What is the 3-Way Match Process in Accounts Payable?

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 construction bookkeeping match can even expose potential fraud, as not all vendors operate above board. A three way match process is a critical activity in the accounts payable process. The accounts payable team uses a three way matching process to compare the invoice with the purchase order and receipts.

• When a supplier consistently sends accurate invoices, the purchasing company can pay the supplier faster.
• It also allows you to catch errors or discrepancies that may go unnoticed.
• When everything is accurate, the line items on the screen become available for payment when AP enters the invoice against the PO.
• The companies ended up paying millions of dollars for fake invoices.

By leveraging 3 way matching accounting departments can streamline payment processes, mitigate the risk of human error, and exchange business documents digitally. Upon migration,automated invoice managementprocesses won’t suffer nearly as much from the long delays, bottlenecks, and processing costs that plague manual matching. Savvy finance departments know there are plenty of vulnerabilities that come with manual invoice matching and processing.

Automated 3-Way Matching with AP Automation Systems

As a result, the business will only check invoices over a specific dollar amount. This way, they avoid significant financial losses on high-value purchases. Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate.

Though not a must-have, but preferable to have data in one single system so that you don’t spend time dealing with data import issues. The 3-way match process definitely improves the efficiency of the A/P team and drives better compliance because of the purchase order and invoicing process. You probably have few vendors who for some reason can’t figure out how to send an invoice correctly. Vendor catalogs not only decrease the errors in the process but also increases thepurchasing experience for your employees. As you start with the new 3-way match process, your suppliers would be the key drivers in the success or failure of the process. A) Centralize the receiving of items so that there are fewer people who need to create the receipts.

What is 3-Way Matching in Accounting?

The authorized person will instruct the inventory department to rectify the bill from the supplier. A 2 way match, in comparison, only compares the PO with the invoice. And the invoice price should match the price quoted in the purchase order. Join our community of finance, operations, and procurement experts and stay up to date on the latest purchasing & payments content. To learn more about implementing automated three-way matching in your procurement process, schedule a demo of Order.co today. Payments Pay one bill per month across all vendors.Controls & Visibility Customize approvals, budgets, & reporting.Order Capital Unlock cash flow & easily access capital.

Financial specialists might have to spend extra time figuring out more about the requester’s needs and purchase order details before they can match the documents. Auditors are actively looking for financial discrepancies, so having all the documents matched and prepared in advance for the review will be favorable for the company’s credibility. Three-way https://www.scoopearth.com/the-importance-of-retail-accounting-in-improving-inventory-management/ matching is a sign of a financially responsible company. The business can allow accounts payable personnel to pay invoices that match the purchase order to a specific percentage. This way, it can account for minor discrepancies that result from legitimate charges. The business can stipulate which invoices are subject to three-way matching.

Best practices for increasing the efficiency of the 3-way match process

These not only cause issues with matching purchase order and invoices, but it also causes issues with delivery. Now the system is fully automated, there is no way to check if the invoice is correct before it is sent and that leads to data issues. Your supplier is currently submitting the invoices manually, so there is a due diligence process in place to ensure accuracy. Purchase orders are generated as a part of the request process and invoices are submitted by your vendors. Even if the data is imported correctly, you could have data mismatch issues.

• In a two-way match vendor invoices are compared to the initial purchase order and omit the comparison of an internal receipt.
• Frequent mistakes on receipts and invoices can be a sign of a broader business issue, and may indicate that it’s time to begin shopping around.
• Invoices are matched to purchase orders , receiving information , and inspection information as applicable.
• Plus, timely and accurate payments mean you won’t be charged any late fees or have to account for any time-consuming and costly errors.
• All they care about is that they have received the product they have ordered.

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. 3-way invoice matching is a must to ensure that every order is complete.

Drawback #3: You may experience possible late payments

Without double-checking that everything is in order, your business could over- or underpay or miss a payment deadline. The supplier invoice has details of what was purchased and other relevant vendor contact details. Then, in the event of an audit, you can rest assured knowing that all of your approved files and documents are organized and secured in one centralized, accessible location. For companies attempting to scale operations, automating accounts payableis a necessary step in enabling future growth. Next, you will triple-check the PO and invoice using the order receipt . The receiving department should have a packing slip that specifies the cost and quantities of the items ordered.

Process of matching purchase orders , goods receipt note, and the supplier’s invoice to eliminate fraud, save money, and maintain adequate records for the audit trail. Three-way matching is usually done before issuing payment to the supplier post delivery. Integrated AP automation is an innovative and efficient solution for companies that want to minimize workload and maximize employee productivity. Tipalti is the automation solution for all the AP woes that companies face with manual matching. Invoices are immediately sent and received digitally, making payment almost effortless. Tipalti also cycles around the full payment procedure and collates the matching documents for an incredibly concise and streamlined process.

It also improves business relationships, and saves time and money. It represents a better internal control solution than two-way and four-way matching. Still, businesses can take several steps to make this process more efficient.

• Since all these documents are compared, the accounts payable team can determine if they should make a payment, make only a partial payment, or wait until an issue is resolved.
• Inspectors consider the quality and quantity of goods received and may reject damaged, incorrect or faulty items.
• As hard as your employees may try to get payments in on the due date, manual matching can just be too tedious.
• This usually happens alongside incorrect total amounts since taxes are calculated based on the wrong amount.
• Then, it ensures this matches the goods delivered to the receiving department and listed on the corresponding receiving report.