3-Way Matching: What It Is, Its Benefits, & the Bottom Line

What that means is that you end up spending more time getting invoices fulfilled than you’re supposed to. The essence of three-way matching is to eliminate fraud, and to ensure all incoming invoices are properly vetted before making payments on them. Managing all the invoices that the accounts payable (AP) department receives each month can be challenging, especially as your business grows. The accounts payable three-way matching process is one of several systems that help to ensure your company pays its bills accurately and on time. Expenses from manual invoice matching could amount to thousands or even millions of extra dollars in processing costs, all while trying to avoid overpayment.

• Confident that everything checks out, Harry authorizes payment and initiates a wire transfer to Put a Lid On It Manufacturing’s bank account.
• Harry initially verifies that the business name and payment details are consistent across the documents, making it unlikely that a rogue fraudster is attempting to misdirect a legitimate payment.
• Using Order.co’s platform, they streamlined their procurement workflow, increased their vendor compliance to 100%, and saved a total of $68,000 in the first year.
• Paying twice for the same purchase or full price for an incomplete shipment isn’t the smartest business decision.

Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. Most companies use a manual matching processes to record financial transactions. Manual processing includes obtaining physical documents in the form of journals or ledgers. If the company is still stuck in traditional payment workflows, a large number of transactions involving clients and suppliers will be challenging. One effective way to improve payment processes and supplier relationships is to adapt the three-way matching process to your supply chain. In the world of accounts payable (AP), one of the most challenging jobs is managing the onslaught of supplier invoices that arrive.

The AP team reached out to the vendor, who after realising their mistake, re-shared the correct invoice with the manufacturer. The 3-way PO, invoices, and GRN matching save the accounting team time by simplifying the invoice validation process. Potential payment discrepancies are immediately flagged down so that the team can investigate the cause and rectify it immediately. Timely validation and verification ensure on-time payment to suppliers.

With automation, you’ll get all the benefits of three-way invoice matching without the need to devote valuable AP resources to manual matching. An effective accounts payable process ensures accurate, secure, streamlined payment processing. Other times, it’s a third-party posing as your supplier committing the fraud. A vendor might accidentally send an invoice for a purchase that has been canceled, not completed, or not been fully delivered.

Understanding 3-way matching

The supplier’s invoice is a document that details the goods or services supplied and is a request for payment from the buyer. It includes the supplier’s contact information, a description of the goods or services provided, payment details, and the total owed. A purchase order (PO) is a document, often legally binding, that confirms an order of products or services without requiring immediate payment. This document is sent by the company to a vendor with the intention to track and control the purchasing process.

• Automating your three-way matching process is a key element of accounts payable optimization.
• ERPs do not have an automated way of handling these exceptions and in many cases companies may spend days trying to clear up the differences between purchase orders and invoices.
• A system can use fuzzy matching to scan multiple repositories, look up the existing vendor database, and compare various documents to identify fake documents.
• This validation procedure aims to confirm that each invoice accurately reflects the items and quantities ordered as stated on the purchase order.

The simplest approval procedure is two-way matching, which verifies that the vendor’s invoice number and other details match those on the purchase order (PO) number. Once an invoice is entered into an ERP it is assigned a “match/no match” status. If, for any reason, there are price differences ocean city md wine bar and bistro restaurant liquid assets or problems with the goods receipt, the invoice cannot be processed by the ERP. Users or knowledge workers typically have to cancel the transaction, and then perform time-consuming manual work to clear the exception. This usually involves the purchaser, the receiver and sometimes the vendor.

Wasted money

The reality is that a lot can go wrong, so it’s essential to have a process to check that your business is never losing money to inaccurate or fraudulent invoices. With the three-way matching process, you won’t overpay because of these issues. 3-way matching in accounts payable (A/P) refers to a validation technique that is used to help confirm that a received invoice is accurate, credible, and should be paid. In accounting, one of the most common types of invoice matching is called the 3-way match. Three-way match is the process of comparing the purchase order, invoice, and goods receipt to make sure they match, prior to approving the invoice. This ensures that the customer’s order, the supplier’s delivery, and the goods receipt note (GRN) all reflect the same information.

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This invoice is then sent to the buyer from the supplier based on the information gathered from the purchase order. The invoice details would be validated against the details mentioned in the PO before approving the invoice. The supplier then sends a receiving report to the buyer once the order is completed. In order to avoid processing fraudulent invoices, your accounts payable team has to be extra careful.

Why is 3-Way Matching Important? What Problems Does it Help You Avoid?

Whenever an individual or department requires anything for their work, they forward a request detailing what they need, the quantity, and why they need it. In a manual invoice approval workflow, the invoice literally gets pushed from one desk to another until final approval. It is hard to keep track of which level of approval a document is currently stuck at, and who the approver is.

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Most companies will require purchase order approvals as a key control activity in the accounts payable cycle. Comparing details across three documents helps identify errors and fraudulent invoices. Of course, invoices often have minor errors because of rounding off or other legitimate reasons. As long as the invoice errors are within an acceptable tolerance level, you can approve them.

Fortunately, accounts payable process automation systems can streamline the three-way matching process. These systems can automatically match invoices to purchase orders and order receipts, verifying that the data across each is consistent. If there are any discrepancies, the documents are flagged for review by the AP department. Automating your three-way matching process is a key element of accounts payable optimization.

This document is forwarded to the accounts department once the receiving department has completed their due diligence and recording. If errors are flagged in the 3 way matching process, the invoice is put on hold and payment is withheld. Once the issue is investigated and resolved, the invoice can be processed for payment.

Three-way matching helps protect business from unnecessary expenses which, in the long run, adds to your bottom line. It’s always easier turning a profit when you’re not losing money to fraudulent claims. Perhaps, if Google and Facebook had some system for vetting their invoices before paying them out, they wouldn’t have fallen victims in the first place.