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How To Match Invoices to Purchase Orders

Michael V. MilanoCheryl LudwigOracle Corporation

Abstract

Improve your understanding of invoicematching and provide an overview of invoicematching and setup requirements in bothOracle Payables and Purchasing.

Scope

I. Overview of Invoice Match FunctionalityII. Review of various Setup ScreensIII. Invoice Match ProcessIV. Overview of the Accounting EntriesV. Troubleshooting Tips

I. OVERVIEW

Oracle Payables shares purchase orderinformation from your purchasing system toenable online matching with invoices.Invoiced or billed items are matched to theoriginal purchase orders to ensure that you payonly for the goods or services you orderedand/or received. If you are billed for an itemover the amount and quantity tolerances youdefine in the Invoice Tolerance window,during Approval, Oracle Payables applies ahold to the invoice, which prevents payment.Oracle Payables supports three levels ofmatching which verify that purchase order andinvoice information match within definedtolerances as follows:

• 2-way matching (quantity billed <=quantity ordered)

• 3-way matching (adds quantity billed <=quantity received)

• 4-way matching (adds quantity billed <=quantity accepted

Purchase orders are created for InventoryItems or Expense Items. The accountingentries created by matching invoices to PO’swill be different for Inventory Items ascompared to Expense Items depending onwhether you accrue expense items on receiptor at period end.

You can match a single invoice to multiplepurchase order shipments, or you can matchmultiple invoices to a single purchase ordershipment. Oracle Payables ensures that youmatch only to purchase orders for the supplieron the invoice and that the purchase order andinvoice currencies match.

II. SETUP

The first setup step is determining whichmatch option you are using, i.e. 2-way, 3-wayor 4-way matching. This option can be setupas a default in Purchasing Options, Supplier orSupplier Site or on the PO Shipment Line.

(In Purchasing, Setup > Organization >Purchasing Options > Default)

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(In Purchasing, Supplier Base > Suppliers >Sites > Receiving)

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(In Purchasing, Purchase Orders > PurchaseOrders > PO Shipments > More)

Note that in 11i, there is now the option tomatch to purchase order receipts as well aspurchase order shipments. This option isavailable in the PO Shipment form “InvoiceMatch Option”.

If you are using 4-way matching you must alsoenable inspection of the goods when they arereceived. To do this you can set the default inReceiving Options or set inspection at the POShipment level.

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(In Purchasing, Setup > Organizations >Receiving Options > Receipt Routing)Note that to require inspection, “receiptrouting” should be set to “inspectionrequired”.

(In Purchasing, Purchase Orders > PurchaseOrders > PO Shipments > Receiving Controls)

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To require inspection, change receipt routingto “inspection required for this one purchaseorder.

You must also define a Purchase PriceVariance Account. This account shows thevariance between the purchase price on thepurchase order and the standard cost for allitems you receive and deliver into inventoryand work in process. Inventory recordspurchase price variance on delivery into asubinventory. Work in Process recordspurchase price variance on delivery into thejob or repetitive schedule.

You must also define an Invoice PriceVariance Account. This account shows thedifference between the purchase price on thepurchase order and the purchase price on theinvoice.

(In Purchasing, Setup > Organizations >Organizations). Place your cursor on theinventory org and click the “others” button.Select Inventory Information. Select alternateregion “other accounts”.

In Payables, the important setup steps arePayables Options and Tolerances. In PayablesOptions you will need to setup the following:• Allow Final Matching. Select this option to

allow final matching of purchase ordermatched invoices. You can indicate a finalmatch when you match an invoice to apurchase order during invoice entry orwhen you adjust a matched invoicedistribution. Select this option only if youwant to allow the option of permanentlyclosing the purchase orders. Once apurchase order is permanently closed, youcannot reopen the purchase orders.

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• Allow Distribution Level Matching. Selectthis option if you want to allow matchingto purchase order distributions. If youselect this option, you can match aninvoice to one or more purchase orderdistributions. If you do not select thisoption, you can match an invoice to apurchase order Shipment.

• Allow Matching Account Override. Selectthis option if you want to allow override ofthe account for an invoice distributioncreated from matching to a purchase order.You can override the account for amatched invoice distribution in theDistributions window.

(In Payables, Setup > Options > Payables >Matching).

You cannot override the account for a matched invoice distribution if you use encumbrance accounting or perpetual receipt accrual.• Transfer PO Descriptive Flexfield

Information. Select this option if you wantto automatically transfer the descriptiveflexfield information from the purchaseorder distribution to the invoicedistributions when you match an invoice toa purchase order.

