What Is 3-Way Matching in Accounts Payable?

With automation, you’ll get all the benefits of three-way invoice matching without the need to devote valuable AP resources to manual 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. Other times, it’s a third-party posing as your supplier committing the fraud. 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.

With these three documents in hand, the accounts payable personnel can crosscheck to determine whether a supplier’s invoice is legitimate, before making payment. The supplier’s invoice is essentially a request to pay money owed to the supplier. what are indirect materials definition and examples The truth is that accounts payable fraud is a risk that all businesses must contend with. However, incorporating 3 way matching in accounts payable is a critical step in protecting a company’s assets from both bad actors and human error.

• Since manual processes are run by people, the chances of misplacing or damaging documents, data oversight, and misinterpretation are very high.
• Show that you value your relationship with them, and they’ll see you as a reputable partner.
• By verifying that the purchase order, order receipt, and supplier’s invoice match, you know that an invoice is valid and correct before paying it.
• And depending on how many manual steps are involved in your vendor’s invoicing efforts and your own A/P processes, common errors might even be unavoidable.
• A 3-way match is a critical process in accounts payable and procurement, involving the comparison of three key documents – the purchase order (PO), the goods receipt note (GRN), and the supplier’s invoice.

As a result, you could lose early payment discounts or incur late fees due to missed invoices. The “match” part of the three-way match refers to comparing the quantities, price per unit, terms, and other information appearing on the three documents. In other words, does the vendor’s invoice detail agree with the organization’s purchase order, and to the goods actually received as shown on the organization’s receiving report? Only if the details on the three documents are in agreement will the vendor’s invoice be entered as an account payable. In accounts payable, three-way matching is an internal control process that ensures invoices, purchase orders, and receiving reports all have consistent line item details. When calculated for several goods on a monthly basis, manual processing costs may run into six figures.

Improves Vendor Relationships

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. For many companies, receipt of an invoice puts the payment process, and three-way matching, in motion. At that point the company should already have the PO and proof that an order was received. By verifying that the purchase order, order receipt, and supplier’s invoice match, you know that an invoice is valid and correct before paying it. It benefits your business by ensuring that the supplier invoice matches your ordered goods or services. The bottom line is that three-way matching is an essential element of your AP automation system that saves money and time, all while helping maintain positive relationships with vendors and suppliers.

Book this 30-min live demo to make this the last time that you’ll ever have to manually key in data from invoices or receipts into ERP software. In paper-based three way matching and invoice approvals approver delays can result from procrastination, heavy workloads, resolving questions with the requester, and holidays/leaves. If an accounts payable employee encounters a one-off matching error, they will need to investigate the problem to solve it. Three way matching compares line item details and totals across purchase orders (PO), receipts for good, and vendor invoices sent to the customer. When your company receives an invoice, your AP team will need to enter the data into your ERP or accounting system.

• It is time-consuming and only done when strict compliance or verification is needed.
• Sometimes, your AP department might identify errors, like price and quantity issues or product damages.
• They can decide if they want to pre-pay the amount, or reach out to the vendor for credit, or find another possible solution.
• To be successfully verified, the invoices must satisfy matching tolerances.

Since you won’t have to compensate a larger team to manually handle matching, you’ll be able to put that money toward other things in your budget. Plus, timely and accurate payments mean you won’t be charged any late fees or have to account for any time-consuming and costly errors. 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.

What is the 3-Way Match Process in Accounts Payable?

Receiving high-quality goods and services is vital for improving your business. If you don’t get the materials or other goods or services you paid for, your business will suffer one way or another, whether it’s through defective products or impaired internal processes. Without it, your business would have lost money, or you and the supplier would have wasted time trying to unravel the overpayment when it was discovered.

Saves Your Company Time and Money

Having complete and accurate documents will help your auditor check data and complete an audit quickly. A timely audit helps your business avoid costs you would have incurred if the auditor had needed extra time going through your documents. Unfortunately, fraud happens, and it’s up to your business to have a system in place to prevent it, internally and externally. Three-way matching serves as a checks and balances to make sure an invoice is legitimate. By comparing the three documents, PO, invoice and delivery/order information, your business can be confident about issuing a payment.

This document acts as a foundational agreement between the buyer and the supplier. It is time-consuming and only done when strict compliance or verification is needed. Storage and retrieval of documents in manually managed invoice processing is a challenge. Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces. When documents are not organized properly, retrieval for reference becomes a headache. Manual verification of information on various documents is a time-consuming process.

What is 3-Way Matching in Accounts Payable?

The 3-way match accounting entries need to be in sync for successful 3-way matching. If any of the 3 documents fail to match, the invoice payment is put on hold until the discrepancy is resolved. The 3-way match process in accounts payable can be used in SAP, ERP, and Odoo implementations.

Benefit #4: Improves supplier-buyer relationships

To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are. The purchase order is an official confirmation receipt of the order sent by the buyer to the vendor. The purchase order authorizes the purchase and includes information like PO number, payment information, and description of goods and their quantity. But since manual matching processes can potentially lead to significant mistakes, many businesses opt for two-way matching instead. Thankfully, three-way matching can be done without the manual work through automation. While three-way matching does require an extra step, you can streamline your processes if you’re using automation.

As a result, you will be able to maintain fruitful and trustworthy relationships with your vendors and suppliers. By automating your three-way matching process, your company will need less manpower to maintain the process, freeing up your team to work on more complex tasks. Manual matching allows human error to be introduced to the mix—from misreading an invoice to missing information on a document, you might not get the exact confirmation that you would from an automated 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.

Benefits of automated 3 way matching

However, some companies might choose this process just to be more thorough in their accounting. 3 way matching using the SAP accounting system or ERP is the matching of a purchase order to an invoice and a goods receipt. At Rillion, we provide accounts payable automation (AP Automation) to organizations in over 50 countries worldwide. Over 95% of Rillion customers feel that the platform fulfills expectations and consider Rillion to be a worthwhile investment, noting its ease of use and great support.