order to invoice, manual vs. automated

Purchase order to invoice three-way match is a basic transaction reconciliation process for retailers to use in approving payment to a supplier, vendor or wholesaler upon completion of an order. This accounting procedure applies 1) the buyer’s purchase order to 2) the seller’s invoice, and 3) the inventory receiving sheets or advanced shipping notice delivered to the buyer’s warehouse (other documents that might be compared include purchase order acknowledgement and purchase order change request). Comparing these documents can prevent a wealth of issues (including paying for incorrect or fraudulent invoices), as well as authenticate valid invoices for immediate payment.

Variations of this three-way match order-to-invoice process are very common without automation. Generally, a person has to collect and compare the documents manually as part of the matching process. Often, documents get lost in the shuffle, which could result in paying for the wrong quantity, price or shipping costs. If reconciliation and the subsequent payment doesn’t happen quickly enough, the retailer can miss out promotions and discounts for timely payments. Costly human errors and mistakes can happen throughout this process.

When purchase order to invoice reconciliation is automated via EDI, the bulk of these issues can be reduced or eliminated entirely. Electronic data interchange (EDI) systems for retail integrate with ERP, accounting software and other solutions so you can exchange transaction information digitally. Through EDI, all vital business documents are standardized to match all requirements so they can be exchanged electronically, both internally across departments and externally with sellers. Documents such as purchase order, purchase order acknowledgments (POA), advanced ship notices (ASN) and invoices can all be sent directly from the software and tools you already use.

Integrated EDI enabled 3-way match simplifies the transaction reconciliation and payment processes, automatically approving all documents that match for payment while setting aside those that don’t for further review. The only time a person needs to review a transaction is if something in the documentation doesn’t match. For most retailers, 70 percent of all invoices pass the three-way match without any problem, and could potentially pass through to payment in record time. About 30 percent need additional review, with the most common issues typically related to price, quantity or payment terms.

Why automated order to invoice reconciliation?

Automated order-to-invoice reconciliation can add to your bottom line, based on the business you’re doing, without making any drastic changes. Supply chain experts have estimated that retail organizations pay out an average of $120 to $150 per purchase order on things that are preventable, such as tracking down missing paperwork, fixing inventory errors, delays through manual receiving processes, paying flawed or downright fraudulent invoices, incorrect pricing and more.

If a retail organization sends out 100,000 purchase orders each year, that’s $12 to $15 million lost (or more in additional lost opportunities). EDI and automated order to invoice reconciliation process may not be able to fix all money problems, but it can drastically reduce and even eliminate issues associated with the order to payment process.

One of our retail customers told us they used to have 15 full-time employees solely dedicated to managing the company’s invoices for their stores and warehouses. After implementing order to invoice matching via their EDI automating system and adopting the order-to-invoice reconciliation automation, they reduced their accounts payable staff by 66 percent to just five employees. In addition to helping the company grow their business by 7 percent year-over-year, EDI automation saved over half a million dollars yearly just by reducing staff.

Automated three-way match can help your supply chain become more nimble. With manual payment processing, it’s harder to take advantage of opportunities that may present themselves. Closing out purchase orders more quickly gives you a better idea of what you have to spend, which can assist with planning for additional purchases.

Documents that assist with 3-way match

With EDI automation, retail buyers can request that sellers send a purchase order acknowledgement (POA) after the PO has been sent. With the POA, suppliers and vendors can confirm products, quantities and prices before the order is shipped. This process happens separate from the 3-way match, but implementation of POAs alone offers advance visibility of potential terms or price issues and can eliminate almost 15 percent of mismatches related to pricing outright.

The advanced shipping notification (ASN) is sent from the seller to let the retailer know when the order will arrive. With the ASN, retailers can better plan the resources and equipment needed for receiving – nothing like allocating extra staff to unload a truck just for it to never arrive. The ASN can also be integrated with barcode inventory system, allowing for automated receipt of goods and reducing the number of miscounted products. With these processes in place, the 13 percent or so of reconciliation discrepancies related to quantity can be eliminated.

Automated order to invoice reconciliation process is a practical solution for a repetitive, time-consuming process that’s potentially riddled with human errors. It can help retailers add hundreds of thousands, or even millions, of dollars to their bottom line without making drastic changes in how they do business. Imagine what opportunities could be explored with the money that’s saved?

Stream processes, break down data silos, increase automation and improve inventory visibility with SPS Commerce suite of retail solutions. Learn more about how SPS can help retailers solve their biggest business problems by visiting the SPS website or reach out to an SPS representative today.

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Brian Ruud

Brian Ruud

Manager, Integration Center of Excellence at SPS Commerce
Brian Ruud is currently the Manager of the Integration Center of Excellence at SPS Commerce. Brian graduated with his MBA from Hamline University in 2011 and has been in a management role at SPS Commerce for 5 years. Brian's area of expertise lies within retail, specifically EDI, fulfillment, onboarding/testing, change management and compliance. Brian's team is responsible for providing guidance, direction and education for all change management events that impact SPS integrated customers (Suppliers, Retailers, and 3PL Providers).
Brian Ruud

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