The other important setup in Payables is theInvoice Tolerance. Invoice Tolerances aredefined to allow for variances between

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invoices and purchase orders and fordifferences in tax calculation. If a tolerance isexceeded, the invoice will go on hold duringthe invoice approval process.

The Define Tolerance form displays the nameof the Hold that Oracle Payables will place onthe invoice for each tolerance that is exceeded.If an invoice is on hold, the invoice cannot bepaid.

In the Invoice Tolerances window, select thecheck box for each tolerance you want toenforce, and enter tolerance levels for yourpurchase order matching transactions and yourinvoice taxes.

In the Maximum Quantity Ordered field, entereither the percent or the quantity differenceabove purchase order shipment line quantityordered that you allow suppliers to invoice.

In the Maximum Quantity Received field,enter either the percent or the quantitydifference above purchase order shipment linequantity ordered that you allow suppliers toinvoice.

In the Price field, enter the percentagedifference above purchase order shipment lineunit price that you allow suppliers to invoice.

In the Exchange Rate Amount Field, enter theamount of variance you allow between aninvoice amount and the amount of thepurchase order shipment to which it ismatched. Enter a value in this field only if youenter foreign currency invoices in OraclePayables.

In the Shipment Amount field, enter theamount of variance you allow between andinvoice amount and the amount of thepurchase order shipment to which it ismatched.

In the Total Amount field, enter the totalamount of variance you allow for both theExchange Rate Amount variance and theShipment Amount combined. If you do not useforeign currency, do not enter a value in thisfield.

(In Payables, Setup > Invoice > Tolerances)

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III. INVOICE MATCH PROCESS

The first step in the invoice match process is tocreate a purchase order. There are severaltypes of purchase orders, including Standard,Planned and Blanket purchase orders. For thepurposes of illustration, this paper will useStandard Purchase Orders for all examples.

In Purchasing, navigate to Purchase Orders >Purchase Orders. Enter the PO Headerinformation like Supplier, Site, etc.

If you are purchasing an Inventory Item, selectthe item from the list of values in the itemfield. If you are purchasing an expense item,

leave the item blank and enter a category, i.e.MISC.MISC. Enter a description, unit ofmeasure, quantity, price and need by date.

Click the “Shipments” button.

Enter your shipment information: theinventory org, ship to location and quantity.

The “Receiving Control” button allows you toenter receiving information like the receiptrouting (direct delivery, standard delivery orinspection required). Remember the value forreceipt routing needs to be ‘inspectionrequired’ to enable 4-way matching.

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Click the “Distributions Button”. Enter thequantity and charge account information. Notethe distribution line type default to expense orinventory depending on the item(s) beingpurchased.

Save your work. Close the distribution andshipment forms to get back to the purchaseorder header click the “Approve” button.

If you are using 3-way or 4-way matching, youmust receive the items.

In Purchasing, Receiving > Receipts. In theline tab, click the checkbox to the left of thequantity. This indicates which line(s) you wishto receive. Enter the quantity to be received.Save your work.

It should be noted that accounting entries aregenerated when the receiving transaction

processor is run. The process transfers theaccounting entries to the GL_INTERFACEtable where General Ledger can import thetransactions and then post them to the generalledger.

The profile option RCV: Processing Modedetermines when the receiving transactionprocessor is run. There are three values for thisprofile option, on-line, immediate and batch. Ifyou select online or immediate, the receivingtransaction processor is kicked off as soon asthe receipt is saved. If you select batch, thenyou must run the process as a concurrentrequest.

Now you can log into Payables and enter aninvoice to be matched to either the purchaseorder shipment line or the receipt.

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In Payables, Invoices > Entry > Invoices orInvoices > Entry > Invoice Batches (ifbatching is enabled in Payables Options).

Enter invoice header information includingsupplier name, supplier site, invoice date,invoice number, and optionally, invoicedescription.

The Invoice Type defaults to Standard. Toenter a basic invoice, choose Standard.Enter the Supplier or Supplier Number.Choose the Supplier Site to which you willsend payment of the invoice. Oracle Payableswill print the address for this site on thepayment.

Enter the Invoice Date, or accept the default(today’s date) by using the Tab key to move to

the next field. Oracle Payables will not allowthe entry of invoices in closed periods, sodepending on which database you are in, youmay have to use old dates or open newer fiscalperiods.

Enter the Invoice Number from the Supplier’sInvoice, or accept the default (today’s date) byusing the Tab key to move to the next field.

Oracle Payables will not accept duplicateinvoice numbers for the same supplier.Enter the Invoice Amount.

