Achieving success in Accounts Payable is all about eliminating process exceptions. Perfection happens when invoice details match exactly with purchase order and receipt details, without any intervention or rework required. The metric used to measure the rate at which this error-free event happens is called the First Pass Match Rate, and the goal of every Accounts Payable organization is to get this metric as close to 100% as possible.
A recent PeercastTM in the Accounts Payable (P2P) research area featured a large global company discussing their approach to increasing the First Pass Match Rate for invoice processing. By closely analyzing the root causes for mismatches they were able to quickly achieve impressive results, with a steady and sustained improvement their First Pass Match Rate increased from 80% to over 90% within six months.
In addition to reducing processing costs, our feature company identified a high First Pass Match Rate as being important for ensuring external reporting accuracy, SOX compliance, timely payments, and maximizing cash discounts. Making progress was hampered by the added complexities of outsourcing relationships, multiple legacy systems, and differences in data standards. A root cause analysis identified the following error categories:
- Supplier EDI invoicing issues
- Distribution center issues
- Legacy system feed issues
- EDI mapping issues
- Delays in system updates (pricing, terms, unit of measure, etc.)
The approach to fixing these errors was to develop tools to monitor performance, with resources assigned to identify and correct the causes of deviations. For example, to tackle purchase order errors, our feature company created a pricing report that was reviewed daily for pricing and unit of measure discrepancies with master data files, with discrepancies reported to the master data team for correction. To address Receiving Department errors, monthly calls were scheduled between the distribution centers and Account Payable analysts to review the prior month’s performance, and real-time communication processes were created for large-dollar mismatches; all with an emphasis on preventing a recurrence of the same problems.
Two iPollingTM questions were created to support the Peercast. The first question looked at First Pass Match Rate performance, with the results indicating that 35% of companies achieve over 90% performance, with 60% of companies at over 80%. Here are the details:
The second iPollingTM question asked about the relative priority of making improvements to the First Pass Match Rate within Accounts Payable. Not surprisingly, 45% of companies see this as a critical issue, with 20% of companies identifying this opportunity as a low priority, either due to being satisfied with their progress in this area or due to more pressing issues.
Below are some of the comments added by Peeriosity members:
- I’m not a huge fan of this metric because flawed invoices can come in and be included as a first pass match if the deficiency is corrected on the same day. We are happy with maintaining the 93.4% rate we have achieved in North America but are more focused on finding ways to improve touchless processing.
- We are at 99% First Pass Match Rate for North America, where we heavily rely on ERS (self-invoicing). Unfortunately, ERS is not taxed compliant in many European and Asian countries. In those places, we are looking at Tungsten as a potential solution. But for certain countries like Taiwan, even that might not be an option.
- This metric is tracked only within our Asia shared service operations, covering China, Malaysia, Singapore and Vietnam and applies to paper-based invoices scanned through our OCR system. Improving the metric is a current initiative, but we also track what % of such invoices required only 1-field or 2-field corrections as even those are significantly faster than manual data entry. ERS is not used due to compliance issues in the region. We do not track this metric for EDI “invoices” as this represents only 15% of the total volume and the match rate is much higher.
What is your company’s First Pass Match Rate? Is enough attention being placed on improving your company’s performance in this area?
Who are your peers and how are you collaborating with them?
“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion. Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content. Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member. Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers. Membership is for practitioners only, with no consultants or vendors permitted. To learn more about Peeriosity, click here.