3-way matching: what it is, its benefits, and the bottom line

No holds are placed on the invoice and the invoice is approved for payment. The default setting for all invoices is 2 way matching, if 3 or 4 way matching is required it must be set on each purchase order when it is created. Caffeinated, a coffee shop chain, wants to order 500 products priced at $6 each from supplier Y. Three-way matching is also part of the procurement process—getting, or procuring, goods and services for your business. It can tell you the correct amount and type of products you ordered from a supplier and ensure you only pay for what you received.

Trust between suppliers and buyers is one of the benchmarks of a successful business. If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties. Show that you value your relationship with them, and they’ll see you as a reputable partner. Based on the purchase order, the vendor will create an invoice for the items or services.

What is 3-way matching and why do you need to implement it?

The three-way match takes the information considered in a two-way match and adds the receiving report. With this type of processing, your team must exchange more information with the vendor to make an informed decision. By verifying what was received from the vendor, the buyer can either approve the invoice as submitted or negotiate discounts related to variances.

Though a 3 way match process has many benefits and seems like a no-brainer to implement, it’s not nearly as common as its cousin, the 2-way match. Two way what is 3 way matching in accounting matching is more common in most businesses, and is simply the process of matching the invoice against the PO to ensure they align before issuing payment.

Guide to Accounts Payable Automation & The Best Systems

The three-way matching process is critical for keeping a business’s finances healthy. That fact is true not only because it ensures a consistent supply of vital goods and services that meet the company’s needs but also because it protects against overpayment. In some cases, an effective three-way match can even expose potential fraud, as not all vendors operate above board.

However, incorporating 3 way matching is a critical step in protecting a company’s assets from both bad actors and human error. Every business can benefit from speeding up payments and reducing the threat of human error. Plus, if you run into any errors during the matching process, you will have to backtrack and start from scratch. By ditching the manual matching and approval workflow, you can rid your accounts payable of the extra work. Large Organizations purchase the inventory by the standard operating procedure per the organization’s policies. Hence double control is necessary for restricting unauthorized transactions. In a three-way procedure, major purchases are controlled using cross verification.

Optimizing AP Processes

They see that 20 pallets of brochures were, in fact, delivered by the printer. Each pallet contains 5,000 brochures, so that matches both the PO quantity and the supplier invoice. Purchaser Issues PO stating item requested, quantity and price. They require the purchased goods for a legitimate business reason.

Tesh Ramsarup of XpresSpa had a chaotic list of different vendors, products, and carriers, only 70% of which were compliant with their corporate standards. With Order’s platform, they were able to get that number up to 100% and streamline their procurement workflow to save time and a total of $68,000 their first https://www.bookstime.com/ year. When you should be focused on your bottom line, nothing can take the wind out of your sails like manually matching printed POs with invoices and packing slips. Investigating every invoice can be daunting, and unless systems are highly organized it can take hours to track down the correct documents.

Business is Our Business

After the vendor sends the invoice and your accounts payable department approves and pays it, the vendor will then send a receipt. The receipt will include details like what you ordered , the payment method, any discounts (let’s assume there are none here), and the total amount you paid for the order ($3,000, plus taxes and fees). Prepares businesses for audits – Auditors are specifically on the lookout for financial discrepancies. Compiling these documents in advance of an audit and checking that the numbers line up using the three-way matching process is a big step in the right direction. Order receipts/packing slips – This is the proof of payment and delivery. An order receipt is included by the vendor with goods that have been delivered to the purchaser.

Suddenly, accountants don’t have to perform 3-way matching or manually enter data. They only need to intervene when there are exceptions or when higher-level thinking is required.

Finance & Accounting

Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice of internal control. The buyer receives an invoice from the supplier based on the PO. A corresponding PO is sent to the supplier based on the order placed. Brainyard delivers data-driven insights and expert advice to help businesses discover, interpret and act on emerging opportunities and trends. If you want our team to help you optimize your payables process, fill the form below and book a free, no-obligation consultation.

• Only if the details on the three documents are in agreement will the vendor’s invoice be entered as an account payable.
• The essence of three-way matching is to eliminate fraud and to ensure all incoming invoices are properly vetted before making payments on them.
• 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.
• An invoice is received from a supplier for payment of goods or services ordered through a purchase order.
• Set up touchless AP workflows and streamline the Accounts Payable process in seconds.

AP automation ensures the highest level of accuracy in 2-way matching. Two, three, and four-way matching are all accounts payable approval processes, however, they each conduct the matching process to a different degree. Two-way matching is the most basic approval process where the vendor’s invoice number and details are checked against the purchase order number and details to ensure that the documents match. 3-way matching adds the receiving report or the receipt of the goods as a further verification method. Three-way matching is a procedure for processing a vendor invoice to ensure that a payment is complete and accurate.

The purchase occurs, and a corresponding PO is sent to the supplier based on the order placed. Data is entered and saved into the Oracle receiving form including quantity received. A query is performed in the purchasing module, receiving form to find the appropriate purchase order. They have all the details in a purchase order as well as an order number. As a best practice, your business should not buy anything without a purchase order prepared in advance and entered into your accounting records. Google and Facebook both fell for a fake invoice and paid over $123 million to a Lithuanian scammer.

The Order Blog is the go-to resource for finance and operations professionals who want to grow their business. Create Purchase Order requisitions for goods and services to speed up the buying process. Accounting EntriesAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry.