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

Below are some of the most common and costly challenges companies face when relying on manual methods to complete the three-way match. Three-way matching is a robust invoice validation method used by accounts payable (AP) teams to ensure that a supplier’s invoice aligns with the purchase order (PO) and a receiving report. This third document confirms that the company received the goods or services as ordered, both in quantity and quality, before any payment was approved.

• For 3-way matching to be effective, the accounts payable team needs to spend a substantial amount of time and effort in matching and processing invoices.
• Invoice payments are not released until the hold is released or resolved.
• According to the ACFE, they experience billing fraud twice as often as larger organizations, with median losses reaching $141,000 in 2024.
• Cloud Technology is expected to become the primary medium for three-way matching.
• The supplier’s invoice is a document that details the goods or services supplied and is a request for payment from the buyer.
• Building and maintaining strong vendor relationships can be effectively done when 3 way matching is followed by the purchase and accounts payable departments.

Copeland: Creating a Successful 3-Way Matching Process with Help From DataServ

By automating this process, businesses can minimize human error, enhance efficiency, and prevent fraudulent transactions. The automation of three-way matching is not just about replacing a manual check with a digital one; it’s about transforming the entire accounts payable landscape. 2-way and 3-way matching in accounts payable are critical control mechanisms that protect businesses from financial losses, fraud, and operational inefficiencies. While 2-way matching works for low-risk transactions, 3-way matching helps in comprehensive verification.

Hybrid approach strategy

The goods could be raw materials or office supplies, or Payroll Taxes even software licences. The purchase requisition and purchase order are usually prepared by this department. The purchase department inspects the delivered goods and verifies the quality and quantity against the PO.

• The chairs are delivered to ABC by XYZ, along with a goods delivery report or a goods receipt.
• From the drop-down list, select whether all services are matched 2 or 3 ways.
• Depending on their size, structure, and needs, they might go with complex ERPs, specialized comprehensive procurement software, or a combination of several solutions for different processes.
• It will include the PO number, which can be matched with the purchase order and receiving report to ensure everything aligns with the initial agreement.

Benefits for a Supplier:

It lists out what’s being bought, the quantity, agreed prices, and any other important details like delivery dates. Is it a 2-way match, like a simple loop-de-loop, checking just the PO and invoice? Maybe even a 4-way match, which throws in a breathtaking free-fall drop by incorporating quality control reports. Now, the accounts payable team, aka the rollercoaster operators, step in. They perform the core action of PO matching by verifying the necessary documents. A comprehensive check, incorporating an inspection report, ensures the quality and quantity of goods or services meet predetermined standards.

• If you leave this check box cleared, you cannot change the account distribution on the purchase order voucher for lines that tie to purchase order lines.
• Vendors often provide the order receipt as a payment and delivery confirmation, with the actual products sent out as a corresponding purchase order.
• It ensures that the buyer only pays for what was ordered and received and that the seller is being paid for the goods or services provided.
• It is also essential to ensure that the invoice is authorized correctly and that the terms and conditions are accurate.
• This number is uniform across all three documents pertaining to the purchase.
• An invoice that fails matching tolerances is placed on hold and is sent for appropriate review.

The supplier sends an invoice to the AP team outlining what is being billed. The supplier delivers cash flow goods or performs services and submits an invoice based on the PO. Both buyer and supplier stay honest, with clear documentation to back every transaction.