What is 3-Way Matching in Accounts Payable?

The 3-way match process in accounts payable can be used in SAP, ERP, and Odoo implementations. The 3-way match of purchase orders in SAP enables efficient data processing and invoice verification. In order to keep up with evolving business needs, business owners need to adopt modern methods like 3-way matches in order to safeguard their business from fraud and cheating. Using 3-way matching in accounts payable and accounting is an effective way to improve payment processes.

Suppliers feel important and valued when necessary documents are fulfilled and submitted on time. As a result, they consider the company as a reputable and trustworthy business partner. Three-way matching may be labor-intensive and time-consuming because both the supplier and the buyer will allocate resources to accomplish the task.

  • The process can require a great deal of manual effort, particularly if the invoiced items have to be matched at the line level.
  • The attempt by fraudsters to defraud an organization of small-dollar microtransactions is similarly nonsensical.
  • A 3-way match can then be automatically performed on the extracted data, and any invoice with discrepancies beyond the acceptable threshold will be flagged and raised to the vendor.
  • It also ensures your accounting practices are compliant with the industry standards and aids in better external audits.

AP departments must check all three against each other to ensure legitimacy and consistency. Considering how much time we all spend trying to get the best terms on our contracts, a blanket 5% haircut on your business’s revenue in exchange for absolutely nothing is ridiculous. Confident that everything checks out, Harry authorizes payment and initiates a wire transfer to Put a Lid On It Manufacturing’s bank account.

The benefits of 3-way matching in accounts payable

A business might elect to only conduct a two-way match, which compares the authorizing purchase order to the supplier invoice, to ensure that the billed price is correct. This approach does not compare the receiving documentation to the supplier invoice, so there is a risk that the company will pay an invoice for an incorrectly-billed quantity. Its main advantage is somewhat faster processing speed than a three-way match, since the payables staff does not have to cross-reference any receiving reports. Most companies use two-way invoice matching, which compares the purchase order information to the vendor invoice to check for discrepancies. Many businesses find this to be a good fit for their current processes, especially those that need to pay for services and don’t use a goods receipt note to record these services.

  • In order to simplify the three-way matching process, you might consider excluding smaller value invoices and recurring invoices from the three-way matching process.
  • The AP department receives an invoice from the supplier once the purchase has been shipped.
  • To learn more about implementing automated three-way matching in your procurement process, schedule a demo of Order.co today.
  • As mentioned before, manual data verification is prone to errors and discrepancies.

Line items may also include additional information, such as comments or charges. When you combine all of these factors, you get a more intelligent 3-Way Matching Accounts Payable solution that completely eliminates mistakes in a less amount of time and at a lower cost. The buyer places an order with the supplier by sending a purchase order. The start-up fee is a one-time fee that includes the set-up of your solution, connection to your accounting system, and training for the system administrator (1 hour).

Cons Of 3-Way Matching

Transaction details should remain consistent across these three documents. This ensures that the amount paid to the vendor matches the goods or services provided. If there are any errors or discrepancies, you’ll spot them by noting if one document contains different information in comparison to the others.

An Example of Three-Way Matching

Traditionally, the accountant is in charge of matching the invoice, PO, and GRN data. All the relevant paper documents need to be gathered in order to manually verify the goods and price information contained in them. Storing paper documents can be challenging in terms of space and safety. It is challenging to search through stacks of documents to locate those relevant to the current transaction.

Way Match Automation

Once the goods arrive the invoice is checked against the purchase order to ensure the agreed upon quantity and amounts are the same. The goods receipt is also matched to ensure the goods specified in the purchase order and invoice were delivered. 2 and 3 way matching in accounts payable is the matching of a purchase order to an invoice, or matching a purchase order to an invoice and a goods receipt. Once delivered, the recipient views the package of information which includes an invoice image, a copy of the PO, the goods receipt information, and a description of the error. This package of information is presented in a single dashboard on the recipient’s laptop or mobile device.

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. Additionally, informing your suppliers of discrepancies quantity in math definition uses and examples video and lesson transcript enables them to deliver the correct goods and services in the future, saving both your time and money. A system can use fuzzy matching to scan multiple repositories, look up the existing vendor database, and compare various documents to identify fake documents.

Every time a person or department needs something for their work, they send a request outlining what they need, how much they need, and why. What if you found that up to 2% of your company’s payments have duplicates, the erroneous amount charged, or other errors? Accounts Payable approval procedures include two-, three-, and four-way matching; however, the degree to which the matching process is used varies for each version. In case of discrepancies, the payment against the invoice is kept on hold. If the details are accurate in a 3-way match, the invoice is approved, and the payment is released. The visual form builder enables the accounts payable team to set up the 3-way match workflow easily without the need for coding.

The supplier’s invoice will be accepted for payment if everything checks out. A 3-way match also aids in determining whether an invoice should be paid in full or in part. A 3 way match example is when someone in an organization orders goods, and issues a purchase order.

Case studies: 3-way match automation in the real world

AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows. 3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Issues could include wrong payment details, incorrect prices, wrong or damaged products etc.