What is a Three-Way Match in Accounts Payable? GEP Glossary

three way match accounting

Payment for a software subscription is an example of a situation when 2-way matching is enough. If the information from the document coincides with the actual delivery, there is a three-way match. If that’s the case, the accounts payable staff can continue to a secure payment process, knowing it’s paying for a legitimate invoice. After receiving the order and the digital files, the printer completes the job in the agreed time frame.

  • Additionally, the AP team can be empowered to determine the best course of action when they encounter a discrepancy.
  • Automating three-way invoice matching is designed to increase efficiency in the payment process, with a lower rate of error.
  • If the information matches, accounts payable staff approves the invoice and the accounting department sends payment.
  • The 3-way invoice matching process involves a close comparison of these documents, to ensure that the invoice is accurate to the purchase order and goods receipt note.
  • The three-way match process ensures that the invoice is not paid until the goods receipt note is complete, with notes on any mismatches between the purchase order and the receipt.
  • The AP department may then use this information to verify the legitimacy of the invoice and speed up the payment procedure.

Let us understand the 3-way matching process with the following example. A vendor invoice for 5000 INR for 1000 integrated circuit boards is received by the buyer. The first step is to cross-check whether the PO was approved before fulfilling the invoice. The second step is matching invoices to purchase orders in terms of price and quantity. In this case, the purchase order for 1000 circuit boards at 5 INR each was raised, which totals 5000 INR.

Purchase Order Management: a Key to Efficient Business

Vendors often provide the order receipt as a payment and delivery confirmation, with the actual products sent out as a corresponding purchase order. It describes in detail everything that is included in the shipment or order. The details of the transactions and the payment method are repeated on the order receipt as they are on the invoice. An invoice’s legitimacy may be established relatively quickly by checking whether the company requested and got the items or services for which payment is being demanded. Within SAP, you might have already become familiar with your procure-to-pay process tcodes.

three way match accounting

When staff are constantly upskilling, they can manage the process more efficiently, keep up with industry standards, and make a greater contribution to a company’s financial integrity. Regular audits are not a luxury; they’re a necessity in the realm of accounting. Regular audits of the three-way match process help identify bottlenecks, inaccuracies, and areas for improvement. Let’s take a look at how these technological advancements are redefining the 3-way match, leading us into an era of unparalleled efficiency, accuracy, and real-time audit ability. Despite its theoretical simplicity, three-way matching can often face challenges in real-world applications. Let’s dive deeper into these core components that form the backbone of the three-way match  (often written as “3-way match”) process.

Building Strong Supplier Relationships

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. Book a 30-min live demo to see how Nanonets can help your team implement end-to-end AP automation. A good audit trail that tracks the flow of cash in and out of a business is indispensable whenever you’re faced with an audit.

Additionally, regular meetings or check-ins among the departments can address any concerns or issues promptly. Three-way matching creates a built-in check to the vendor payment process, ensuring a positive supplier-buyer relationship. 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 goods receipt note is a document that confirms the acquisition of goods or services. It should include your receiver’s signature, the name of the vendor, date and time of delivery, products delivered, and quantity of each product.

Automated 3-Way Matching with AP Automation Systems

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. Similarly, unless your business employs adequate protection to shield against invoice fraud, there’s no telling how much you stand to lose or might have already lost. Now, what is revenue operations revops and why is it important while both Google and Facebook managed to get their money back, invoice fraud is quite serious across the world, costing businesses billions of dollars every year. The fraudster in question simply sent falsified invoices to Facebook and Google, requesting payment for services that were never delivered or even requested.

There are several key reasons why business owners are moving to adopt 3 way match in accounts payable in droves. To be successfully verified, the invoices must satisfy matching tolerances. 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. 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.

three way match accounting

The supplier’s invoice is essentially a request to pay money owed to the supplier. Upon receipt of the vendor’s invoice, all of the data required to do the three-way match manually is available. However, this three-way matching may be done automatically for most bills, provided suppliers deliver their invoices electronically straight into the same database. A more subtle way your business will save money is to gain accurate data about the costs incurred. With real-time information, team leads can make correct decisions around forecasting and budgeting to ensure your business is running as cost-effectively as possible.

Ways to Make Three-Way Matching More Efficient

Then, they check the goods receipt note to ensure that the delivery matches the request. The 3-way matching process requires accurate verification and matching of information in the invoice, purchase order, and goods received in the note. Gathering all these documents and verifying the data is a time-consuming process when done manually. As mentioned before, manual data verification is prone to errors and discrepancies.

  • Partial shipments and backorders can introduce complexity to the three-way match process.
  • Take an honest look at your current practices and identify areas to target for improvement to increase your operational efficiency.
  • When calculated for several goods on a monthly basis, manual processing costs may run into six figures.
  • Rather than burn any bridges, 3-way matching ensures that good vendor relationships are maintained.

At the same time, it delivers the placeholder cards to the receiving department with a delivery note and a packing slip. Performing three-way matching can help the business spot fraudulent invoices. By rooting out unauthorized transactions, businesses avoid losing parts of their annual revenue. Two-, three-, and four-way matching are all accounts payable approval processes—however, each version takes the matching process to a different degree. In theory, it’s an entirely valid solution—however, in practice, the process used to implement this cost-saving system often has glaring flaws.

How Does 3-Way Matching Work?

Close your books faster by syncing your 3-way match directly on to your ERP or accounting automation software. If the invoice, PO and order receipt match exactly (or within an acceptable tolerance level), then you a have a successful 3 way match. 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.

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If any issues are found during the three-way match, payment isn’t issued and the involved parties play their role in rectifying the issue(s). After an invoice is validated during the three-way match processing, payment can be sent. Yet, few steps can compare to the right automation solution for three-way matching. Three-way matching adds the receiving report or receipt of goods as a further verification method. Considering that the entire purpose of three-way matching is to increase payment accuracy and avoid maverick spending, it’s essential to carry it out as efficiently as possible.

Dynamic Discounting: The Hidden Secret to Profit Protection and Supplier Satisfaction

Regularly reviewing contracts and pricing agreements with suppliers is crucial to identifying any changes or discrepancies. It is also important to maintain open channels of communication with suppliers to address any pricing issues promptly. And three-way matching doesn’t only benefit your business—because of the expedited invoice approval process, it also maintains a positive buyer-supplier relationship. 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.






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