Purchase order matching is the AP control that connects what a business agreed to buy with what it is being asked to pay. Without it, invoices can be approved for amounts that differ from the agreed price, for quantities greater than what was received, or from vendors that were never authorised.
This guide covers how to implement two-way PO matching in practice - what it checks, where it typically breaks, and how to configure it in a way that improves controls without creating processing bottlenecks.
What PO matching is and what it is not
Two-way PO matching compares an invoice against its corresponding purchase order across three dimensions: supplier identity, unit price, and quantity. When all three match within a configured tolerance, the invoice clears the matching check and proceeds to approval. When any dimension falls outside tolerance, the invoice is flagged as an exception.
PO matching is not a payment block. It is a control that surfaces discrepancies for review. The reviewer - typically a procurement officer or financial controller - investigates the exception, determines whether it represents a legitimate variation or an error, and resolves it before the invoice is approved.
Three-way matching adds a goods receipt note (GRN) to the comparison, confirming that the goods or services were physically received before payment is authorised. Three-way matching is standard in large enterprise environments. For most Australian SMBs, two-way matching provides adequate control without requiring a formal GRN process.
Why AP teams skip PO matching and why that creates risk
The most common reason AP teams skip PO matching is that it requires purchase orders to exist. In businesses where ordering happens informally - by phone, email, or verbal instruction - there is no PO to match against. The matching check cannot function without the input document.
This is not an argument against PO matching. It is an argument for raising purchase orders consistently. Businesses that commit to issuing POs before ordering receive two benefits: a matching check that catches invoice discrepancies, and a documented audit trail of authorised commitments.
The second reason AP teams skip matching is that early implementations create too many false positives. Matching tolerances set too tightly flag every minor price rounding as an exception. When the exception queue fills with trivial variances, reviewers begin approving without genuine investigation - defeating the purpose of the control.
How to configure matching tolerances
Matching tolerances define how much an invoice can differ from the purchase order before triggering an exception. Common configurations:
Price tolerance: Allow a variance of 1 to 3 percent before flagging. This accommodates GST rounding, minor price adjustments, and currency conversion differences without generating exceptions on every invoice.
Quantity tolerance: Zero tolerance is typical for quantity matching. An invoice for 110 units against a PO for 100 units should always be flagged. Some businesses allow a small over-delivery tolerance (5 percent) for bulk goods where exact quantities vary slightly.
Amount tolerance: Set a minimum dollar threshold below which matching exceptions are not generated. An invoice that is AU$2.50 over the PO amount on a AU$500 invoice does not warrant the same investigation as a AU$2,500 variance on a AU$10,000 invoice.
Tolerance configuration is a balance. Too tight and the exception queue fills with noise. Too loose and material discrepancies pass through. Review the exception rate after the first month of operation and adjust tolerances based on what is actually flagged versus what requires genuine investigation.
Implementing PO matching: the four prerequisites
Before configuring PO matching in an AP automation system, four conditions need to be in place:
1. Consistent PO issuance. PO matching works only when purchase orders are raised for the invoices you want to match. Identify which spend categories consistently have POs (materials, subcontractors, equipment) versus which are typically unordered (ad hoc expenses, utility bills). Implement PO matching for the categories where POs exist before expanding to others.
2. Supplier master data with PO references. The matching system needs to link incoming invoices to the correct PO. This requires suppliers to include PO numbers on their invoices, or for the AP platform to support manual PO association at intake. Work with your top 10 suppliers to ensure PO numbers are consistently included on invoices before go-live.
3. Configured price tolerances in the AP system. Document the tolerance thresholds before configuring the system. Review your last three months of supplier invoices to understand the typical variance range for each supplier category. This data drives the tolerance configuration rather than relying on default settings.
4. A defined exception resolution process. Determine who reviews PO matching exceptions, what information they need (the original PO, the invoice, and the delivery record if available), and what the resolution options are (approve with explanation, reject and request credit note, or approve pending supplier correction). Without a defined process, exceptions accumulate without resolution.
Where PO matching breaks in practice
Consolidated invoices. Suppliers that invoice for multiple POs on a single invoice create a matching challenge. A materials supplier might consolidate three weekly deliveries into one monthly invoice. The AP system needs to support many-to-one matching (one invoice to multiple POs) or the consolidated invoice will not match correctly.
Variations and change orders. In construction and project-based businesses, scope changes are common. An invoice that exceeds the original PO amount by 20 percent may be entirely legitimate if an approved variation exists. PO matching that flags this without context creates unnecessary work. Matching systems that support variation order references alongside PO numbers reduce false positives in project-based environments.
New suppliers. Invoices from suppliers not yet in the approved vendor list have no PO to match against. The matching check generates a flag that should trigger both an invoice review and a supplier onboarding verification - two separate controls that PO matching can initiate without stopping the invoice entirely.
Price increases. When a supplier increases prices between the PO date and the invoice date without a formal price agreement update, every invoice from that supplier will generate a matching exception until the PO rates are updated. Monitor exception patterns by supplier to identify this scenario rather than treating each exception individually.
Integrating PO matching with approval workflows
PO matching works best when it operates upstream of the approval workflow. An invoice that passes the matching check proceeds to approval normally. An invoice that fails goes to a dedicated exception queue for investigation before it reaches the approver.
This sequencing means approvers see clean invoices that have already been verified. Exception investigation is handled by a procurement or AP reviewer before approval, keeping the approver’s queue focused on authorisation decisions rather than discrepancy investigation.
Pulsify’s PO matching integrates directly with both Xero and MYOB, running two-way matching at invoice intake before invoices enter the approval workflow. Matching exceptions are routed to the exception queue with the original PO and invoice details side by side for efficient resolution. See also approval workflows for how approval routing integrates with matching outcomes.
The business case for implementing PO matching
The direct benefit of PO matching is preventing overpayments. Australian businesses that process 200 invoices per month against purchase orders, with a 3 to 5 percent discrepancy rate, are typically preventing four to ten incorrect payments per month. At an average invoice value of AU$3,000, that represents AU$12,000 to AU$30,000 in potential overpayments intercepted monthly.
The indirect benefit is audit readiness. PO matching creates a documented control that connects authorised purchasing commitments to actual payments. This is the evidence auditors look for when testing the procure-to-pay process: that every payment corresponds to something the business formally agreed to purchase.
For growing businesses where informal ordering is giving way to structured procurement, PO matching implementation is often the catalyst for establishing the purchasing discipline that the AP controls layer requires.
Sources: ATO eInvoicing for business · ACCC Targeting Scams Report 2024