Three Way Matching

Three-way matching is an AP invoicing method that determines whether or not to pay a supplier invoice. Simply put, three-way matching comprises cross-referencing the invoice with its associated purchase order (PO) and delivery receipt to ensure all important facts, such as the quoted order amount and the number of items bought, match. According to the ACFE report, doing so can assist organizations in detecting false or unauthorized transactions, which can lose a company an estimated 5% of its yearly revenue.

How Does 3-Way Matching Work?

An AP invoicing process called "three-way matching" decides whether to pay a supplier's invoice. Three-way matching simply means comparing the invoice to the related PO and delivery receipt to ensure that all relevant information, such as the quoted order amount and the number of items ordered, match. This can assist businesses in identifying fraudulent or unauthorized transactions, which, per the ACFE report, can cost an organization up to 5% of its yearly revenue.

• Invoices: An invoice, whether it be in paper or EDI form, is the vendor's request for payment from the customer. A unique invoice number, vendor contact information, any applicable credits or discounts, and the total amount owed are all included on invoices in order to simplify the transaction.
• Order Receipts: As a proof of payment, order receipts are sent with delivered products to describe which goods have been included in the shipment as well as the payment method.
• Purchase Orders: A purchase order (PO) is the formal acknowledgement that the buyer has given the vendor an order. This form, which is used to approve purchases, contains a PO number, payment details, descriptions of the products or services sold, and the quantity.

Three-way matching of invoices reveals any discrepancies or inconsistencies between any of the crucial papers mentioned above, ensuring that every order is complete.

Payment will be withheld in the event that issues or errors are found, such as an inaccurate price or a damaged goods, until the problem has been resolved and the invoice has through three-way matching validation.

The invoice is then used to confirm the order and make sure the product supplied matches the price the buyer was charged.

Why Businesses Benefit From 3 Way Matching?

Business owners are rapidly adopting 3 way matching in accounts payable for a number of important reasons.

Improve Supplier Relationships: Data that has been verified is extremely important to suppliers and vendors. If invoices and receipts are prone to errors or frequently erroneous, customers may lose faith and think about doing business somewhere else.

Improve Profitability: The financial performance of a company may be improved through three-way match processing. You may defend your company against overpaying, making multiple payments, or paying fake invoices by validating the facts.

Prepares Finances for Audits: Better data can be helpful for auditors trying to identify financial discrepancies. By ensuring consistency between POs, invoices, and order receipts, three way matching assists organizations in preparing for audits.

Key Takeaways

Accounting departments can improve payment procedures, reduce the chance of human error, and communicate business papers digitally by utilizing three-way matching.

Without having to deal with mountains of paper or pick up the phone to call a supplier, it is possible to standardize and arrange electronically the data that is essential for business operations, such as invoices, purchase orders, and advanced ship notices (ASN).

Accelerating payments and lowering the risk of human error are advantages that every organization may reap. You may put your company in a better position to satisfy early payment terms and potentially gain payment term reductions or discounts while also limiting losses by implementing an automated three-way matching process into your accounts receivable workflow.

The fact is that all organizations have to worry about the possibility of accounts payable fraud. To secure a company's assets against criminal activity and human error, 3 way matching must be used.