In sports, the triple crown is among the rarest of achievements, whether in baseball (a player leading his league in batting average, home runs and runs batted in over a season) or horse racing (a thoroughbred winning the Kentucky Derby, Preakness Stakes and Belmont Stakes in the same year). Since 1875, that feat has happened fewer than 20 times in each sport.
The procure-to-pay process has a triple crown of its own — a three-way match between the invoice, purchase order (PO) and receiving report — and for many years, success seemed nearly as rare in supply management as on the baseball field or racetrack. Even the most-efficient companies had a first-time match rate, which measures how often the data in all three paperwork elements align when initially gathered, of around 30 percent.
Technology, supply base rationalization and improved procurement/finance synergy are among the dynamics that have helped dramatically increase first-time match rate, but there’s still room for improvement for many organizations. And some companies’ rates still hover around 50 percent. That leaves a lot of loose accounting ends to chase, which slows the process, frustrates accounts-payable personnel — and costs money.
According to the Business Spend Management 2019 Benchmark Report by Coupa, a San Mateo, California-based business technology platform, the ideal first-time match rate for a world-class company is 90.1 percent. However, just more than a third of companies are at 90 percent or better, according to a 2015 survey by Peeriosity, a Palm Beach Gardens, Florida-based shared-services research and advisory firm. Nearly a third of organizations had rates of under 70 percent, and one-fifth were under 60 percent.
“(The ideal situation) is that you order something, receive it and are billed, the documents are consistent, and the required information is there,” says Debbie-Fogel Monnissen, CFO at Institute for Supply Management® (ISM®). “So, the quantity matches, the price matches and it’s within the purchase order amount, and the invoice has all the information you need to make the payment. From an order-to-pay standpoint, you go through the process without any exceptions to the terms and conditions.
“That’s kind of the basic concept of first-time match. However, my experience is that it can fall apart in a number of ways.”
Measuring the Metric
With help from the ISM Glossary of Key Supply Management Terms, here are the three forms of paperwork that factor into first-time match rate:
●Invoice. “A bill for goods and services purchased that includes pertinent information with respect to the quantity, price, terms and nature of delivery.”
●PO. “A legally binding document prepared by a purchaser to describe the terms and conditions of a purchase. In the contracting process, the (PO) may function as an offer, an acceptance, a confirmation of an oral agreement or a trigger for periodic performance (release) under an established contract.”
●Receiving report. “Document(s) generated by the receiving function to confirm receipt of ordered goods.”
Of the three, the invoice has the most pitfalls, Fogel-Monnissen says. Since that document is generated externally by the supplier, it can be ripe for discrepancies. “There’s a potential for data conflicts — incomplete data, wrong data, or information that has changed since the last order,” she says. “You can get an invoice with no or new payment details or other information, and it’s different from what’s in the master supplier file.”
For companies with a large supplier base or invoices with multiple items, the situation can be even more pronounced. Software can help match documents or correct data issues, but as Fogel-Monnissen says, “you shouldn’t automate a bad process.” And that’s when it’s incumbent on procurement to (1) align with finance and (2) develop strong supplier relationships to better ensure communication and compliance. Otherwise, accounts payable must spend time with internal stakeholders to clarify information — and much more time chasing down suppliers.
In the Peeriosity survey, 80 percent of accounts-payable respondents said improving first-time match rate was a high or moderate priority for their organizations. “It’s easier to fix a PO because those people are readily available,” Fogel-Monnissen says. “But dealing with suppliers can be inefficient because then you have to track them down.”
The Benefits of a Higher Rate
According to Coupa researchers, a higher first-time match rate helps (1) reduce manual administrative costs to identify proper matches, (2) minimize time required to resolve non-compliant issues, (3) increase compliance with spend policies and (4) avoid late fees thanks to the increase of invoices paid on time.
Last year, The Monthly Metric visited with Fogel-Monnissen — who has worked in finance in the manufacturing (at Motorola from 1994-99) and technology (at MasterCard from 2002-17) sectors — to discuss how finance should not be viewed as a numbers-crunching killjoy, but rather as procurement’s partner in achieving organizational goals. Such alignment is critical in improving first-time match rate, as procurement and finance should share a reporting structure, cross-functional KPIs and standardized processes.
One such endeavor at some companies, including Mondelēz International, the Deerfield-Illinois-based food and beverage company, is a “no PO, no pay” policy, which incentivizes employees and suppliers to submit complete and accurate information. An e-invoicing system can quickly flag discrepancies between the invoice and other documents. “If there is something wrong with the invoice because of a supplier issue, it gets automatically routed back to the supplier,” Fogel-Monnissen says. “It puts the burden on the supplier.” And some organizations have removed a step from the process, accepting a two-way match (invoice and PO) for lower-risk purchases.
While organizations are more frequently winning the triple crown of first-time match rate, there’s still room for improvement at many companies on a metric that reflects a productive, cost-efficient procure-to-pay process. And procurement facilitating more complete and accurate paperwork early can mitigate accounts-payable headaches later.
To suggest a metric to be covered in the future, leave a comment on this page or email me at firstname.lastname@example.org.
The next Analytics for Supply Management 1: Fundamental Concepts & Techniques (formerly Business Analytics for Procurement) workshop from ISM Seminars is June 26-27 in Seattle. Jim Fleming, CPSM, CPSD, ISM Program Manager, Certification — a regular contributor to The Monthly Metric — is the instructor.