3-way matching enables you to create a paper trail, helping in better audits and compliance. Utilizing AP automation software can ease the manual burden on your accountants and perform an accurate match with a good return on investment. Three-way matching is an AP process that businesses use to verify invoices. They check the invoices against corresponding purchase orders and order receipts. It represents a better internal control solution than two-way and four-way matching. Still, businesses can take several steps to make this process more efficient.
Drawback #1: It’s time-consuming
The receipt should also be appropriately authorized and include applicable terms and conditions. Once all three steps of the three-way matching process have been completed, the payment can be released to the supplier. As the complexity of the matching process increases, it is essential to ensure that the appropriate system is in place to ensure accuracy. It could include hiring a specialist to manage the matching process or investing in an automated system capable of handling the complexity of two-way, three-way, and four-way matching.
Centralize your 3-way matching process
- This practice prevents paying for something you didn’t order, or paying more than you agreed to pay, paying for substandard goods and services, or even paying a fraudulent invoice.
- Blockchain technology will allow companies to track the progress of the matching process.
- The receiving or inventory department must also ensure that all goods and services are received in good condition.
- It includes the supplier’s contact information, a description of the goods or services provided, payment details, and the total owed.
- After you compared the purchase order to the goods receipt note, you determined that you did, in fact, request the delivery of ten boxes, and the additional box on the invoice was an error.
- The specific products, quantities, and prices of each item on the invoice and purchase order are called line items.
This reduces errors, avoids overpayments, and strengthens vendor relationships, ultimately safeguarding your company’s financial health. A 3-way matching involves Accounting For Architects reconciling purchase orders (PO), goods receipt notes, and supplier invoices. This process helps prevent fraud, save costs, and ensures a robust audit trail. Typically conducted before supplier payment after goods delivery, it enhances accuracy and transparency in financial transactions.All invoice payments involve some sort of verification or control. A 3 way match is an internal control process that cross-references a supplier’s invoice against its corresponding purchase order (PO) and good received note (GRN).
What Is Three-Way Matching?
In 3-way matching, documents compared include the purchase order, invoice, and receiving report to verify goods ordered, received, and billed accurately. 4-way matching adds an What is bookkeeping additional step of quality inspection before payment, ensuring both quantity and quality compliance. The 3-way match issue arises when discrepancies occur between purchase orders, invoices, and receiving reports.
Considering alternative methods, like automated processing, can save a large portion of the budget allotted for manual handling. A three-way invoice match ensures that all documents are complete and provide the correct information. A system can use fuzzy matching to scan multiple repositories, look up the existing vendor database, and compare various documents to identify fake documents.
Before processing vendor payments, your accounts payable (AP) team reviews the purchase order to ensure it matches the goods or services listed on the invoice. Then, they check the goods receipt note to ensure that the delivery matches the request. You can make three-way matching more efficient by excluding small-dollar and recurring invoices from the matching requirement. Yet another option is to avoid the process entirely by shifting more purchases to company procurement cards – for which there are no purchase orders. Three-way matching is an effective and efficient way for businesses to ensure accuracy regarding invoice and purchase order processing. It is a process that requires comparing data from three different sources; a purchase order, an invoice, and a receiving report.
Way vs 3-Way vs 4-Way Matching
- Download our free invoice templates with and without VAT, or choose to automate your invoicing with simple online software.
- If that’s the case, the accounts payable staff can continue to a secure payment process, knowing it’s paying for a legitimate invoice.
- Plus, when you or your automated system detect errors, you’ll need to discuss the error with the purchasing and receiving department(s).
- Airbase automates the three-way matching process to eliminate the downsides of invoice matching.
- One of the lowest-hanging fruits for fraudsters is accounts payable.
- Plus, the 3-way matching process can help catch invoice discrepancies.
Integrations with ERPs and accounting software also become convenient. A business can benefit from three-way-match processing in several ways. Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice what is a 3 way match in accounting of internal control. A corresponding PO is sent to the supplier based on the order placed.
How is 3-Way Matching Different From 2-Way Matching
Having a document dematerialization system promises even more benefits. By using this type of software, you standardize and unify your documents (purchase orders, delivery receipts, invoices, etc.), speeding up the 3-way match procedure. With all the transactions a company must handle, it’s essential to know how to improve accounts payable processes.
This allows business owners to make faster, data-driven decisions, reduce errors, enhance tax compliance, and stay audit-ready. An AP invoicing process called « three-way matching » decides whether to pay a supplier’s invoice. This can assist businesses in identifying fraudulent or unauthorized transactions, which, per the ACFE report, can cost an organization up to 5% of its yearly revenue. The goal here is to ensure that financial details (order quantity, order amount, total amount, PO number etc.) match across all 3 documents. 3 way matching helps approve AP invoice payments faster and also help the procurement management team flag any inconsistencies, errors or potential fraud.