What Is A 3 Way Match In Ap Accounting?

what is 3 way matching in accounting

The last thing you want is to pay an inaccurate or fraudulent invoice. This can happen if a vendor sends an invoice with the incorrect amount or if fraudsters target your company with an elaborate billing scheme. Once in the system, pre-established routing can take place for approvals, matching, and verification. With a strong software solution this will include notifications to keep the involved parties informed that there is work to be done or that a particular document requires attention. Workflow and process automation, accounting teams gain the tools to automate a large amount of this process and the visibility into where the work is at any stage in the flow. Once all of these steps are completed, it is confirmed that the order according to the invoice has been fulfilled, and the business requesting those goods has in fact received them. This is the easiest way to determine the validity of an invoice and ensure only authorized payments are being made.

what is 3 way matching in accounting

At the same time, you want to avoid the hassle of tracking down late payments while ensuring that your accounts payable and finance departments can do their jobs quickly and accurately. Having a system can help you avoid submitting fraudulent invoices and keep your accounts payable flowing. First and foremost, ensuring accurate information helps your team avoid overpaying for a product or service, paying for items you didn’t receive, or paying the same bill more than once. The chances of fraudulent activities are also significantly reduced with so many checks and balances in place. This ensures no extra charges are incurred without your business knowing about it. The supplier, purchased goods or service, and amounts are approved as part of the PO purchase requisition process leading up to creation of the purchase order. And the packing slip or receipt should reflect the items or services identified in both the PO and the PO invoice.


The intent of the 3-way matching is to ensure that the goods ordered, goods received, goods billed, order price and the billed amount are consistent across the PO, GRN, and invoice. Manual verification of information on various documents is a time-consuming process. In some cases, even gathering the required documents also takes a long time.

what is 3 way matching in accounting

The PO remains in the ‘open’ status as more invoices are processed and matched against it. You move the PO status to ‘closed’ when all items have been received and the items and pricing all ‘match’ between the PO, the packing slip/receipt and the PO invoice. As the accounting team is processing the invoice, they will check it against both the purchase order and the receiving report . If the details don’t match or if there are any discrepancies, you can put a hold on the payment until the issue is resolved. This prevents your company from paying duplicate, inflated, or fraudulent invoices. Though a 3 way match process has many benefits and seems like a no-brainer to implement, it’s not nearly as common as its cousin, the 2-way match.

Business Is Our Business

Managing three-way matching manually can be tiring—use an automated system. A good audit trail that tracks the flow of cash in and out of a business is indispensable whenever you’re faced with an audit. Whether it’s from the government, investors, or other vested parties, three-way matching creates a robust paper trail that’s useful for verifying how much legitimate expenses a business has made. A great way to eliminate fraud is by automating your procurement process.

what is 3 way matching in accounting

By ditching the manual matching and approval workflow, you can rid your accounts payable of the extra work. Large Organizations purchase the inventory by the standard operating procedure per the organization’s policies. Hence double control is necessary for restricting unauthorized transactions. In a three-way procedure, major purchases are controlled using cross verification. If there is a fault at any step, then the amount cannot be taken against the invoice until the error is resolved by receipt of a confirmation or the revised invoice from the supplier.

The Difference Between 2 Way And 3 Way Matching

3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Errors/issues could include wrong payment details, inflated/incorrect prices, wrong or damaged products etc. Automated matching processes also reduce the time spent on a task. It generates and sends invoices automatically without errors—no more backlogs and delayed payments.

  • But the three way match process is not complicated and does not actually require much added time or man-power.
  • Without double-checking that everything is in order, your business could over- or underpay or miss a payment deadline.
  • Timely validation and verification ensure on-time payment to suppliers.
  • Companies come to BlackLine because their traditional manual accounting processes are not sustainable.

A Three-way match is the process of matching the purchase order , invoice, and goods receipt note to validate the supplier’s invoice before payment is made. A 3-way match in accounting helps determine if the invoice should be paid in full or part and reduces the risk by preventing reimbursement of unauthorized purchases.

