Accounting Process Best Practices: Three-Way Match

three way matching accounting

Unfortunately, this high volume of purchases offers plenty of opportunities for billing fraud. To mitigate the invoice fraud risk, many business owners and finance departments use 3-way matching. When trying to scale for growth, manual accounts payable processes can be a major deterrent. By migrating to automated matching processes, you can streamline your accounts payable procedures and handle plenty of invoices, POs, and order receipts without missing a step.

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Businesses that have switched from a manual procurement process with paper invoices to a completely automated system have seen some unbelievable results. They have more than proven the value and efficacy of automating the three-way matching process. By giving your vendors access to the portal, they can review the purchase order, invoice, and delivery note. They can make any necessary corrections before the invoice is sent for approval.

Lack of Automation

Having a set procedure in place for each step in the matching process can eliminate the need for manual review, saving time and reducing errors. The three-way matching process can be done manually or using an automated system. The PO number is given to the vendor or supplier when the order is placed. It should be made clear to the vendor that the PO number must be referenced on the packing slip when the items are shipped. Most vendors will not fulfill an order for an organization without a purchase order number.

  • Issues could include wrong payment details, incorrect prices, wrong or damaged products etc.
  • It is crucial to determine whether the received supplier invoice is valid and correct.
  • In a three-way match process, a receiving department will be required to submit a goods received note, or packing slip, to the AP department.
  • It helps to ensure that the inventory is accurate and up to date and that any potential issues can be quickly addressed.
  • There are several ways for an organization to set up their receiving department.
  • Teams that are able to achieve automation will make the entire procurement process more efficient while positively impacting their organization’s bottom line.

Along with matching the PO, receiving reports and invoices, you must match an inspection report. Inspectors consider the quality and quantity of goods received and may reject damaged, incorrect or faulty items. A four-way match ensures that a business can hold invoices for payment when a vendor does not meet the business’ standards for product quality. Automating the 3-way match in the accounts payable process brings transparency and consistency to the accounts payable process. The supplier invoice is the document that triggers the matching process. Once the invoice is received, the purchase order and receiving report data are retrieved and cross-checked with the invoice data.

Taking the Next Step to Protect Your Assets

Blockchain technology will be used for three-way matching in the future. This will help to ensure the accuracy and integrity of the matching process. Data analytics will become an essential tool for three-way matching in the future. Companies can use data analytics to identify patterns in the matching process and make informed decisions. By implementing these strategies, businesses quickly identify discrepancies and process payments faster.

Interested in learning more about how Accounting Automation can improve the efficiency of your accounting processes? Find out how DocuPhase can help you increase the audibility of your accounts payable processes by requesting a free demo. At the point where checks are cut and signed, the only papers being shuffled around will be the invoices, the checks and a copy of the cash requirements journal.

How Does Three-Way Matching Work?

In this case, the purchase order for 1000 circuit boards at 5 INR each was raised, which totals 5000 INR. The third step would be to match the PO and invoice data with the goods received receipt data. 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.

Businesses should evaluate the benefits, process, costs, and challenges of each method and choose the one that best suits their procurement process. An example of 3-way matching for inventory, the purchase order specifies that the buyer ordered 100 units of inventory products at a certain price. Delivery receipt or goods receipt note contains data confirming that the goods or services have been received and accepted by the buyer. The purchasing department receives this and records it as a PO–agreed upon by the buyer and supplier.

When to Use 3-Way Matching

Item names, quantities, and unit costs must match line item costs and total cost. The buyer’s AP department will scrutinize these details and flag any discrepancies. Where discrepancies do occur, stakeholders are sought out for approval and, where necessary, updated or corrected documentation is requested from the supplier. While AP automation saves businesses thousands of dollars on manual approval process costs, that’s not the only benefit to automation.

three way matching accounting

An AP manager, Accounting Manager, Controller, or perhaps CFO will review the cash requirements journal before checks are cut. One of the largest problems with the Three-Way Invoice Match process is the routing of paper. Documents mistakenly get sent to the wrong person, to someone who is on vacation, or to someone who doesn’t make invoicing their priority. To illustrate how three-way matching works, let’s look at a hypothetical situation. An event-planning agency has ordered 1,000 copies of placeholder cards for a client. The buyer and the vendor should have already agreed to everything listed on a purchase order.

Comparing the three critical documents in this process ensures an invoice is legitimate. This way, the accounting department will only pay for authorized order receipts. Delays can annoy suppliers, three way matching accounting and also prevent a company from taking early payment discounts. You can make three-way matching more efficient by excluding small-dollar and recurring invoices from the matching requirement.

This just makes all sorts of data comparisons pretty straightforward. Integrations with ERPs and accounting software also become convenient. Three-way matching has big drawbacks that could cost your business valuable resources if you’re not prepared.

There will be no delays or bottlenecks in the invoice payments when the 3-way matching process is automated. In the landscape of AP processing, different processes can be implemented to prevent invoice errors that result in overcharges. Each style of oversight in the payment process includes different checkpoints along the way to ensure accuracy. Two-way matching, a default verification process, reviews purchase information against final invoice.

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