What Is Three-Way Matching In Accounts Payable?

An essential discipline is financial management, and the Three Way Matching is one of the techniques usually applied in the accounts payable process.

One of the most useful instruments for managing cash, the capacity to pay bills, and invoices in a suitable and timely manner is accounts payable ( AP). Three-way matching, sometimes known as 3-way matching, is a method extensively applied in Accounts Payable

Verifying the accuracy of the information between the bought item, purchase order, and receipt of the thing is known as three-way matching.

One of the most efficient techniques of financial internal control in which the accounts payable department compares three separate records before authorizing an invoice for payment is three-way matching. The aim is to guarantee that every detail and the shown values on all three papers line up. It lets just real invoices be paid and helps stop the too many dollar flows.

The three papers applied in the 3-way match process are:

Sent to the supplier ordering products or services, a purchase order (PO) is a written and prepared documentation created by the buying department of a company. It covers details including the type of item(s) requested, quantities, agreed-upon pricing, etc.

2. Receiving Report: This notes that the item or goods the company received fit the PO's details and that they are in good shape and the correct amount. Usually also called goods received note (GRN).

The vendor invoice is the one that the supplier sent showing the things they gave to the company together with the amount owed by the company to the supplier.

On all three of the documents, the accounts payable clerk corresponds the following crucial information:

Supplier details—name, address, etc.—should line up with what other documents reveal.
Part numbers and descriptions of acquired products; item counts; unit pricing for every item in the analysis
- Overall quantities

Similar information in the PO, GRN, and supplier invoice suggests the invoice would pass the three-way match. It would also suggest that the business document value of the invoice would be regarded as legitimate and ready for payment.

Should the papers differ in any way, say for instance:

The price in the invoice is more than the price per unit of the purchase order; the invoice amount exceeds the GRN quantity. The testable hypothesis is that item descriptions differ throughout papers.

Before paying, then, study and solutions would be needed to address all those problems. This offers protection against payment of a fake or erroneous bill.

Match type three-way matching is essential for the following purposes among others:

On all three kinds of documentation, it is necessary to make sure that quantities, rates, and totals match, therefore avoiding overpayment of supplier invoices. Overpayments directly affect earnings.

The three-way matching displayed above can also be seen as an extra check or verification control to find both clerical errors or fraud before payment. conserving corporate funds.

Three-way matching is required by some sectors and government agencies before allowing payments to the suppliers to prevent mistakes and rule violations. The industry with extensive sales cycles includes defense contractors and healthcare.

Through the 3-way matching method of checking invoice authenticity, accounts payable can be able to withstand such pressures from the supplier and refuse to process and pay the invoices at a faster rate than advised. This helps one to have more control over cash flows.

In a 3-way match, if there are any differences, these also highlight poor or obsolete vendor/ item master data that need to be changed and would therefore improve systems data quality over time.

Having a well-documented specialized matching process helps audits since it indicates solid internal control of financials and hence reduces the possibility of an auditor producing non-compliance results.

For those using it, though, three-way matching could seem to be somewhat time-consuming. Still, using OCR and accounts payable software preserves the necessary financial policies while excluding a lot of human work.

Three-way matching is not free from the following few best practices even if it has several advantages:

Businesses should guarantee a well-run 3-way accounts payable matching process:

Unlike in lagging fashion, purchase orders, goods receipts, and bills are issued and handled without delay. This keeps papers from expiring before matching the current or next work day.

Purchasing: Particularly for the aim of enhancing the matching process with the invoices, it is guaranteed that the purchasing department offers more thorough specifications or descriptions of goods to be bought on purchase orders.

Additionally crucial is making sure the due dates of invoices do not coincide too closely with the accepted payment dates for runs of payments.

Any quantity rejected or damaged for received goods must be noted on the good receipt/note before being sent to the account due.

Variations in the bills should be noted even as resolutions are taken to later on serve the audit trail.

Automate accounts payment systems by determining the appropriate level of OCR and other structural use instead of the whole manual matching of documents.

Other verification techniques including supplier statement reconciliations should accompany physical 3-way matching to search for any unmatched invoice.

Regarding outstanding invoices, AP should debit memos in case they span more than 30 to 60 days to clarify anomalies.

As shown above, it is necessary to implement effective workflows to make the vital process of three-way invoice matching more sustainable with a few hitches more sustainable.