What Is 3 Way Matching In Accounts Payable?

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Accounts payable is an effective method that controls cash disbursement and makes certain that suppliers’ and vendors’ payment is done in the right manner. Another element of AP is 3-way matching – a control and verification that must take place before one pays an invoice. It becomes necessary to know what the three-way matching is, how it operates, and why this concept is crucial for a business.

What Is 3-Way Matching?

It means that it is a triple check to ensure that what the supplier invoice contains and what is in the purchase order that the buyer created and the receiving or goods receipt note that the supplier sent to indicate the items that he supplied or the services that he provided.

This 3-way verification and match include:

1. The Purchase Order: This has information about the products ordered such as codes, quantities, and estimated prices among others; it is the ‘order made’.

2. The Supplier Invoice: This provided details of what the vendor provided, the amounts, and the cost of each delivery. It refers to ‘what the supplier claims to have supplied’,.

3. The Goods Receipt Note: This provides details of what items were received, the quantities when the receipt was done, and by which of the suppliers. It means ‘what was paid’, and adds up all prior payments that have been received.

The process involves comparing all three documents the purchase order, the receipt note as well as the supplier invoice before payment is made to the supplier. The total value of every column on all the 3 documents has to be the same and this includes the quantities of items, prices, and all other details that may be required.

The situation where every detail of the three documents corresponds perfectly is known as the ‘perfect 3-way match’. However, the timelines mentioned above can be adjusted provided it is done with the consent of the supplier, and only then is the invoice deemed payable.

In this section, you will learn how 3-way matching works and the mechanics behind it.

A typical 3-way matching process flow is:

1. It starts with the purchasing department creating a Purchase Order for the supplier whereby they request for certain items to be supplied at agreed prices and delivery terms. This is the first source document. The following is a true story, and it is indeed the first source document.

2. The GRN is prepared by the goods receipt team when the shipment of ordered goods/services is received and checked against the agreed-upon quantities by the purchasing team. The GRN must contain records of any variations from the Purchase Order.

3. The supplier invoice of the shipment is received in the accounts payable department of the organization. An AP analyst reconciles the invoice totals to the purchase order and the goods received notes or any other documentation.

4. The analyst goes through the following process to find out why any details do not match: For instance, if the value of the billed quantity is not equal to the value of the GRN quantity, then it is the duty of the receipt team to explain the reasons.

5. Based on such clarifications, the analyst determines whether the match is now acceptable and, if so, processes the invoice; where the match is not acceptable, the analyst disputes the invoice. The products are paid for by the buyer, and the payment is released to the vendor/supplier once there is an acceptable match in all aspects.

Three-way matching is an effective tool for controlling costs while ensuring that the items ordered meet the company’s needs and specifications.

This practice of verification in the account payable makes certain that any wrong or fraudulent invoices do not get past the checks and balances. Key benefits include:

1. Reduces overpayments or paying for goods not received: The use of the quantities received to quantities billed approach enables AP to make sure that it does not incur overcharges.

2. Catches duplicate invoices or double payments: Using numbers ensures that the probability of having similar numbers can be easily identified.

3. Provides audit trail through linking documents: This implies that comparing PO, GRN, and Invoices proves useful especially if the company is faced with a dispute where a clear audit trail is easily accessible.

4. Deters fraudulent invoices and corruption: The process of matching independent documents serves as checks and balances to prevent any vendors or staff who may want to submit fake invoices for their benefit.

5. Enables accrual accounting: This is especially important for accrual accounting, where the process of matching expenses with receipts helps to document all the expenses and liabilities accurately in the right financial period.

Effective 3-way matching means better control over spending, sound financial stewardship, and constant attention to cash – making it fundamental to strong AP systems.

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