What Is 3-Way Matching in Accounts Payable?

Paying invoices without proper verification results in paying far more than the agreed price or paying for more than what you receive or paying multiple times for the same product. One of the most challenging tasks for the finance department would be managing the onslaught of supplier invoices each month, especially for large enterprises. One technique that finance teams use to ensure invoices are legitimate is the 3-way matching process. Using 3-way matching in accounts payable and accounting is an effective way to improve payment processes. Duplicate payments, pricing errors, and fraudulent invoices cost businesses millions every year without proper controls. By automating critical parts of the three-way matching process and centralizing communication, Peakflo takes the burden off your team.

What are the Challenges of Three-Way Matching?

If errors are flagged in the 3 way matching process, the invoice is put on hold and payment is withheld. Once the issue is investigated and resolved, the invoice can be processed for payment. Vendors often provide the order receipt as a payment and delivery confirmation, with the actual products sent out as a corresponding purchase order. It describes in detail everything that is included in the shipment or order. The details of the transactions and the payment method https://la-nouvelle-generation.com/home-5.html are repeated on the order receipt as they are on the invoice. We cover the best invoice matching software of 2025 to help you optimize and streamline your invoice matching process.

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Other times, it’s a third-party posing as your supplier committing the fraud. When checking delivery documentation, they should compare quantities with the original PO, verify item descriptions match, and note any quality issues. As for invoice reconciliation, they verify if the supplier is requesting the exact authorized amount while confirming quantities match what was received.

• When the three-stage verification is carried out to tally the numbers in the three different documents, it takes a lot of time.
• In this article, we will discuss the purpose of three-way matching, its advantages, and how it can improve your accounts payable process.
• Its importance lies not only in preventing fraud but also in minimizing errors and streamlining workflows.
• Unlike traditional methods, AI-powered OCR technology is making significant strides in reducing invoice fraud.
• Potential payment discrepancies are immediately flagged down so that the team can investigate the cause and rectify it immediately.

What Is Invoice Matching?

The vendor then raises an invoice for the goods delivered containing complete details on the units delivered and the payment due. In a scenario where only a part of the order is delivered, the invoice is raised accordingly. To understand how the 3-way matching process works, the role played by the components in the 3-way matching process need to be clearly understood. It’s the process of collecting, cleansing, classifying, and analyzing expenditure data to decrease procurement costs, improve efficiency, and monitor compliance. When the staplers arrive, the receiving team checks digital purchasing records, confirms the quantity and generates a GRN.

Set dollar-amount cutoffs to determine which invoices need full three-way matching. High-value purchases carry the greatest financial risk, so focus your detailed verification efforts https://odaiba-camping.com/small-ship-cruises.html where they matter most. For example, apply three-way matching only for invoices over $5,000, while using simpler checks for smaller amounts. They’re the gatekeepers who ultimately decide when a supplier gets paid.

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• Hiring more staff to keep up with volume isn’t always sustainable, and it can introduce even more variability and inconsistency in how invoices are handled.
• The 3-way match helps organizations avoid AP issues by resolving any possible mismatches on bills and orders before payments are processed.
• The accuracy and consistency of invoice-PO matching are greatly improved through automation.
• Setting up an automation system is a great way to streamline the three-way matching process.
• Accounts payable team, procurement team, vendors, and inventory teams are the key decision makers in the three way matching process.
• It’s key to view employee training and professional development as an investment in your company’s future, not a cost or budget drain.

Errors can also result in paying for goods not received or missing early payment discount opportunities, directly impacting the bottom line. In this example, all three documents show 100 pressure gauges at $50 each, https://in-imdb.com/free-royalty-free-music-3.html with a total value of $5,000. Since the quantities, items, and prices all match across the documents, the invoice passes the three-way match and is approved for payment. An invoice is the document sent by the supplier to the buyer after the goods have been delivered or the services have been completed.

Its main advantage is somewhat faster processing speed than a three-way match, since the payables staff does not have to cross-reference any receiving reports. Automating the invoice matching process helps save time, resources, and money. Digitizing the matching process ensures accurate and consistent data verification and matching. The matching process can be mapped through a detailed 3-way match flow chart, which is the basis for effective automation. The 3-way matching process requires accurate verification and matching of information in the invoice, purchase order, and goods received in the note. Gathering all these documents and verifying the data is a time-consuming process when done manually.

Financial

This is especially important if the business received only a part of the order. This matching type is usually used for the most complex transactions, such as international purchases. Automated systems can reduce the time required to complete the matching process, as the documents are scanned and compared quickly. Automated three-way matching also helps to reduce the risk of human error. The process involves comparing the purchase order, the goods receipt, and the supplier invoice to ensure they match.

Saves time:

Today’s systems can automatically compare documents, flagging only exceptions for human review. This cuts processing time dramatically and frees your AP team to tackle real problems instead of routine paperwork. Suppliers feel important and valued when necessary documents are fulfilled and submitted on time. As a result, they consider the company as a reputable and trustworthy business partner. If all the details in the three documents match, the invoice is approved, and payment is released.