Optimizing your purchase order to invoice process: 5 best practices

Few finance processes are as critical — or cause more headaches — than purchase order (PO) and invoice processing. These intertwined functions are the backbone of the procure-to-pay (P2P) process, yet they can be plagued by delays, errors, and a lack of visibility.

If this sounds all too familiar, you’re in good company. Amazon’s 2024 State of Procurement Data Report found that 95% of finance leaders see room for improvement in their procurement processes, with the majority saying process complexity is their biggest challenge.

This article offers a guide to a more efficient workflow for your purchase-order-to-invoice process. We’ll explore the connection between POs and invoices and provide five actionable strategies to optimize the process. After reading, you’ll have the tools to eliminate bottlenecks, reduce errors, and gain visibility and control over your P2P cycle.

Connecting the dots: The purchase-order-to-invoice relationship

POs and invoices are closely linked in the P2P workflow. They represent two sides of the same coin, working together to make purchasing processes efficient and transparent. Think of it this way:

• The purchase order is a promise – a formal commitment from a buyer to a supplier outlining the expectations for the transaction before it even begins. This includes the specific quantity of goods and services, agreed-upon prices, and payment and delivery terms. 

• The invoice is the supplier’s confirmation that they delivered on that promise. It details what the supplier provided, matches to the PO, and serves as a request for payment.

Why the purchase order and invoice process is crucial

The close connection between POs and invoices is important for financial control, ensuring accuracy, and strengthening strong supplier relationships. Here’s why:

• Controlling spend: Purchase orders authorize purchases and set clear budget limits, preventing unauthorized expenditures and optimizing cash flow. Therefore, by matching invoices to POs, you ensure your organization only pays for goods or services that were approved and budgeted for.
• Improved accuracy and efficiency: Matching invoices to purchase orders prevents costly errors such as overpayments, duplicate invoices, or payments for incorrect quantities. This ensures timely vendor payments and reduces the time and resources spent reconciling invoices.
• Effective dispute resolution: The purchase order is a legally binding agreement between buyers and sellers. It provides a record of the agreed-upon terms in case of discrepancies or disagreements, letting both parties resolve disputes quickly and fairly.
• Stronger supplier relationships: Efficient purchase order and invoice processing, coupled with timely and accurate payments, build trust and transparency with suppliers. This contributes to a healthier supply chain and can lead to preferential pricing and terms in the future.

Let’s see this in action.

Connecting POs and invoices: understanding the workflow

Now that you understand the importance of connecting purchase orders and invoices let’s look at how they interact throughout the purchase-order-to-invoice process.

PO creation

The PO-to-invoice process begins with an approved purchase requisition. If the goods or services are available from an existing supplier, the purchasing manager negotiates the price and terms with the supplier and creates the purchase order. If not, they select and onboard a new supplier before negotiating terms and creating a PO.

After creating a purchase order, the purchasing manager sends it to the supplier.

PO sent to the supplier

When the supplier receives the PO, they review it and confirm they can fulfill the order by the agreed-upon date. Then, they prepare the shipment, create a shipping receipt referencing the PO number, and ship the order to the buyer.

Goods or services delivered

The supplier delivers the goods or services to the buyer as agreed in the PO. Upon delivery, the buyer’s receiving department compares the shipping receipt to the PO to verify that the shipment matches what was ordered.

Invoice generated

Once the goods or services have been shipped, the supplier generates an invoice referencing the PO number. To ensure accurate billing, they use the PO details to generate the line items on the invoice. The invoice is needed for the buyer’s accounts payable department to process the payment.

After generating the invoice, the supplier sends it to the buyer’s AP department.

Three-way matching

When the buyer’s AP department receives the invoice, they perform a three-way match, comparing the PO, invoice, and shipping receipt to confirm that the invoice details match what was ordered and delivered. If the documents match, the AP clerk sends the invoice for approval and payment. If there is a mismatch, they hold the invoice and investigate the discrepancy with the supplier.

Invoice approval and payment

The AP clerk sends the verified invoice to an approver for review and approval for payment. Once the invoice is approved, the finance team pays the supplier.

Now that you’ve grasped the fundamentals of the PO-to-invoice process, let’s explore the next steps for optimizing these workflows.

5 best practices to optimize the purchase order process

These five actionable strategies and best practices will guide you towards a more efficient, accurate, and collaborative PO-to-invoice process.

1. Create clear and complete POs

Clear and complete POs are the foundation of an efficient P2P process. They ensure accurate ordering, invoicing, and payment. Prevent errors, improve communications, and save time by focusing on these elements:

• Accurate product descriptions: Be as detailed as possible and avoid vague terms. Instead of “office supplies,” specify “10 boxes of black ballpoint pens, two staplers.”
• Correct quantities and units: State the quantity and unit of measure for each line item (20 hours, three boxes of paper clips)
• Prices and terms: Ensure the PO contains the agreed-upon prices, delivery dates, and payment terms.
• Buyer and supplier information: Check that the names, phone numbers, shipping details, and email addresses of both parties are correct.
• Unique PO numbers: Use standardized PO numbers to make tracking and matching easier.
• Authorization: Indicate who approved the purchase and ensure the PO is within their spending limit.

