Inicio Bookkeeping Accounting Process Best Practices: Three-Way Match

Accounting Process Best Practices: Three-Way Match

Automated reporting also enhances transparency and supports data-driven decision-making. This reduces the risk of document misplacement, eliminates the need for physical paperwork, and simplifies retrieval during audits or inquiries. Advanced search and indexing capabilities make it straightforward to locate specific documents when required. Regular meetings and check-ins between procurement, receiving, and AP teams ensure alignment and awareness of roles. The wealth of data generated during the 4-way matching process can be leveraged for valuable insights. 4-way matching is scalable and adaptable to accommodate higher transaction volumes and more complex procurement needs.

In fact, manual approaches to three-way matching diminish some of its most advantageous aspects. There’s the banking charge and the staff time dedicated to making it happen. That’s all fine when it’s what’s required to keep up with financial commitments but can be frustrating when incorrect payments are constantly creating unnecessary administrative costs and delays. Having complete and accurate documents will help your auditor check data and complete an audit quickly. A timely audit helps your business avoid costs you would have incurred if the auditor had needed extra time going through your documents.

The process of 4-way matching in accounts payable commences with the creation of a purchase order (PO) when a department within the organization requires goods or services. An efficient 4-way match in accounts payable involves a structured sequence of steps that ensures accuracy, compliance, and seamless financial transactions. Automation and standardized processes reduce manual effort and the time required to reconcile invoices.

It helps eliminate fraud

If any of the information from one of the documents does not match the others, then the invoice may be fraudulent, or you may have yet to receive the correct number of goods. Some of the most common ways accounting errors can hurt the cash flow of your business, and come up with ways you can act ahead of time to prevent these errors in the future. Read on to dive deeper into 3-way xero hq matching in Accounts Payable and ensure your company is error-free. Physical papers don’t need to be pulled from file cabinets, routed interdepartmentally, or potentially lost. It’s that element, the electronic storage of the accounting and the supporting documentation which makes the automated system of accounting the best practice for accounting within an organization.

Therefore, after extra verification, Company A sends $800 to Company B for the receipt of four of five computer chips at the rate of $200 apiece. Between June 2016 and December 2021, the FBI reported that there were 241,206 different incidents globally of scams that target businesses and individuals who perform transfers of funds. These scams are part of the Business Email Compromise, and the Google/Facebook incident was an example of this fraud. Any relevant or necessary approvals are obtained electronically and even remotely. Filing can be very time-consuming for AP clerks and retention of volumes of paper takes up valuable space.

  • Automated systems can enforce compliance with internal policies and external regulations by flagging discrepancies or non-compliant transactions for review.
  • Because you, as the buyer, are taking the time to identify errors, you can quickly resolve issues before making a payment (such as whether a vendor under or over-invoiced an order).
  • Understanding the manual invoice-matching procedures that your teams must execute and how they work is essential to identifying the best way to approach your company’s challenges.
  • They can refer to the company’s enterprise resource planning (ERP) system and check that the receiving team has marked the order as delivered.
  • Discrepancies between what was received and what is being billed for cause delays because someone must take the time to investigate the items in question.

Real-time tracking provides users with visibility into invoice statuses, enhancing financial control, and decision-making. If discrepancies arise in 4-way matching, typically involving quantity, pricing, quality, or condition differences, they must be promptly resolved. If discrepancies occur in 3-way matching, typically involving quantity, pricing, or quality differences, the discrepancies must be resolved. While 2-way, 3-way, and 4-way invoice matching share the common goal of confirming the accuracy of invoices, they differ in the number of components involved and the depth of verification. Automation’s greatest strength lies in its ability to consistently deliver high levels of accuracy. By automating data entry and validation, the risk of human errors, such as typos or transpositions, is significantly reduced.

Most of the work is done electronically and all relevant departments and parties are given access to their piece of the purchasing, receiving and invoicing processes. When all the pricing, approvals, and documentation is secured, the invoice is finally ready for entry into the system for payment. The General Ledger account codes are entered with the line items on the invoice so that the organization can manage budgets and see where money is being spent. Whatever the process is for receiving goods, it’s imperative that when a package is received, the contents are checked against what’s printed on the packing slip. The packing slip indicates what the vendor believes they’ve placed into the package and shipped.

