Invoice Matching Tutorial | Step-by-Step Guide with Examples

Invoice matching sounds simple: check if the invoice is correct.

But when you’re processing hundreds of invoices monthly, “simple” becomes complex fast. Missing line items, price discrepancies, partial shipments—the edge cases multiply.

This tutorial walks through invoice matching step by step.

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What is Invoice Matching?

Definition

Invoice matching is the process of comparing a vendor invoice against internal documents to verify its accuracy before payment.

You’re answering one question: “Should we pay this?”

Documents Involved

Document	Source	Purpose
Purchase Order (PO)	Your company	What you ordered
Delivery Note	Vendor/Carrier	What was delivered
Invoice	Vendor	What you’re being charged

Matching vs. Checking

Many confuse “checking” with “matching”:

Activity	What It Does	What It Catches
Checking	Format validation	Missing fields, wrong dates
Matching	Content comparison	Wrong prices, wrong quantities

Checking asks: “Is this a valid invoice?”
Matching asks: “Does this match what we ordered and received?”

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Types of Invoice Matching

2-Way Matching

Compare invoice against purchase order.

Invoice ←→ Purchase Order

What You Check:

• Vendor name matches
• Item descriptions match
• Quantities match
• Unit prices match
• Totals match

Best For: Services, recurring subscriptions, items without physical delivery.

3-Way Matching

Compare invoice against both purchase order and delivery note.

Invoice ←→ Purchase Order ←→ Delivery Note

What You Check:

• Everything in 2-way matching, plus:
• Quantities delivered match invoice
• No charges for undelivered items

Best For: Physical goods, equipment, inventory.

4-Way Matching

Add inspection report to 3-way matching.

Invoice ←→ PO ←→ Delivery Note ←→ Inspection Report

Best For: Quality-critical items, manufacturing, regulated industries.

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Step-by-Step Matching Process

Step 1: Gather Documents

Collect all documents for the invoice:

Document	Check
Invoice	Received from vendor
PO	Find by PO number
Delivery note	Find by delivery reference

Problem: Documents are often in different systems or formats.

Step 2: Verify Header Information

Field	Invoice	PO	Match?
Vendor	ABC Corp	ABC Corporation	⚠️ Close
PO Number	PO-2026-001	PO-2026-001	✅
Date	2026-01-15	2026-01-10	✅

Common Issues:

• Vendor name variations (Corp vs Corporation)
• Date format differences (MM/DD vs DD/MM)

Step 3: Match Line Items

Item	PO Qty	Delivered	Invoiced	Status
Widget A	100	100	100	✅ Match
Widget B	50	45	50	❌ Over-billed
Widget C	25	25	-	❌ Not invoiced

Common Issues:

• Partial shipments
• Item description variations
• Product code mismatches

Step 4: Verify Prices

Item	PO Price	Invoice Price	Variance
Widget A	¥1,000	¥1,000	0%
Widget B	¥2,000	¥2,200	+10%

Common Issues:

• Price changes not communicated
• Volume discount miscalculations
• Currency conversion differences

Step 5: Calculate Totals

Component	PO	Invoice	Match?
Subtotal	¥150,000	¥152,000	❌
Tax	¥15,000	¥15,200	❌
Shipping	¥5,000	¥5,000	✅
Total	¥170,000	¥172,200	❌

Step 6: Document and Resolve

For discrepancies:

1. Document the variance
2. Contact vendor if needed
3. Escalate or approve based on tolerance
4. Record resolution for audit

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Common Matching Errors

Error 1: Description Mismatches

PO	Invoice	Same Item?
Widget Model A-100	A-100 Widget	Yes
Office Supplies	Stationery	Maybe
Consultation	Consulting Fee	Yes

Solution: Look beyond text—match by PO line number or product code.

Error 2: Quantity Discrepancies

Cause	Example
Partial shipment	Ordered 100, received 80, invoiced 80
Over-shipment	Ordered 100, received 110, invoiced 110
Return not processed	Returned 10, still invoiced full amount

Error 3: Price Variances

Cause	Example
Price increase	Contract ended, new pricing applied
Promo not applied	Volume discount missing
Currency fluctuation	USD invoice, JPY PO

Error 4: Tax Calculation Errors

Cause	Example
Wrong tax rate	8% applied instead of 10%
Tax on exempt item	International shipping taxed
Rounding differences	¥99.5 rounded up vs down

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Tolerance Thresholds

Not every variance requires investigation.

Setting Tolerances

Variance Type	Typical Tolerance
Unit price	1-3%
Quantity	1-5%
Total amount	¥1,000-5,000

When to Ignore

Invoice Total	Variance	Action
¥10,000	¥50 (0.5%)	Auto-approve
¥1,000,000	¥50 (0.005%)	Auto-approve
¥10,000	¥2,000 (20%)	Investigate

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Manual vs. Automated Matching

Manual Process Time

Invoices/Month	Time per Invoice	Total Time
100	5 min	8 hours
500	5 min	42 hours
1,000	5 min	83 hours

What Takes Time

Activity	% of Time
Finding documents	30%
Comparing line items	40%
Resolving discrepancies	20%
Documentation	10%

AI Automation

AI can automate the comparison step:

1. Upload invoice PDF
2. AI extracts all line items
3. AI matches against PO data
4. Highlights discrepancies
5. Review only exceptions

Time Savings: 70-90% reduction in matching time.

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Best Practices

1. Standardize PO Formats

The more consistent your POs, the easier matching becomes.

2. Require PO Numbers on Invoices

Reject invoices without PO references.

3. Digitize Early

Scan/upload invoices immediately upon receipt.

4. Set Clear Tolerance Policies

Document what variances are acceptable.

5. Track Repeat Offenders

Flag vendors with frequent discrepancies.

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Summary

Matching Types

Type	Documents	Best For
2-Way	Invoice + PO	Services
3-Way	Invoice + PO + Delivery	Goods
4-Way	+ Inspection	Quality-critical

Key Steps

1. Gather documents
2. Verify headers
3. Match line items
4. Verify prices
5. Calculate totals
6. Document and resolve

Key Takeaways

1. Matching ≠ Checking—verify content, not just format
2. 3-way matching catches billing for undelivered goods
3. Tolerances prevent wasting time on immaterial variances
4. AI automation reduces matching time by 70-90%

Stop the manual document shuffle. Let AI match your invoices.

👉 Try PDF reconciliation for free