When the knowledge worker is done, they can return the corrected invoice package through the dashboard back to the matching engine, clearing the exception. If the hospital has a five percent tolerance, then they might accept 2,850 masks or 3,150 masks. This quantitative info (and qualitative, if it’s appropriate) would come from an inspection report. It’s worth noting that, depending on the size or idiosyncrasies of your business, this receipt process can be more complex and involve multiple parties.

However, with a manual process, even when trying to avoid overpaying, businesses can often end up with much higher processing costs. The automated system for the Receiving Department may be slightly more labor intensive. The Receivers will still need to verify the contents of packages against what’s printed on the packing slip. They will now, however, have to go into the automated system, pull up the PO number and manually confirm on the screen that what was ordered on the PO is what was actually received.

Identify Key Personnel

In the world of finance and procurement, accuracy and accountability are paramount. Every organization strives to maintain a meticulous record of its financial transactions while safeguarding itself against errors and fraud. Three-way match has long been an important control measure practiced by accountants to make sure that what was purchased, what was received, and what was paid are fully aligned. According to a report by ACFE, organizations across the world lose 5% of revenue due to fraud or unauthorized spending.

• Likewise, unless your business deploys security systems to vet invoices and send instant notifications, there’s no telling how much loss you stand to incur should you become a victim of an invoice attack.
• With the right tips and tools, you can perfect the invoice matching process and make it a breeze.
• In theory, it’s an entirely valid solution—however, in practice, the process used to implement this cost-saving system often has glaring flaws.
• The 3-way match process is usually done before issuing the supplier with the payment post-delivery.
• 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.

That in turn can make overpayments, missed payments, and discrepancies that take time to fix. This ensures that prices and quantities match and that everything was received as specified in the PO, preventing overpayments and improving accuracy. The process typically begins with the creation of a purchase order that contains the relevant details of a purchase request, such as quantities and price.

The result is faster bill creation, fewer errors, and speedier payments. To further streamline three-way matching, invoice processing can have set rules for exceptions so you can bill for more than the received quantity or dollar amount. A systematic 3-way matching system aids businesses in maintaining accurate and comprehensive records. By documenting and cross-referencing each debits and credits in accounting step of the procurement process, companies can create a reliable audit trail. This not only supports internal control but also facilitates compliance with regulatory requirements and external audits. Because you, as the buyer, are taking the time to identify errors, you can quickly resolve issues before making a payment (such as whether a vendor under or over-invoiced an order).

A 3 way match example is when someone in an organization orders goods, and issues a purchase order. 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. The AP department receives an invoice from the supplier once the purchase has been shipped. People can only work so quickly, and taking the time to track down all the approved versions of the documents from suppliers creates a lot of back and forth. Even though there are many ways to check your accounts payable process, three-way matching is a best practice of all good accounts payable departments.

As a result, you will be able to maintain fruitful and trustworthy relationships with your vendors and suppliers. By automating your three-way matching process, your company will need less manpower to maintain the process, freeing up your team to work on more complex tasks. Though it’s a popular method, three-way matching isn’t the only way to cross-reference and check orders and invoices; there is also two-way and four-way matching. Let’s review both of these processes and how they differ from three-way matching.

The goods receipt note is a record confirming that the receiving officer has accepted the goods delivered by the supplier. It outlines the received quantity, the condition upon delivery, and other details. Once completed by the receiving department, this document is forwarded to the accounts department.

The Final Word on Invoice Matching

A 3-way match in accounts payable (AP) highlights the discrepancies or inconsistencies between any of the above-mentioned documents. When discrepancies are discovered in three-way invoice matching, the payment will be withheld until the discrepancy is resolved. If your three-way matching process in accounts payable isn’t 100% automated, it can happen that figures that get entered into one of the documents may differ just a bit with other documents. And if you insist your figures must be identical every single time, this might hold up supplier payments and invoice settlements.

Automate Three-Way Matching With Accounting Software

The check stub is attached to the supporting document (invoice, PO and packing slip), and then filed. 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. Whether it’s from the government, investors, or other vested parties, three-way matching creates a robust paper trail that’s useful for verifying how much legitimate expenses a business has made.

And when you find discrepancies, you can act on them as needed, such as by reaching out to the supplier to correct the price. 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. However, finding the right accounts payable automation system can seem daunting. 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.

Components of 3-Way Matching

Without double-checking that everything is in order, your business could over- or underpay or miss a payment deadline. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. The goal of 3-way matching is to compare these documents and identify any discrepancies—inaccurate quantities, wrong prices, damaged or missing goods, twice-submitted invoices—between the records.

What Precisely is a 3-Way Match Process in Accounts Payable?

An invoice that fails matching tolerances is placed on hold and is sent for appropriate review. ERPs do not have an automated way of handling these exceptions and in many cases companies may spend days trying to clear up the differences between purchase orders and invoices. The process can require a great deal of manual effort, particularly if the invoiced items have to be matched at the line level. In 2020, someone managed to swindle Google and Facebook out of $123 million collectively. How the hacker managed to do that remains a mystery to companies of such size and sophistication.

The real cost of a manual 3-way matching process

Sometimes, your AP department might identify errors, like price and quantity issues or product damages. If there are any issues, your business will usually withhold payment until the discrepancy is rectified. 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.

The AP Manager, Accounting Manager, Controller, or CFO will not spend much time handling the checks. Similarly, pricing discrepancies will need to be investigated and resolved. Once all approvals are received and discrepancies are resolved, the invoice is cleared for payment, as long as the relevant paperwork finds its way back to Accounts Payable. Potential delays can be caused by the approval process and by invoice discrepancies. Discrepancies between what was received and what is being billed for cause delays because someone must take the time to investigate the items in question. Process improvement and efficiency leads to better time management and overall cost savings for an organization.

The accounts payable team can quickly verify whether the goods and services were actually provided. Automating the procurement process is an effective way to eliminate fraud in the system. Businesses should do this three-way matching to avoid costly errors, such as duplicate payments or payments for goods or services that were never received. Airbase automates the three-way matching process to eliminate the downsides of invoice matching.