Why Businesses Use 3

The second solution requires some software changes that may already be available in the existing software package, with minimal changes to employee procedures, while still resulting in efficiency improvements . This best practice involves keeping the matching process in its current form, but using the computer system to perform the matching work. In order to automate three-way matching, all three documents must be entered into the computer system. This is easy for purchase orders, since most companies already enter purchase orders directly into the … Invoice matching also underscores accountability on the part of the vendor by ensuring compliance with purchase orders. In both ways, invoice matching also supports fraud detection by eliminating any unethical manipulation of the purchasing process. The three different tiers of invoice matching are tailored to find discrepancies in one or both of the deviations.

The 2 way matching process is the default approach to verify invoices across organisations. But companies are increasingly adopting three way matching to add an additional layer of verification and prevent overspending. 3 way matching is best performed as an automated workflow powered by accounts payable automation solutions such as Nanonets. If this three-way match reveals that the supplier invoice is in good order, then the accounts payable staff processes the invoice for payment. If not, the staff contacts the supplier regarding any issues it found, which may result in the issuance of a revised invoice or perhaps a credit memo by the supplier. The information on the supplier invoice to a copy of the related purchase order that has been forwarded to it by the purchasing department. The purchase order states the quantity and price at which the company agrees to buy the goods or services stated on the supplier’s invoice.

Drawbacks Of Manual 3

3-way invoice matching is a must to ensure that every order is complete. 3-way match in accounts payable highlights the discrepancies or inconsistencies between any of the above-mentioned documents.

  • The three-way matching process is critical for keeping a business’s finances healthy.
  • First and foremost, ensuring accurate information helps your team avoid overpaying for a product or service, paying for items you didn’t receive, or paying the same bill more than once.
  • Prevent fraud – 3-way matching helps prevent, or reduce the risk of, fraud by preventing payment for purchases that were not authorized or that did not comply with vendor terms.
  • 3-way matching frees AP teams from menial tasks and allows them to focus more on important things, ultimately improving employee satisfaction.
  • Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content.
  • If the three essential documents—PO, invoice, and receiving report—coincide with the actual delivery, then it is a three-way match.

Plus, your team won’t have to constantly switch between different apps. You can also add dynamic routing to your workflows with business rules based on values or whatever makes sense for your company.

Difference Between Two Way And Three Way Match Invoice

AP automation, like what Tipalti offers, can reduce 80% of the accounting department’s workload without employing additional staff. Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice of internal control.

In order for automation to do its job, the software must match items on the line level. This requires a few additional steps to complete, but the software exists to handle this complexity.

Step 1: Invoice Received

For companies with heavy direct spend, an invoice might include lines from several purchase orders. Each purchase order could what is 3 way matching in accounting include several ship dates, meaning that goods will arrive and be entered into the system on a staggered timeline.

Changes, such as hiring new staff or gaining new suppliers, can affect the business’ overall process in terms of financial gains and losses. The three way matching procedure is used to ensure that only authorized https://www.bookstime.com/ purchases are reimbursed, thereby preventing losses due to fraud and carelessness. The proper process is to match the invoice against the accepted accrual of goods and services before you pay any invoice.

You implement 3-way matching in accounts payable before issuing payment. Although 3-way matching primarily focuses on eliminating fraudulent invoices, it can also save you money by revealing an unintentional human error in a supplier’s invoice. With Kofax AP Automation solutions, you can not only fully automate the invoice capture process but also create custom validation rules and make matches smoothly up to a four-way match. Companies that choose to employ the three-way-match process do so to reduce mistakes, catch illegal activity, and save money. The problem is, 75% of businesses don’t have a fully automated purchasing process so by trying to avoid overpaying, they can often end up with much higher processing costs. Using even a partially manual procurement system can leave a business hemorrhaging money to a surprising degree. Three-way matching is an AP invoice process that determines whether a supplier invoice should be paid.

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