The supplier then sends a receiving report to the buyer once the order is completed. With these three documents in hand, the accounts payable personnel can crosscheck to determine whether a supplier’s invoice is legitimate, before making payment. Four-way matching adds the step of comparing an inspection report for quality control.

Because the process requires three documents to be compared before payment can be issued, a fraudulent invoice will be detected immediately. The Association of Certified Fraud Examiners (ACFE) estimates that companies lose 5% of their revenue every year due to fraud. A 3-way match process entails matching the purchase order PO, the receipt of the goods notes GRN, and invoice records to avoid paying for unauthorized purchases.

Comparing the invoice for the purchase of goods and services with the purchase order is a 2-way match in accounts payable. The accounts payable (AP) three-way match process involves processing an invoice by matching the data with a purchase order and with the goods received in the note. Collaboration between these departments ensures accuracy and helps prevent errors in payment processing.

As hard as your employees may try to get payments in on the due date, manual matching can just be too tedious. People can only work so quickly, and taking the time to track down all the approved versions of the documents from suppliers creates a lot of back and forth. By keeping secure records and checking each payment, you’re making sure you’re not over- or underpaying invoices, missing discounts, or potentially subjecting the company to fraud. You’ll also avoid any potential payment problems that can create costly headaches and time sucks down the line.

The Benefits of Automated 3-Way Matching

It’s important to prevent overpayments, underpayments, and potential fraud. It may not work as well for service purchases cause it can be more difficult to track and verify. This ensures that everyone understands the process and procedures and can effectively perform their roles. This includes specifying the necessary information on the purchase order, such as product descriptions, details, quantities, and prices.

• Put all that together and you get a smarter three-way matching solution that eliminates error 100 percent at a fraction of the time and at even lesser cost.
• This process enables your AP department to detect different kinds of payment errors, including fraudulent invoices, duplicate invoices, and even minor errors in supplier invoices.
• Making procurement and invoice clearance decisions based on the 3-way matching procedure eliminates invoice discrepancy and accurate payments.
• Manually doing the matches exposes you to mistakes and misinterpretations.

The quantity billed (in the invoice) should match the quantity ordered (in the purchase order). And the invoice price should match the price quoted in the purchase order. A successfully verified invoice must match the PO and receipt within acceptable tolerance levels. An invoice that fails matching tolerances is placed on hold and is sent for appropriate review. In 2020, someone managed to swindle Google and Facebook out of $123 million collectively.

Traditionally, the accountant is in charge of matching the invoice, PO, and GRN data. All the relevant paper documents need to be gathered in order to manually verify accounting for startups the ultimate startup accounting guide the goods and price information contained in them. It is challenging to search through stacks of documents to locate those relevant to the current transaction.

What is three-way matching in accounts payable?

The receiving department will have the receipt that specifies the cost and quantity of goods ordered. The numbers on the packing slip must match those detailed on the PO and invoice. A Three-way match is the process of matching the purchase order (PO), invoice, and goods receipt (GRN) note to validate the supplier’s invoice before payment is made. A 3-way match in accounting helps determine if the invoice should be paid in full or part and reduces the risk by preventing reimbursement of unauthorized purchases. 2-way and 3-way matching of invoices are the most common matching methods in accounting.

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. Two-, three-, and four-way matching are all accounts payable approval processes—however, each version takes the matching process to a different degree.

It establishes good relationships between suppliers and buyers

Here are some reasons why three-way matching is the best way to check your payment process. Though it’s a popular method, three-way matching isn’t the only way to cross-reference and check orders and invoices; there is also two-way and four-way matching. Let’s review both of these processes and how they differ from three-way matching. After this process completes, you can verify the information on the invoice for accuracy. Once an invoice is entered into an ERP it is assigned a “match/no match” status. If, for any reason, there are price differences or problems with the goods receipt, the invoice cannot be processed by the ERP.

Manual Matching: A Problematic Process

It provides clear insights into supplies from vendors and money paid to suppliers. Vendors and suppliers submit invoices to Accounts Payable (AP) for processing and payment. Once the AP clerk receives the invoice, it’s physically matched to the PO form and the packing slip. This means that the clerk must go to the file cabinet and pull both forms that they previously filed when Purchasing and Receiving routed them to AP. Three-way matching provides transparency into a business’s relationship with vendors and suppliers so it’s easy to see their supplies to the business and the payments they’ve received for them. This is useful for tracking payments to a particular supplier as well as for litigation, should that come up.

Not all businesses generate each of the needed documents for 3-way matching in every transaction. The visual form builder enables the accounts payable team to set up the 3-way match workflow easily without the need for coding. In some cases, an order is completed over multiple deliveries done on different dates. For orders having multiple delivery dates, it is not possible to match the goods received against the invoice.

Why Automate Three-Way Matching?

The process becomes even more challenging when discrepancies arise, leading to potential payment delays, and dissatisfaction among both suppliers and buyers. The process includes identifying the person responsible for receiving and inspecting deliveries – as well as procedures for documenting and reporting any errors. It records the quantity, delivery conditions, and any other relevant details of the products/services. We should check all those documents to ensure that they all match up and are precise.