2. Streamline invoice submission

Make it easier for your suppliers to send accurate invoices. Provide clear instructions and use invoice formats that promote efficiency. Here’s how:

• Require PO numbers on invoices: Ask suppliers to include the associated PO number (or numbers for multiple PO invoices) on their invoices.
• Encourage digital invoices: Set up an email address for invoices and ask vendors to provide invoices in PDF format. Even better, invest in a vendor portal that allows suppliers to submit invoices directly.
• Set submission timelines: Clearly communicate your expectations for invoice submission timelines to avoid late submissions. For example, specify that invoices must be submitted within 60 days of delivery.

3. Automate 3-way matching

Eliminate manual PO matching and reduce errors in your invoice verification process. AP software automatically compares every PO, invoice, and receipt to provide comprehensive protection against errors and fraud. Automate 3-way matching by taking these steps:

• Choose an automation platform: Find and implement an automation solution that is user-friendly, scalable, and integrates with your existing systems.
• Allow for variances: Set tolerance thresholds for small differences in price or quantity to improve processing efficiency. For example, you could instruct the software to automatically approve matchings within a 5% variance in price.
• Handle exceptions smoothly: Develop processes for managing matching exceptions, resolving discrepancies, and handling escalations. Create workflows to route exceptions to the appropriate approver. For example, you could send all discrepancies for software invoices to the IT Director, while facility-related invoices might go to the Operations Manager.
• Leverage AI matching solutions: Reduce false-positive matches and minimize manual interventions to improve matching efficiency. Implement an AI-powered matching solution that understands nuances like minor variations in item descriptions, quantities, or abbreviations. For example, Stampli Cognitive AI™ PO Matching can recognize that “100 bushels of green apples” in a PO, “30 boxes of Granny Smith” on a shipping receipt, and “80 cases of apples” on an invoice refer to the same line item.

4. Centralize vendor communications

Clear communication is the foundation of strong vendor relationships and a smooth PO process. Centralize vendor communications to reduce confusion, streamline orders, and strengthen supply chain partnerships. Here’s how to optimize communications:

• Communicate proactively: Create a collaborative environment where buyers and suppliers communicate openly and transparently. By proactively addressing potential issues before they escalate, you can prevent delays and disputes. This can be as simple as scheduling weekly status updates or using a more sophisticated system with automated notifications for deliveries or changes in order status.
• Create a centralized communication hub: Provide a single platform for all PO and invoice-related communications. This ensures that everyone has access to the same information. For example, Stampli centralizes all stakeholder communications on the invoice itself, minimizing miscommunication and delays.
• Provide a self-service vendor portal: Set up a secure online portal where suppliers can access purchase orders, submit invoices, track payment status, and update their information.

5. Continuously improve for peak performance

Continuous improvement is key to getting the most out of your P2P processes. Regularly assess and optimize your PO-to-invoice processes to maximize efficiency, minimize errors, and adapt to changing business needs. Focus on these areas to keep things running smoothly:

• Track and analyze key performance metrics: Monitor KPIs such as PO cycle time, invoice lifecycle time, and PO error rate to identify bottlenecks and improve performance. For example, set a goal to keep the invoice error rate under a specific target, like 5%, to minimize payment errors and ensure efficient processing.
• Gather regular feedback: Get a holistic view of your P2P process by listening to different perspectives. Get input from employees, approvers, and suppliers to highlight pain points, bottlenecks, and opportunities for improvement. 
• Leverage automation and AI: Take advantage of emerging technologies like AI and machine learning to automate and optimize processes. AI-powered tools can streamline complex manual tasks such as approval routing, three-way matching, and invoice capture.

By implementing these best practices and leveraging the power of automation, you can transform your PO-to-invoice process into an optimized, efficient, and error-free workflow. Stampli gives you the finance operations platform and automation tools to achieve this transformation.

Transform PO-to-invoice processes with Stampli

This article has explored actionable strategies to optimize your PO-to-invoice process. Now, it’s time to put those strategies into action with Stampli. As the only finance operations platform built around accounts payable, Stampli provides the powerful tools and AI expertise you need to gain visibility and control, ultimately achieving a truly efficient P2P cycle.

Here’s how you can leverage Stampli to transform your P2P processes:

• Eliminate manual tasks with AI: Bid farewell to tedious invoice processing and manual PO matching. Stampli’s AI, Billy the Bot, automates invoice capture, coding, and 3-way matching, improving accuracy and saving time.
• Centralize collaboration and communication: Keep all communications and actions in one place. Stampli centers everything on the invoice to ensure everyone stays informed.
• Integrate seamlessly with existing systems: Stampli’s pre-built integrations synchronize with over 70 ERPs and accounting systems, eliminating data silos and ensuring information flow across your entire P2P cycle.
• Gain real-time visibility and control: Track invoices, monitor spending, and identify bottlenecks with Stampli’s dashboards and reporting tools. Gain complete control over your AP process and make informed spending decisions.

Ready to transform your PO-to-invoice process? Contact a Stampli expert today to learn more and request a free demo.