In accounts payable, three-way matching is a critical process that helps finance teams verify the accuracy of invoices before approving payments.

By matching three key documents—purchase orders, goods receipts, and supplier invoices—the accounts payable team can prevent discrepancies and safeguard financial integrity.

This process is especially beneficial in reducing fraud, avoiding duplicate payments, and enhancing supplier relationships.

Importance Of Three-Way Matching In Accounts Payable

Three-way matching is not only a proven technique for payment verification but also a vital control in the payable process.

It ensures that payment only occurs if the supplier’s invoice matches the purchase order and the goods receipt, aligning with company policy and reducing the risk of fraudulent invoices.

This alignment of critical documents ensures compliance with procurement processes, minimizes human error, and enables timely payments, making it a cornerstone of financial transactions in accounts payable.

Components Of Three-Way Matching

Three-way matching revolves around matching three types of documents, each playing a key role in ensuring payment accuracy:

1. Purchase Order (PO)

The purchase order is an initial agreement between the purchasing department and the supplier, outlining the quantity, unit price, payment terms, and delivery terms.

Each purchase order line details item-specific information that serves as the foundation for matching in accounts payable.

2. Goods Receipt

The goods receipt confirms the delivery of products, noting the correct quantity received and the receipt quantity match.

This document captures the delivery receipt and item level details, further validating that the actual delivery aligns with the purchase order.

3. Supplier Invoice

The supplier invoice initiates the payable process and should match both the PO and goods receipt to be eligible for payment.

This invoice provides payment details, quantity, price per unit, and agreed-upon terms, completing the verification and ensuring accounts payable accuracy.

The Workflow of Three-Way Matching

The three-way matching process involves comparing the PO, goods receipt, and supplier invoice to check for inconsistencies.

This manual matching process can be labor-intensive but is necessary for businesses to maintain internal control. The steps include:

1. Data Capture and Matching: Incoming invoices are matched against the purchase order and goods receipt. Accounts payable staff manually compare document details or use automated software to handle high-volume transactions.
2. Verification of Terms: Verifying that all documents meet the company’s payment terms reduces financial risk. Manual invoice matching allows for identifying discrepancies, while automation solutions like Kofax AP Automation streamline this process.
3. Payment Authorization: Upon successful matching, invoices proceed to the finance function for approval and are scheduled according to the payment schedule, ensuring payments on time and reducing the risk of late payments.

Benefits Of Implementing Three-Way Matching

Three-way matching provides numerous benefits, particularly in ensuring payment accuracy and reducing financial discrepancies:

Reduced Discrepancies And Fraud Prevention

Three-way matching minimizes the risk of paying fraudulent or duplicate invoices, enhancing company money management.

By requiring all three documents to match, accounts payable teams can easily spot incorrect invoices or fake invoices before payment.

Enhanced Accuracy In Transactions

Accounts payable automation, like automated three-way matching, reduces human error, streamlines processing, and improves accuracy.

This leads to fewer manual processing issues, which often result in delayed payments.

Higher Compliance and Audit Preparations

Having a three-way matching policy aids in audit trail preparation, giving finance teams a digital record of matching activity.

This is essential for external audits and helps finance teams maintain compliance with purchasing policies.

When To Utilize Three-Way Matching

While three-way matching is highly effective for material purchases, two-way matching might be preferable for services without a goods receipt.

Companies often choose between two-way, three-way, and even four-way matching depending on their operational needs.

Comparison Of Matching Methods

• Two-Way Matching: Matches PO with invoice only, best for services.
• Three-Way Matching: Adds the goods receipt, ideal for tangible goods.
• Four-Way Matching: Adds a quality check, often used in high-value transactions or critical supply chain scenarios.

Choosing The Right Matching Method For Your Business

Selecting the appropriate matching method involves considering factors like transaction volume, supplier relationships, and business impact.

Businesses aiming for financial risk reduction often adopt automated matching solutions, which save time and enable strategic tasks, while two-way matching might suit companies with fewer physical goods purchases.

Challenges In Three-Way Matching

Despite its benefits, three-way matching can be challenging to implement, especially if done manually:

Common Pitfalls

Without automation, manual workflows can create delays, inaccuracies, and backlog in invoice approval.

Businesses may encounter an onslaught of supplier invoices, which require significant time to processing invoices, leading to payment delays or discrepancies.

Solutions To Overcome Challenges

Implementing payable automation software reduces the risk of payment delays and discrepancies.

Automation handles repetitive tasks, allowing the accounts payable team to focus on critical financial operations.

Best Practices For Effective Three-Way Matching

To maximize the effectiveness of three-way matching, companies should consider the following best practices:

• Leverage Automation: Automation tools capture invoice details and match documents, improving the speed and accuracy of processing.
• Set Clear Discrepancy Thresholds: Define an acceptable margin of error to avoid processing delays due to minor discrepancies.
• Maintain a Digital Audit Trail: Keep accurate records for future business opportunities and internal audits.

What Is A Three-Way Match?

A three-way match is a process of matching three documents—purchase order, goods receipt, and supplier invoice—to confirm that the invoice aligns with what was ordered and received.

This verification ensures higher compliance and streamlines the accounts payable workflow.

The three-way match is especially useful in reducing the time required to process invoices. Manual approvals are minimized as invoices that align with the purchase order and goods receipt do not require further review.

Benefits Of A Three-Way Match Process

Implementing a three-way match process offers substantial benefits, such as:

• Reduced Invoice Processing Time: Fewer invoices require manual intervention, reducing delays in invoice management processes.
• Higher Compliance Rates: Automated three-way matching ensures that each invoice matches company policy, with approvals documented for audits.
• Lower Paper Usage: Encouraging electronic invoicing minimizes paper usage, supports the company’s environmental goals, and reduces manual data entry.

Who Manages The Three-Way Match Process?

In most organizations, the accounts payable or accounting department is responsible for managing the three-way match process.

As the company grows, automation integration becomes more common, reducing the manual effort required and allowing payable teams to focus on higher-value tasks.

Conclusion

Three-way matching is a fundamental practice that strengthens financial integrity and helps companies avoid paying fraudulent invoices or duplicate payments.

By transitioning from manual invoice matching to an automated three-way matching solution, companies can minimize errors, streamline their payable operations, and enhance supplier relationships.