Initiating the purchase order

In contrast, a 2-way match would only check the details of the purchase order against the supplier’s invoice. The reason for checking against the receipt as well is that it stops businesses from accidentally paying for items that were never delivered. It also makes it harder for fraudulent invoices to be slipped in as each needs a corresponding delivery receipt for a transaction to be authorized. Manual three-way matching requires a lot of time, especially if you’re using paper documents. Someone from the accounts payable team must review three documents for each invoice.

Businesses are now using AI-powered tools and software to automate their procurement processes. This is because cross-checking and verifying the three sets of documents can be tiring and time-consuming; businesses end up spending more time getting purchase orders and supplier invoices fulfilled. Thus, automating the 3-way matching process yields transparency and accountability in the accounts payable processes. Leverage automation and integration technologies to streamline 4-way matching in accounts payable. Implement software solutions that can automatically compare data from purchase orders, invoices, receiving reports, and quality reports.

Our IDP solution at FormX can seamlessly keep up with transactions without compromising on speed or accuracy and most importantly, without demanding more staff hours or new hires. The most demanding part of three-way matching is finding and matching the data. Automation can remove this task entirely so that staff are freed up to focus on the things that need them, rather than the fiddly, frustrating work of checking payment information. Additionally, the documents could be misplaced, lost, or damaged due to poor handling or storage issues. The request is in the form of an approved PO containing the quantities of goods or services needed, the required delivery date, and other details necessary for the supplier to fulfill the order. The purchase order is the initial document created by the buyer, specifying the details of the intended transaction.

Challenges with 4-way matching and its solutions

It enables you to verify the legitimacy of an invoice before issuing payment. In an audit, transactions and the paper trail behind them will be checked with a fine-tooth comb for compliance issues or fraudulent activity. However, the way in which three-way matching is integrated and operated hugely shapes its accuracy. Three-way matching involves comparing three accounting documents, namely receipt, invoice, and PO, to make sure that they match to eliminate fraud and ensure the payments are correct. While three-way invoice matching is important and can save your business time and money, you will run into issues if you’re doing it manually.

Teams that are able to achieve automation will make the entire procurement process more efficient while positively impacting their organization’s bottom line. Avoid mess – With 3 way matching you can keep purchasing documents aligned and organized for records or audit purposes, and prevent documents from falling through the cracks. Volopay’s comprehensive invoice management features seamlessly integrate with expense reporting, empowering businesses to track and analyze spending patterns and budgets effectively. Regularly assess and refine the 4-way matching process to identify areas for improvement. Encourage feedback from staff involved in the process to identify bottlenecks, challenges, and opportunities for streamlining.

Automating Three-Way Matching In Accounts Payable

Receiving report – This report documents the receipt of goods or services, detailing quantities and conditions. This level of data comparison reduces the risk of human error, ensuring that discrepancies are promptly identified. Workflow automation systems route documents for approval electronically, reducing the need for manual intervention. Inefficient workflow processes can lead to bottlenecks and hinder timely document matching. To mitigate this, organizations should streamline accounts payable workflows, set clear timelines, and standardize processes. This documentation serves as an audit trail, allowing for easy retrieval of transaction details and supporting financial reporting and analysis.

The goods receipt note validates that a receiving officer has received the goods and services delivered by the supplier. The Goods Receipt Note is forwarded to the accounts department after the receiving officer has done the due diligence. With these three documents at hand, the accounts payable office can verify whether a supplier’s invoice is valid and legitimate before issuing a payment. This three-tier process prevents fraud from falsified and unwarranted invoices.

Once all discrepancies are resolved, the validated invoice can proceed for approval. The appropriate personnel, often within the accounts payable department, review the matched documents and approve the invoice for payment. This step ensures that payments are only made for legitimate and accurate transactions. For many companies, receipt of an invoice puts the payment process, and three-way matching, in motion.


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