Inicio Bookkeeping What is the 3-Way Match Process in Accounts Payable?

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

Commonly used tools and software for 4-way matching include enterprise resource planning (ERP) systems, accounts payable automation software, and document management systems. Automation equips organizations with robust reporting and analytical tools. By consolidating data from 4-way matching in accounts payable, businesses gain valuable insights into expenditure patterns, supplier performance, and payment trends. In some industries, especially those involving manufacturing or complex services, an inspection or quality report may be a vital component of the four-way matching process. This report provides a detailed assessment of the quality, specifications, or compliance of the received goods or services with established standards.

A three-way invoice match ensures that all documents are complete and provide the correct information. Sometimes, your AP department might identify errors, like price and quantity issues or product damages. If there are any issues, your business will usually withhold payment until the discrepancy is rectified.

The premise of the three-way match process is to reduce the risk of financial fraud by preventing the reimbursement of unauthorized purchases. 4-way matching significantly enhances accuracy in the accounts payable process. By cross-referencing the purchase order, receiving report, invoice, and inspection or quality report, discrepancies and errors are promptly identified and rectified. Before processing vendor payments, your accounts payable (AP) team reviews the purchase order to ensure it matches the goods or services listed on the invoice.

Charged For the Same Items on Multiple Invoices

In this blog, we will understand the process of a 3-way match and uncover its importance in fortifying financial integrity within organizations. Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing. Once the buyer receives the factoring software made powerfully simple try it today purchase, it is compared to the invoice and the PO to make sure that they align. The buyer can then confirm that the purchase was accurately received with the goods received note (GRN). In 2020, someone managed to swindle Google and Facebook out of $123 million collectively.

Detailed logs and audit trails capture every step of the 4-way matching process, from document creation to approval and payment. This audit trail simplifies the process of demonstrating compliance during audits, reducing the administrative burden and ensuring that organizations meet their regulatory obligations. An inspection or quality report is also typically part of the 4-way match accounts payable process. This report assesses the quality, specifications, or compliance of the received goods or services with established standards.

It helps verify that the goods or services were indeed ordered following established terms. A 4-way match may appear to be the most secure way to verify invoices before approving them, but it may not be necessary for every invoice. 4-way matching takes extra time, and, in most cases, a 3-way match will suffice. Performing a 3-way game can be done manually, but automation can be a far more efficient choice. Still, with an automation tool like Rossum, this matching process can be completed quickly, accurately, and with less cost to the company. Once the checks are mailed out, the supporting documentation can be scanned and electronically filed, a process that can be outsourced.

Not only is this inefficient, but it’s also highly susceptible to human error. There are, you guessed it, three essential documents involved in confirming a three way match. Purchase order (PO) – The purchase order specifies the goods or services to be acquired. ● Purchase orders (POs) – Automation tools can extract data from electronic or scanned POs, such as product descriptions, quantities, and prices.

The PO number must also be referenced on the invoice once the items are shipped. The physical copy of the PO form gets routed to the Accounts Payable department to be filed and later matched to the invoice. Process improvement and efficiency leads to better time management and overall cost savings for an organization. Successful businesses find and implement ways to save time and money in order to further their growth and development. A goods receipt note, also known as a delivery note, is a document that a receiving officer creates after opening and inspecting shipments.

It involves checking order details from the invoice and comparing it against a corresponding purchase order and goods receipt note. The typical business reportedly loses about 5% of its annual revenue to fraud and unauthorized transactions, with only about 14% of them recovering these financial losses. Three-way matching in accounts payable is one of the best ways to mitigate against these risks. As we’ll explore in this article, it pushes businesses to double and triple-check all transactions so that discrepancies get caught before they become problems.

  • It provides a reliable framework that can evolve with the organization, ensuring continued accuracy and control even as operations expand.
  • AP only releases matched invoices for payment authorization and works on resolutions for any deviations.
  • Your accounts payable team is undoubtedly busy, so they don’t want to spend more time on a task than they need to.
  • Unfortunately, the inventory department’s receipt of goods only states that four computer chips arrived.

Now is the right time to automate the accounts payable department in your business. Three-way matching is considered one of the best AP systems as it not only saves time, but it also improves vendor relations, as well as speed and accuracy. Learn more about Ash Conversions’ AP solutions at Accounts Payable Automation Solutions. Tracking the exception rate (exceptions / total orders) can help you evaluate which vendors you prefer to order from.

Accuracy and error reduction

In this phase, a receiving report also recognized as a goods receipt or delivery note, is generated to formally document the actual receipt. This report catalogs crucial information such as the quantities received, the condition of the items, and any deviations from the agreed-upon specifications. This is why automation, efficient workflows, digital tools, and processes like 4-way matching in accounts payable are crucial for modern businesses.

The 3-way matching process is conducted to maintain adequate procurement records for the audit trail. The 3-way match process is usually done before issuing the supplier with the payment post-delivery. In 3-way matching, the process involves comparing the purchase order, supplier’s invoice, and the receiving report. The focus is on verifying that the quantities and conditions of the received goods or services match both the purchase order and the invoice.

Simplify Audits

A three-way invoice match helps you avoid falling prey to fraudsters claiming they provided goods or services. It identifies illegitimate invoices and enables your accountants to prevent overpayment for purchases that were not authorized for the specified amount. Preventing fraud, detecting overpayment, and managing purchases is an important part of small, mid-size and large corporations that invoice matching can help solve. A purchase order (PO) is a document, often legally binding, that confirms an order of products or services without requiring immediate payment.

Which document typically triggers the 3-way match?

Manually managing, tracking, and reconciling a 3-way match can be time consuming, prone to mistakes, and can result in either late invoice payments or potential account suspensions. However, if there are any exceptions or discrepancies, vendors will want to know about them as soon as possible. 3-way matching can help pinpoint issues early and ensure that payments are still made on time. Three-way matching significantly lowers the risk of paying the incorrect amount to a supplier because it enforces a more thorough criterion for what an approved payment can even look like. The amount paid isn’t simply a number glanced at on a page, but something checked against two other documents to ensure total accuracy.

Automated workflows can be configured to alert the appropriate personnel or departments, expediting the review and resolution of issues. Manual data validation in 4-way matching can be time-consuming and prone to errors. Organizations should embrace automation by using software solutions that automate data validation. These systems can scan and compare data from different sources, flagging discrepancies for review. This is where the 3-way matching concept can be more effective in preventing fraud than the simpler 2-way match. Even if the invoice matches the purchase order, if the company only received a portion of the items ordered, they should only pay for that portion and not the entire purchase.

Mitigates Against Fraud (Both Internal and External)

DocuPhase is an industry leading provider of intelligent automation solutions designed for modern finance teams to streamline and optimize their back-office operations. DocuPhase integrates with popular ERP systems like NetSuite, Business Central, Sage, and more, so your data is always up to date. Here’s how accounting automation software like DocuPhase can benefit your company. Now imagine that you have to perform a 3-way match for dozens or even hundreds of invoices a month. Among the options of 2-way and 4-way matching, the 3-way match process stands out as the optimal selection for internal control measures.

Reduces Instances of AP Fraud

This means AP won’t have to send an invoice out to the Requestor or to Purchasing to obtain codes at the invoice payment level. There are tremendous opportunities for process improvement when a company moves over to an automated system in the accounting process. Once implemented, it’s easy to see the redundancies in the tasks being completed in the procurement of goods. An AP manager, Accounting Manager, Controller, or perhaps CFO will review the cash requirements journal before checks are cut.


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