The three-way match process provides better internal control over the accounts payable and purchase process. Procurement and finance teams can prevent fraud and duplicate invoices through three-way matches before paying an invoice. Accurate purchase order matching and matching payments to invoices ensure that payment is made only to the goods or services received.

• Of course, even when you regain these funds, these errors can wreak havoc on your A/P efforts.
• 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.
• Thus, the “three-way match” concept refers to matching three documents – the invoice, the purchase order, and the receiving report – to ensure that a payment should be made.
• You’ll also avoid any potential payment problems that can create costly headaches and time sucks down the line.
• The supplier’s invoice will be accepted for payment if everything checks out.

In this case, it’s the 1,000 masks, which, together, will cost $3,000 dollars. The mask vendor will provide you with a purchase order that will confirm the quantity (1,000) and cost of the items or services ($3,000). Two-way matching is the process of matching two documents the invoice and the purchase order.

Only if the details on the three documents are in agreement will the vendor’s invoice be entered as an account payable. The goal of this approval process is to ensure that each invoice is consistent with the products and amounts ordered, as listed on the purchase order. Then, it ensures this matches the goods delivered to the receiving department and listed on the corresponding receiving report. Thus, the “three-way match” concept refers to matching three documents – the invoice, the purchase order, and the receiving report – to ensure that a payment should be made. The procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness. Manual three-way matching requires a lot of time, especially if you’re using paper documents.

The care and attention that the process demands can mean that the entire department slows down when processing and matching invoices. 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?

The real cost of a manual 3-way matching process

In brief, three-way match accounting is a way to handle payments promised to suppliers while protecting the business from the risk of spending (or losing) money unnecessarily. Proper matching builds confidence in the organization’s supply procedures while minimizing impacts on cashflow outside of the funds authorized for purchasing. Zerocater had a complex, inefficient, and time-consuming invoicing process.

Yes because the purchase order and goods receipt is compared against the invoice related to the purchase. Whereas the AP staff member might not have the information at hand, Intelligent 3-Way Match isolates the problem that is preventing a proper match. Develop and implement standardized procedures for creating and issuing purchase orders. In addition, some industries, such as healthcare and government contracting, may be required by law or regulation to use the three-way matching system. Learn more in our articles on A/P software features to look for and how to automate accounts payable. Confident that everything checks out, Harry authorizes payment and initiates a wire transfer to Put a Lid On It Manufacturing’s bank account.

MHC NorthStar offers best-in-class technology to manage your AP processes and make all documents—especially those necessary for three-way matching—easy to access. On top of this organization, MHC’s NorthStar supports straight-through processing. That way, employees only look at problematic documents or high-value invoices, i.e., the ones that are most in need of their attention. A company might choose to use this method since it’s less time-intensive than a three-way match. However, they could be paying too much or too little for the goods and services rendered, as they have no way to cross-check the receiving information.

What Is 3-Way Matching and Why You Should Do It?

It is simple to tell whether an invoice is valid or fraudulent by checking whether a business requested and also received the goods/services it claims payment for. What if you found that up to 2% of your company’s payments have duplicates, the erroneous amount charged, or other errors? The simplest approval procedure is two-way matching, how to use a cash book in accounting which verifies that the vendor’s invoice number and other details match those on the purchase order (PO) number. SAP enables a similar process through purchase order (PO), goods receipt (GR), and invoice receipt (IR). Purchasing and goods receipt configuration are not in the scope of the article, but we’ll touch on those processes.

XpresSpa: Vendor compliance and cost savings

The 3-way match of purchase orders in SAP enables efficient data processing and invoice verification. The accounts payable department then creates an invoice based on the information on the purchase order. This invoice is then sent to the buyer from the supplier based on the information gathered from the purchase order. The invoice details would be validated against the details mentioned in the PO before approving the invoice. The supplier then sends a receiving report to the buyer once the order is completed.

Zerocater: More process efficiency and fewer invoices

The advantages and effectiveness of automating the 3-Way Matching Accounts Payable process have been more than shown. Manual invoice matching can result in processing expenses that are hundreds or even millions of dollars more while attempting to prevent overpayment. It’s a perfectly reasonable approach in theory, but in fact, the method for putting this cost-saving mechanism in place frequently has obvious problems. Manually checking payments might be more expensive for many businesses than simply paying the odd incorrect invoice. When it comes to matching invoices, there are a few key things you can do to make the process easy and headache-free.

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. If you’re one of the businesses that use manual matching procedures to track their transactions with suppliers, here are the drawbacks you need to watch out for. On the other hand, the three-way process checks the purchase order against the goods receipt note and the supplier invoice.

It includes information such as the quantity, description, and agreed-upon price for the goods or services. This document acts as a foundational agreement between the buyer and the supplier. If an item interpreted by AP Essentials or AP Agility is of uncertain accuracy, or if it falls outside of the rules defined by the AP administrator, the program flags the information for review.

Direct vs Indirect Procurement: What’s the Difference?

With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support. Additionally, the documents could be misplaced, lost, or damaged due to poor handling or storage issues. 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. Three-way matching helps protect business from unnecessary expenses which, in the long run, adds to your bottom line.

Why Automate Three-Way Matching?

All the relevant paper documents need to be gathered in order to manually verify 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. Unavailability of the right document for matching leads to payment delays and other process bottlenecks, which in turn affect business performance and productivity.

When there are discrepancies, you can lose track of funds, overvalue your real cash position, or undermine general decision-making throughout the business. However, employing a 3-way match system in your accounts payable efforts can help your company avoid the following issues. Tracking cash flow accurately both inside and outside the business is indispensable for the audit process. The 3-way match process in accounts payable provides a clear audit trail for verifying the legitimacy of financial transactions in a business. To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are.