What is a 3-Way Match in Accounts Payable?

28 Feb What is a 3-Way Match in Accounts Payable?

The co-working unicorn WeWork faced significant challenges in streamlining ordering and payments across their 800 global office locations. By implementing an integrated ordering and payment system, the company increased visibility into its AP processes and eliminated maverick spending. Replacing their manual 3-way matching with an automated process allowed them to process millions of invoices with ease. This move brought the company better ordering continuity, improved leverage with suppliers, and considerable cost savings. Expenses from manual invoice matching could amount to thousands or even millions of extra dollars in processing costs, all while trying to avoid overpayment.

• 2-way matching is the process of cross-checking invoices that businesses usually practice.
• The 3-way matching process requires accurate verification and matching of information in the invoice, purchase order, and goods received in the note.
• Three-way matching has the added benefit of simplifying bookkeeping and audits.
• 3-way matching is a procedure for processing a vendor invoice to ensure that a payment is complete and accurate.
• The 3-way match process in accounts payable provides a clear audit trail for verifying the legitimacy of financial transactions in a business.
• One of the major red flags that an auditor might encounter in their investigation is discrepancies between financial documents.

Three-way match is the process of comparing the purchase order, invoice, and goods receipt to make sure they match, prior to approving the invoice. This ensures that the customer’s order, the supplier’s skillwise review delivery, and the goods receipt note (GRN) all reflect the same information. As you look at your accounting flowchart, you’ll notice many steps for both your upstream and downstream processes.

Prepares Businesses for Audits

But there’s innovation here – a way to make that 3-way matching faster, more streamlined. 3-Way Match In Accounts Payable is a technique that businesses use to cut down on errors, deter fraud, and save money. Even while trying to avoid overpaying, firms might frequently incur substantially greater processing expenses when using a manual procedure.

Proper matching builds confidence in the organization’s supply procedures while minimizing impacts on cashflow outside of the funds authorized for purchasing. A 2-way match is done to ensure that the details of an invoice correspond to the details on the  purchase order sent to the vendor. A purchase order is generated by a customer and sent to a vendor stating the quantity and often the agreed-upon price for goods or services purchased.

Identify Key Personnel

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). When a supplier consistently sends accurate invoices, the purchasing company can pay the supplier faster. A good supplier relationship may also result in better pricing and credit terms.

Manage Your Payments With Full Control & Visibility

By using the three-way matching process, businesses can ensure that they only pay for goods or services that have been received and approved–preventing losses due to fraud and carelessness. The process is allowing businesses to resolve them before payment is made. A supercharged 3 way matching AP workflow ensures timely vendor payments.

AI in Accounts Payable: Can a Computer Do My Job?

Verifying the details across three distinct documents helps catch discrepancies that could lead to overpayment and identify fraudulent invoices. Three-way checking results is an efficient accounts payable process that protects your bottom line and cash flow. Verifying the components of the three-way matching process before paying invoices reduces overpayments for duplicate invoices, items not received, or fraudulent invoices. The process can help the AP department make payments to the supplier more quickly, enabling the company to qualify for early payment discounts. For any business that regularly engages in large numbers of purchase transactions, an effective accounts payable department is not optional—it’s a minimum requirement.

Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. One of the major red flags that an auditor might encounter in their investigation is discrepancies between financial documents. And depending on how many manual steps are involved in your vendor’s invoicing efforts and your own A/P processes, common errors might even be unavoidable.

How to automate 3 way matching AP workflows

We know, as entrepreneurs and businesspeople, that an organization is an ecosystem of processes. Your Accounts Payable team must take extra precautions to prevent processing false invoices. The result is that you end up taking longer than necessary to satisfy invoices. 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. It’s important to prevent overpayments, underpayments, and potential fraud. 3-way matching involves comparing three separate documents, which can be complicated and time-consuming.

Otherwise, you can create a master list and update your chart of accounts when you form a new vendor relationship. If you have a longstanding relationship with a vendor or are completing a bulk purchase, you may be able to negotiate a modest discount. When the vendor sends an invoice, the invoice number should match the number on your purchase order. Vendors can be selected from your chart of accounts, or you can choose a new vendor.

The 2 way matching process is the default approach to verify invoices across organizations. But companies are increasingly adopting three way matching to add an additional layer of verification and prevent overspending. Three-way matching provides transparency into a business’s relationship with vendors and suppliers so it’s easy to see their supplies to the business and the payments they’ve received for them. This is useful for tracking payments to a particular supplier as well as for litigation, should that come up.