Understanding 3 Way Matching In Accounts Payable



The purchase order is an official confirmation receipt of the order sent by the buyer to the vendor. The purchase order authorizes the purchase and includes information like PO number, payment information, and description of goods and their quantity. While it’s always an important internal control, the disadvantages of 3-way matching come into play when it’s done manually, rather than automated. When done manually, it can be labor-intensive, time-consuming, and a considerable cost to your organization.

It will contain the PO number so that it can be matched with the purchase order and receiving report to ensure everything matches the initial agreement. The process typically begins with the creation of a purchase order that contains https://online-accounting.net/ the relevant details of a purchase request, such as quantities and price. The PO is sent to the vendor or supplier so that they can create an invoice which is sent back to the purchaser, and begin fulfilling the order.

Goods receipt note

And whether within human resources, the marketing team, or sales, these processes (when streamlined and working) are the very elements that ensure the business ecosystem maintains harmony, internally. Let’s take a look at a company called ABC Software, who decided to return all their employees to a central office. To do so, they needed to order 50 office chairs from XYZ Office Supplies for $100 each. When the goods or services are received, a goods receipt note is created. This confirms the goods have arrived, and verifies the quantity and condition. For services, the person ordering the services would verify that the services they received were in accordance with contract deliverables.

  • In some cases, even gathering the required documents also takes a long time.
  • For many companies, manually verifying payments is more expensive than just paying the occasional erroneous invoice.
  • The Accounts Payable staff can cross-check using these three documents to ascertain whether a supplier’s invoice is valid before disbursing funds.
  • Using 3-way matching in accounts payable and accounting is an effective way to improve payment processes.

3-way matching enables you to create a paper trail, helping in better audits and compliance. Utilizing AP automation software can ease the manual burden on your accountants and perform an accurate match with a good return on investment. A 3-way matching involves reconciling purchase orders (PO), goods receipt notes, and supplier invoices.

Teams Involved In The 3-Way Matching Process

Two-way matching is the most basic approval process, where the vendor’s invoice number and details are checked against the purchase order (PO) number to ensure that these documents match. Two-, three-, and four-way matching are all accounts payable approval processes—however, each version takes the matching process to a different degree. A supercharged 3 way matching AP workflow ensures timely vendor payments.

Accrual Accounting Explained: Key Concepts and How It Works

2-way, 3-way, and 4-way invoice matching processes require 3 documents, the invoice, the purchase order, and the receipt of the goods. In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or supplier. The purpose of the three-way match is to avoid paying an incorrect and https://quickbooks-payroll.org/ perhaps fraudulent invoice. 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. The reality is that a lot can go wrong, so it’s essential to have a process to check that your business is never losing money to inaccurate or fraudulent invoices.

Way Matching: What It Is, Its Benefits, & the Bottom Line

A variation arises when the line items, quantities, extended amounts, or total due on a vendor invoice don’t match the purchase order or receipt of goods or services. Handling variations or exceptions manually can be extremely tricky and hard to document. A manual matching process requires all documents to be collected, stored and maintained for future reference. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. Harry initially verifies that the business name and payment details are consistent across the documents, making it unlikely that a rogue fraudster is attempting to misdirect a legitimate payment. He then verifies that the inventory total of the 100 hats that he requested in the initial purchase order is matched by the packaging slip and invoice.

Although the 3-way matching process is a labour-intensive and time-consuming process, it is an effective business practice for suppliers and buyers. By acquiring, requiring, https://adprun.net/ and matching these documents, a foolproof and secure payment process can be ensured. The 3-way match accounting entries need to be in sync for successful 3-way matching.

Managing three-way matching manually can be tiring—use an automated system.

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. Did you know that one in seven large corporations commits fraud every year? 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.

Three-way matching helps cost savings and budget efficiency by ensuring organizations only pay for the exact quantity of goods and services they received and agreed upon. The improved accuracy also saves time since AP teams can process invoices faster with fewer time-consuming discrepancies to resolve. Three-way match should be incorporated into accounts payable processes whenever you need to ensure the accuracy and validity of invoices — in other words, whenever possible. It’s particularly important for controlling spend and preventing unauthorized or fraudulent payments in cases where goods and services are received before payment is made.