Next to the “Match” button is a field thatdisplays the default invoice match option. In11i you can match to purchase order shipmentsor to receipts. Your choice of which is yourdefault is displayed here, although you canchange this value when matching.

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Query the purchase orders to which you wantto match the invoice. For each shipment youwant to match, enter two of the following:

Quantity Invoiced, Unit Price, or MatchAmount. Oracle Payables automaticallycalculates the remaining field.

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If you want to match in further detail, you canmatch to purchase order distributions bychoosing Distribute. If the Distribute button isenabled, that is the indication that there aremultiple distributions for the shipment.

You can also match to the receipt rather thatthe purchase order shipment. To do this selectreceipt match option (the field next to thematch button on the Invoice Workbench).

Click the “Match” button and enter a receiptnumber in the find window.

Common Nomenclature:

Charge A/C – account to be affected by thePO or invoice distribution

IPV A/C – Invoice Price Variance Account

AP LIAB – Accounts Payable LiabilityAccount

Cash – cash account

Rec. A/C – receiving accountAP Exp Accr – Accounts Payable expenseaccrual account.

AP Inv. Accr – Accounts Payable Inventoryaccount

IV. Overview of Accounting Entries

The following are various examples of whenencumbrance entries are created and what theyshould look like.

Case Scenarios:

1) 2-way match. Match a Standard purchaseorder for $10 (expense item) to a standardinvoice for $10 with accrual at period end.When the purchase order is created andapproved, no accounting entries are

generated, unless you are usingencumbrance accounting, which isdiscussed in another white paper.Accounting entries are generated when theReceiving Transaction Processorcompletes. Since this is a 2-way matchthere will be no receipt for this transaction.When the invoice is matched, the invoicedistribution will default from the POdistribution. It will also populate thePO_DISTRIBUTION_ID in theAP_INVOICE_DISTRIBUTIONS_ALLtable. To actually create the accountingentries, you must run the CreateAccounting process.

Invoice Matched/Approved, Run Create AcctAccount Debit CreditCharge A/C 10AP LIAB 10

2) 3-way match. Create a $20 purchase orderfor an expense item (period end accrual) andmatch it to an invoice for $20. Upon approvalof the purchase order no accounting entries aregenerated. Receive the items Once theReceiving Transaction Processor hascompleted, accounting entries are generatedand populated in the GL_INTERFACE table.

Item Received/Receiving TransactionProcessor completesAccount Debit CreditRec. A/C 20AP Exp Accr. 20

Items Delivered/Receiving TransactionProcessor completesAccount Debit CreditRec. A/C 20Charge A/C 20

Invoice Matched and Run Create AccountingAccount Debit CreditAP Exp Accr 20AP LIAB 20

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3) Create a purchase order for $30 inventoryitem (accrue on receipt). Match the purchaseorder to a standard invoice for $30.

Receive the Item/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 30AP Inv Accr 30

Deliver the Item/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 30Charge A/C 30

Invoice Matched/Approved, Run CreateAccountingAccount Debit CreditAP Inv Accr 30AP LIAB 30

4) Create a purchase order for an inventoryitem, (accrue on receipt) for $40. Match astandard invoice for $50.

Item Received/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 40AP Inv Accr 40

Item Delivered/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 40Charge A/C 40

Invoice Matched and Run Create AccountingAccount Debit CreditAP Inv Accr 40IPV A/C 10AP LIAB 50

Note: The difference between the purchaseorder price and the invoice price is charged to

the Invoice Price Variance account as definedin Inventory Information form (Setup >Organizations > Organizations).

5) Create a purchase order for an expense item(accrue on receipt) for $50. Match an invoicefor $60.

Item Received/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 50AP Exp Accr 50

Item Delivered/Receiving TransactionProcessor completesAccount Debit CreditRec A/C 50Charge A/C 50

Invoice Matched and Run Create AccountingAccount Debit CreditAP Exp Accr 50Charge A/C 10

AP LIAB 60Note: The difference in the purchase orderprice and the invoice price is not recorded tothe Invoice Price Variance account. Forexpense items, price variances are recorded tothe charge account on the purchase orderdistribution and not the invoice price varianceaccount. When the Transfer to General Ledgeris run the price variance will show as aseparate journal line, as shown above.

