What Is Three-Way Matching & Why Is It Important?

After an invoice for delivered goods has been received, the accounts payable department reviews documents to make sure the invoice matches the PO and goods receipt. 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 invoice matching is important and can save your business time and money, you will run into issues if you’re doing it manually. A purchase order (PO) is a document, often legally binding, that confirms an order of products or services without requiring immediate payment.

In some cases, most companies consider quantities inside the tolerance limits as matched. A flawed computer system or a tremendous workload averts your worker from accomplishing satisfactory work. In simpler terms, three-way matching can assist in troubleshooting a backup in the workflow.

What are the Different Components of 3-Way Matching?

Similarly, when faced with an audit, the organization will have a full paper trail for verifying all legitimate expenses made by the company. GEP NEXXE is a unified and comprehensive supply chain platform that provides end-to-end planning, visibility, execution and collaboration capabilities for today’s complex, global supply chains. Built on a foundation of data, artificial intelligence and cognitive technologies, GEP NEXXE helps enterprises digitally transform their supply chains and turn them into a competitive advantage. Brianna Blaney began her career in Boston as a fintech writer for a major corporation.

• Most companies use a manual matching processes to record financial transactions.
• There are several reasons why three-way matching is so important in accounts payable.
• Three-way matching serves as a checks and balances to make sure an invoice is legitimate.
• This stage saves organizations from overpaying and from paying for things they never received or perhaps never even ordered.
• That’s because the order receipts and vendor invoices are two standard documents needed for audits.

Tracking the exception rate (exceptions / total orders) can help you evaluate which vendors you prefer to order from. Choosing vendors with low exception rates will save you time and money in your accounts payable processing because you can expect that they will require fewer corrections before payment. The three documents that must have matched totals include purchase orders, order receipts/packing slips, and invoices. Ensuring that these documents are matched before paying an invoice saves businesses from overpaying or paying for an item that they did not receive. The truth is that accounts payable fraud is a risk that all businesses must contend with.

Process of 2-way Matching

With our powerful document management system, you can easily store and retrieve all of your documentation in one place, on the cloud. If that’s the case, the orchestrator can automatically schedule the workflow to start once the vendor’s GRN (Goods Received Note) has been lodged. The process of three-way matching can be pretty demanding and time-consuming, especially when done manually. After all, we’re only human – and sifting through the details of numerous documents eventually results in missed, misinterpreted, or misplaced documents.

3-way matching is a process in which purchase orders are matched with goods received notes and the invoice sent by the supplier. The purpose of 3-way matching is to mitigate the potential for fraud, maintain accurate reports, and introduce efficiencies in the invoice approval process. That’s because the order receipts and vendor invoices are two standard documents needed for audits. Requiring these two documents before the completion of a transaction contributes to a straightforward tax process.

Company

AP innovations are vital elements for a sustainable and centralized global business solution, one payment at a time. If the three essential documents (PO, invoice, and receiving report) coincide with the actual delivery, then it’s a three-way match. The receiving order specifies that a receiving payments by wave officer has accepted the goods delivered by the supplier, and records the quantity, the delivery condition, and any other points applicable to note. This document is forwarded to the accounts department once the receiving department has completed their due diligence and recording.

If only half of the order was delivered, the company may pay part of the invoice or withhold payment until the entire order is fulfilled. If the purchase order, invoice and delivery information match, the company can pay the invoice. By automating the three-way matching process, businesses may save time and money, detect fraud, and free up accounts payable employees to work on more strategic initiatives.

Solutions

If they don’t, a hold is placed on the invoice and payments cannot be rendered until the hold is released or resolved. A held invoice operates as a sort of fail-safe that prevents the payment of an unmatched and unverified order. 3-way matching helps businesses cut down on unnecessary manual non-value touchpoints, which helps businesses cut down on overtime pay, and negate the need to increase headcount or hire temporary resources.

The company issues a PO to a siding supplier for 12,000 square feet of vinyl siding, at $10 per square foot, to be used throughout the development. Two weeks later, the supplier delivers the siding and sends its invoice to the construction company. The construction company then uses the three-way matching process to verify that the supplier’s invoice amount for $120,000 matches the PO and that the delivery receipt confirms siding was delivered.