THREE-WAY MATCHING
An AP invoicing procedure called "three-way matching" establishes if a supplier
invoice needs to be paid. To put it simply, three-way matching involves comparing the
invoice to the associated delivery receipt and purchase order (PO) to ensure that all
relevant information, including the quantity of items ordered and the specified order
price, matches. By doing this, businesses can combat fraudulent or illegal transactions.
Businesses utilize three-way matching, a crucial account control mechanism, to
ensure that invoices are only paid after being correctly verified against two additional
documents: purchase orders (issued by authorized personnel) and goods receipt notes,
or receipts attesting to the delivery of the purchase to its intended location. The quantity
and agreed-upon pricing of the goods or services are also listed in a purchase order
(PO). The delivery receipt serves as proof of delivery. The details in all three documents
match each other, according to three-way matching.
Three-way Matching Process
Needs three document:
● Purchase order (PO)
● Delivery Receipt
● Supplier's invoice
An Account Payable clerk must check:
1. Verify Purchase Orders
2. Match quantity ordered that is reflected in the PO to quantity delivered
3. Match quantity delivered to quantity received from the supplier and payment.
Stakeholders in Three-way Matching
● Purchasing/procurement
● Receiving/Inventory
● Finance
● Supplier/vendor
Benefits of Three-way Matching for Business
● Trigger the payment process
● Catch fraud
● Save money
● Improve business relationships
● Be prepared for audit
Disadvantages of Three-way Matching
● Typically labor-intensive
● Hard to handle high volume
● Can be complex
● May not work for services purchases
● Fraud still a factor
● Errors take time to reconcile
● Room for error
Process Automation
One of the ways to make three-way matching more efficient is to automate this
process. Accordingly, automation provides numerous benefits to the business including
that the AP department can easily obtain information about the invoices processed from
the same vendor to improve supplier's rating. In Addition to the manual process
benefits, it also helps staff to focus on higher-value projects and can help with invoices
with discounts and avoiding late fees associated with missing payment deadlines.
Source: Bichachi, R. (2022, May 6). What Is Three-Way Matching & Why Is It
Important?
https://www.netsuite.com/portal/resource/articles/accounting/three-way-matching.shtml