V. Troubleshooting Tips

A. Essential Table Level Detail

1. Purchase OrdersPO_HEADERS_ALLFields: po_header_id Segment1=’PO Number’

wf_item_typewf_item_key

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2. Purchase OrdersPO_LINES_ALLFields: po_line_id

po_header_idclosed_code

3. Purchase OrdersPO_LINE_LOCATIONS_ALLFields: line_location_id

po_header_idpo_line_idclosed_codequantity_receivedquantity_acceptedquantity_billed

4. Purchase OrdersPO_DISTRIBUTIONS_ALLFields: po_distribution_id

po_header_idpo_line_idline_location_idquantity_orderedquantity_billed

quantity_cancelled

5. Accounts PayableAP_INVOICE_DISTRIBUTIONSField: po_distribution_id

B: New Required Field.

11i has a new required field in thepo_line_locations_all table calledmatch_option. Since this is a new field, whenupgrading this field will be NULL. After theupgrade you will need to run the followingscript to populate this field.

update po_line_locations_allset match_option = ‘P’where match_option is NULL;

commit;

C: How to remove a final matching hold.

If you have an invoice distribution which hasbeen matched to a final closed PO, the invoicewill get a FINAL MATCHING hold.

There are 2 ways of final closing a PO line:

1. When you match an invoice to the PO line,you can set the field "final match" to Yes. Thisis on the same form where you enter theamount and quantity you are matching.

2. You can manually Final Close a PO throughpurchasing. The form is called ControlPurchase Orders.

Once you have final closed a PO, the veryNEXT time that you try to match an invoice tothe PO, you will get the final matching hold.The hold is placed on the invoice when yourun AutoAapproval.

Example: 1. Match an invoice to a PO. Choose yesfor Final Match.This invoice will pass AutoApproval.

2. Match a second invoice to the samePO. When you try to match to the line that isalready closed, you will receive a warningmessage telling you that the line is alreadyclosed. When you try to approve the invoice,the invoice will be put on final matching hold.

There is no way to manually remove the hold;the system must remove the hold.

There are two workarounds for this situation:

Workaround #1: --------------You need to reverse the distribution line thathas the final match hold.You can then create a new PO line, and thenmatch to that line.

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Workaround #2:--------------You can manually create a distribution line onthe invoice that is not matched to the PO, butis charged to the correct GL account.

NOTE: You may want to use this secondworkaround if the goods were alreadyreceived against the original PO line.

D: Price Holds on Invoices.

Several clients have stated that they had POswith several invoices already matched to thePOs. They enter an invoice where the invoiceprice is the same or lower than the PO price,and they get a PRICE hold.

Basically, the problem is as follows. ThePRICE hold is because the average price of allthe invoices matched to the PO is compared tothe PO price. Since the average price isgreater than the PO price, the PRICE holdcomes on, even though the price on the currentinvoice is the same or lower than the PO price.

NOWHERE in the documentation does it statethat the "average price of all the invoicesmatched to that PO" is used. The doc onlystates that the invoice price is compared to thePO price and the tolerance used. Thedocumentation needs to be updated to includethe correct calculation.

Currently, in the Matching Holds table itstates:

PRICE hold Invoice unit price > [purchaseorder unit price x (1 + % tolerance)]

The "invoice unit price" needs to be changedto specify the weighted average calculation ofall the invoice prices on all invoices matchedto that PO.

E: What do the values of the final matchflag mean?

In theAP_INVOICE_DISTRIBUTIONS_ALL table,the FINAL_MATCH_FLAG codes mean:

N - The PO shipment line has not beenmatched.

Y - The PO shipment line has beenmatched, AND one of the invoices for this POhas been final matched. When a PO is finalmatched to an invoice, all other invoices forthat PO are updated, too. So you cannottell from this flag, which invoice was finalmatched.

D - The PO shipment line is closed. Youcannot invoice this distribution line.

F: Descriptive Flexfields.

Descriptive flexfields that appear on thepurchase order header and purchase order linesdo not transfer to Accounts Payables whenmatched. Only descriptive flexfields on thepurchase order distribution will be transferredto Oracle Payables.

Conclusion

It is our desire that this paper has helped youunderstand the fundamentals of InvoiceMatching. Breaking Invoice Matching downshould help you understand the process. Wehope that you are now better equipped totroubleshoot problems and determine whatneeds to be done to resolve the issue.

In addition, if you encounter a problem thatrequires assistance, please remember to log aniTAR with Oracle Support. They may haveseen the issue before and may already have asolution for the issue!

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About the Authors

Michael Milano is a Technical Analyst withthe Oracle Support Payables group. He hasbeen working for Oracle Support for over 3years.

Cheryl Ludwig is a Technical Analyst with theOracle Support Purchasing group. She hasbeen working for Oracle Support for over 3years.