Common mismatches include price differences, quantity discrepancies, incorrect SKUs, missing deliveries, and duplicate invoices. Discrepancies can be resolved before money changes hands, avoiding the awkward and time‑consuming process of reclaiming incorrect payments. Since manual processes are run by people, the chances of misplacing or damaging documents, data oversight, and misinterpretation are very high. The specific products, quantities, and prices of each item on the invoice and purchase order are called line items. Line items may also include additional information, such as comments or charges. To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice.
Benefits of three-way matching for finance leaders
To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are. 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. As transaction volumes climb, manual matching creates processing backlogs, forces you to Liability Accounts hire more staff, increases error rates, and reduces visibility into payment status. When checking delivery documentation, they should compare quantities with the original PO, verify item descriptions match, and note any quality issues.
Preventing Overpayments and Fraud
The 3-way match issue arises when discrepancies occur between purchase orders, invoices, and receiving reports. It’s crucial to reconcile these documents to ensure accurate payment processing. 3-way matching is a critical process in accounts payable that ensures accuracy, prevents fraud, and improves financial efficiency. By understanding and implementing 3-way matching, you can protect your business from financial discrepancies and streamline your payment processes. Automated Invoice Matching Software further enhances these benefits, making the process faster and more reliable.
How to automate 3 way matching AP workflows
This may involve contacting the vendor or internal departments to clarify what went wrong. This article details why these documents form the basis of accuracy in your accounts payable ledger, and shows you how the matching process works. Every organization strives to maintain a meticulous record of its financial transactions while safeguarding itself against errors and fraud. One of the most trusted safeguards in this process is three-way matching, a fundamental control measure that verifies whether what was ordered, received, and invoiced are in perfect alignment. Upon receipt of the vendor’s invoice, all of the data required to do the three-way match manually is available.
- This creates a structured workflow covering steps from where the problem is documented to investigating the issue to making corrections.
- The first step in the three-way matching process is to verify the purchase order.
- The automated matching system needs to be configured such that goods received are rechecked on an ongoing basis until the entire order is complete.
- It quickly and accurately cross-references invoices with purchase orders and receipts, ensuring accuracy and consistency.
- A purchase order (PO) is a document, often legally binding, that confirms an order of products or services without requiring immediate payment.
- The supplier delivers the goods or services and includes a packing slip or delivery note.
Most AP automation software or invoice automation software, like Nanonets, can help organizations switch from manual 3 way matching to a completely touchless automated workflow. AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows. A supercharged 3 way matching AP workflow ensures timely vendor payments. Thus automation can help save costs while establishing a stable supply chain.
Delayed payments and vendor dissatisfaction
This method ensures the highest accuracy and fraud prevention level but is the most time-consuming and requires coordination across multiple departments. Four-way matching is the most comprehensive invoice matching process, adding an inspection step to the verification. This method involves comparing the invoice, purchase order, goods receipt note, and inspection slip that verifies the quality and quantity of the received items. In accounts payable, three-way matching is an internal control process that ensures invoices, purchase orders, and receiving reports all have consistent line item details. Once the goods or services are delivered, they are inspected by the buyer.
Accounts Receivable Solutions
That’s why finance teams are increasingly adopting a 3 way match of vendor invoices as an essential step of their accounts payable process. Forward-thinking finance units have begun to automate their 3-way matching processes to prevent potential losses and provide a lifeline to their overwhelmed accounts payable (AP) teams. Discrepancies between purchase orders, invoices, and goods receipt notes, are found https://www.bookstime.com/ after reviewing and comparing the documents.
Procurement
For companies using ERP systems like NetSuite or Sage Intacct, built-in controls for purchase order (PO) matching often fall short, leaving finance teams to rely on manual oversight. Invoices may be paid more quickly because the 3-way matching process alerts finance teams to any discrepancies, mistakes, or signs of fraud. 3-way matching is an important method to check validity and accuracy of vendor invoices. It is conducted by matching invoice details with corresponding purchase documents and receiving reports. Invoice fraud is a rampant problem for businesses today, and has resulted in companies losing over $2 billion.
Reason #2: Increases control and visibility
Implementing a three-way matching system in accounts payable can be a complex process, fraught with challenges that can hinder its effectiveness and efficiency. However, in practice, discrepancies often arise due to human error, differences in document formats, or timing issues between when goods are received 3 way matching and when they are billed. These challenges can lead to delays in payments, strained vendor relationships, and potential financial losses. 3-way matching is a fundamental process in accounts payable (AP) automation that ensures accuracy and prevents financial discrepancies in an organization’s transactions. It involves comparing three key documents – the purchase order (PO), the goods receipt, and the supplier invoice – to verify that they match before approving payment. This comparison helps ensure that the quantity of goods received matches what was ordered and invoiced and that the pricing is consistent with the agreed-upon terms.
- AI‑powered matching combined with layered fraud detection makes it much harder for incorrect or fraudulent invoices to pass through your AP process.
- These are called exceptions, and how you handle them can make the difference between a quick resolution and a long, costly payment delay.
- The invoice allows the accounts payable team to confirm that the supplier is billing the company for exactly what was ordered—and nothing more.
- For service-related purchases where a receiving report might not be essential, a 2-way match is preferred over a 3-way match.
- It also helps reduce the time and effort required to manage the inventory and makes tracking and monitoring the flow of goods easier.
- By comparing the purchase order, receiving report, and invoice, it confirms that goods or services were ordered, received, and billed correctly.
Equally important is measuring the error rate and cost per invoice to measure improvements and identify areas for further optimization. Make sure you onboard your teams onto the new system before the actual implementation. For instance, you can first train your accounts payable team on how to use the automated software to scan and match documents. Allow them to experience the simplicity of an automated process compared to traditional methods. If available, ask your provider for help in onboarding your teams by providing live demos or recorded video tutorials. DataServ’s AP automation solutions offer the flexibility and adaptability to optimize 3-way matching across diverse business environments.