Next-Gen AP Automation

How Three-Way Invoice Matching Automation Safeguards Retailers’ Revenues

Selling iced tea in summer is big business, and one that requires beverage brands to manage supplier payments for everything from tea leaves to bottle caps. Issues arising from invoicing errors can shortchange suppliers or bleed buyers dry with overcharges, however. In this month’s Next-Gen AP Automation Tracker, Eric Forry, vice president of finance for Argo Tea, discusses how three-way invoice matching and real-time invoice assessment can help brew up better business.

Almost 80 percent of Americans drink tea, twisting open icy bottles on hot summer days and relaxing over steaming mugs in colder weather.

Cafe closures during the coronavirus pandemic have reduced retail opportunities for tea brands, but consumers are still ordering their favorites online or loading up on them at grocery stores. Tea purveyors know that providing in-demand products is not enough to guarantee business success, however. They must also carefully manage their revenues and purchasing to get ahead.

An important part of that is ensuring no revenue goes missing. This problem can be particularly onerous for sizable businesses with many procurements to track. Invoice inaccuracies caused by either honest mistakes or deliberate fraud quickly add up if not caught and corrected, and unexpected monetary drains cause budgets to fall short of projections. Sophisticated accounts payable (AP) tools that closely monitor invoices and payouts are thus critical to helping buyers ensure errors do not eat up funds.

Tea purveyors need up-to-date insights and clear understandings of their finances even under typical economic conditions, but such tools are especially helpful when companies have less revenue to spare, such as during the pandemic. Eric Forry, vice president of finance at U.S.-based bottled and loose leaf tea company and cafe operator Argo Tea, and Roy Yu, its chief financial officer and president, recently explained to PYMNTS that AP tools could make all the difference. The right solutions could help companies more accurately and conveniently pay vendors, for example, easing pains in an already-trying time and ensuring smooth purchasing.

Three-Way Invoice Matching

Argo Tea manages an array of vendors and thus needs to be able to rapidly assess the bills it receives. The company sources brews from suppliers around the world, purchasing leaves and herbs directly from farm consortiums in Africa, Asia and the Middle East and proprietary mixes of tea leaves, flowers, spices and other ingredients from blenders in Germany, Yu said. It must also pay for product packaging and the standard expenses involved in maintaining physical locations, Forry explained. This means there are many opportunities for errors or fraud to slip into Argo Tea’s billing streams if its suppliers make mistakes and it does not catch them.

“Especially for a company that does manufacturing like we do — manufacturing bottled teas [or] developing products that use lots of different ingredients, [including] the bottle, the cap, the sleeve, the sugar, the flavoring — you’ve got to make sure that all of those pieces are received and that the [item] count is correct and the price is correct,” Forry added. “There are a lot of different variables.”

Forry noted that automating invoice processing and using three-way matching help prevent billing mistakes. Three-way matching solutions compare buyers’ placed purchase orders, suppliers’ invoices and shipment receipts drawn up at distributors that detail received items, then send real-time alerts on discrepancies, such as receipts listing fewer products than specified in purchasing orders or billed on invoices. This enables staff to review and determine how to respond, allowing Argo Tea to quickly catch and address errors and avoid losing revenue or underpaying vendors — both of which would damage relationships.

Catching Inventory Billing Errors

Three-way invoice matching can also boost accuracy when paying for inventory shipments. Argo Tea might place a purchase order for a certain quantity of tea leaves, for example, then find the amount received and weighed at the distribution center is 50 pounds less than requested, Forry said. The company must be able to detect and address such issues to avoid paying for product it never received.

Automated invoice matching tools can catch discrepancies faster than humans and send error alerts in real time, thus removing the risk of invoicing issues going unnoticed.

“The system will kick out an exception [alert] and say, ‘Receiving doesn’t match,’” Forry explained. “[The alert] will go to the person responsible — the purchaser — and that purchaser will look at the invoice and say, ‘Hey, we got 50 pounds less.’ They’ll go back to the vendor and say, ‘Hey, can you check your records? We see that this order was 50 pounds less — can you double check?’ At that point, vendor might say, ‘Oh, you’re right, we missed a couple bags there. Here’s a credit.’ It’s things like that on the [purchasing] side that can save [a company].”

Not all discrepancies are worth correcting, however. Buyers may find that it is not worth the time and effort to dispute a shipment that should be only a few dollars less once weighed than the amount requested on the invoice, he noted. Companies must therefore fine-tune their appropriate threshold levels, or “tolerances,” to ensure that automation tools send alerts when necessary and do not waste time on minor problems.

“You don’t want to be chasing pennies and tripping over dollars, as the saying goes,” Forry said.

Argo Tea sets different tolerances for each product and service for which it pays, and it keeps these levels secret from vendors and most staff. This secrecy is part of maintaining solid fraud-fighting standards, which could prevent someone from trying to overbill just beneath the threshold level at which alerts would be sent, for example.

Ensuring Service Price Accuracy

Such invoice checking approaches are well-suited to situations in which companies receive physical goods, but these systems may struggle to verify bills for services if their central offices receive invoices for actions like repairs conducted at cafes in different cities. The corporate office staff cannot see and assess the amount of work done and may be unable to readily determine the costs of certain fixes.

“How do you know that the price they quoted the tea cafe store manager at the very beginning … ends up being the same amount that you physically get in the corporate office?” Forry asked.

Argo Tea developed new tools to adapt its three-way invoice matching approach to assist in paying for such services. Store managers enter service quotes into the system, and corporate headquarters staff can follow up to investigate bill amounts that differ significantly from their estimates.

“If [the original price estimate was] $200, and then [the contractor] comes and bills us later for $400, [the system] will kick out an exception to that store manager and say, ‘Hey, you said it was $200, now it’s $400. What happened?’” Forry said. “It might be it was our team’s fault, where [the manager] says, ‘Oh, yeah, they were going to fix one thing, and I was like, oh, this other thing’s kind of broken in the back, why don’t you do this, too? … It actually should be $400.’”

Running a business requires managing procurement and quickly and accurately paying for everything from major inventory shipments to one-off services. Uncaught overbilling errors can deplete buyers’ revenues, and mistakenly underpaying produces disputes that sour vendor relationships. Both are significant problems in any economic climate, but it is even more crucial to avoid them during downturns like that resulting from the COVID-19 pandemic.

Three-way matching automation solutions can catch and resolve these issues, minimizing AP and buyer-vendor relationship frictions.

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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