Invoice is one of the most important sales documents in the entire sales process. It comprises the list of services/products provided by the seller along with due payments and other crucial details. The importance of this document can be understood with the fact that often an invoice is the document that works as a legal bonding agreement between two entities instead of a sales agreement. That’s what makes invoice processing a crucial and exigent part of business operations.
Invoice vs Purchase Order
After initial agreement regarding services/products offered and requirements of the buyer, the buyer sends a list of services/products required along with the expected cost and the deadline for the delivery. This document is commonly known as the Purchase Order. This step is often skipped in the case of any service or smaller product requirements where the first document exchanged between two parties is the sales invoice shared by the seller. But in the case of large product requirements, a purchase order is absolutely necessary in order to keep a track of requirements and fulfilments. A purchase order becomes even more necessary for 2 way/3 way/4 way matching invoice processing.
Types of Invoice Processing
There are 3 ways to process an invoice:-
- 2-way match invoice processing
- 3-way match invoice processing
- 4-way match invoice processing
In order to clearly understand the above-mentioned invoice processing methods, we need to understand what invoice tolerances are. Invoice tolerances define the lower and upper variance limit for all possible discrepancies in an invoice. As per business conventions, a consumer should not be billed for more than what they have ordered/received/accepted. Sellers often deliver additional units along with the consignment to prevent any loss to the buyer due to product damage during shipment/delivery. As per business norms, buyers should not be charged for these additional units. Similar other discrepancies are covered under invoice tolerances.
Now, let’s take a look at different invoice processing methods:-
2-way match invoice processing - In this invoice processing method, invoice details are verified against purchase order within invoice tolerances as shown:-
i) The invoice price must be less than or equal to the purchase order price
ii) The quantity billed must be less than or equal to the quantity ordered
3-way match invoice processing - In this method, all the conditions defined for 2 way match processing should met along with an additional criterion:-
iii) The quantity billed must be less than or equal to the quantity received
4-way match invoice processing - In this method, there is an additional criterion to 3 way match that needs to be met:-
iv) The quantity billed must be less than or equal to the quantity accepted.
Fields in an Invoice
The format and layout of an invoice may vary depending on industry, location, and services/product offered. Based on that, fields in an invoice may vary too. However, each invoice consists of several standard fields and line items.
No matter whether you’re processing invoices following 2-way, 3-way, or 4-way match method, doing it manually for hundreds of invoices can be a really cumbersome task. On top of that, manual invoice processing is highly prone to errors. With the help of intelligent OCR and machine learning, Docsumo helps automate your invoice processing shortening your turn-around time. Get a free demo today and let’s find out how we can help you process invoices 10 times faster with 50% less cost.
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