In corporate bookkeeping—or any financial endeavor—you want your records to match. When there are discrepancies, you can lose track of funds, overvalue your real cash position, or undermine general decision-making throughout the business. However, employing a 3-way match system in your accounts payable efforts can help your company avoid the following issues. AP innovations are vital elements for a sustainable and centralized global business solution, one payment at a time. Manual data processing and invoice matching is laborious and may be prone to errors and misinterpretation. Physical copies can be misplaced, lost, or damaged due to mishandling or storage problems.
- Delays can annoy suppliers, and also prevent a company from taking early payment discounts.
- Late payments tarnish a company’s reputation and may affect future transactions.
- According to the receiving order, a receiving officer has accepted the items provided by the supplier, which also notes the quantity, the delivery situation, and any other relevant details.
- Automating your procurement process is a fantastic approach to getting rid of fraud.
- Gathering people, such as suppliers and supervisors, to sign documents takes time.
Join our community of finance, operations, and procurement experts and stay up to date on the latest purchasing & payments content. To learn more about implementing automated three-way matching in your procurement process, schedule a demo of Order.co today. If there was a discrepancy, they would put a hold on the invoice, effectively stalling payment until the issue is rectified. gross pay vs net pay: whats the difference In the event that issues or errors are detected, such as an incorrect price or a damaged product, payment will be withheld pending reconciliation of the issue. To ensure that every order is complete, 3-way matching highlights discrepancies or inconsistencies between any of these critical documents. Manually doing the matches exposes you to mistakes and misinterpretations.
Commonly, these issues can be attributed to simple mistakes like transcription errors or shipment delays. But sometimes, these efforts uncover fraud from inside or outside the business. To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice. All the documents are cross-checked and inspected before finally accepting the goods or services. Your Accounts Payable team must take extra precautions to prevent processing false invoices.
Upon migration, automated invoice management will improve existing delays, bottlenecks and processing costs that plague manual matching. The AP department at Computer Co. receives a $4,500 invoice from a vendor for 1,500 circuit boards. They check the PO and ensure it has been approved before paying the invoice.
What Is Three-Way Matching & Why Is It Important?
Without 3-way matching and other smart checks, companies might end up paying their vendors in full for goods half received. A 2-way match is done to ensure that the details of an invoice correspond to the details on the purchase order sent to the vendor. In addition, with more frequent errors occurring throughout the matching process, you’ll likely be escalating a higher percentage of your invoices for further review, extending payment timelines. 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.
The first step is gathering purchase orders, goods received notes and invoice information. This number is uniform across all three documents pertaining to the purchase. Once the PO, GRN, and invoice are gathered, the information they contain is verified. The information on the number of goods, unit price, discounts/rebates, delivery date, etc. are matched across all three documents. Storage and retrieval of documents in manually managed invoice processing is a challenge.
Pain points in manual 3 way matching
As an AP professional, the last thing you want to do is pay a fraudulent or inaccurate invoice. Today, an increasing number of businesses are using 3-way match processing to mitigate this risk and reign in company spending. And three-way matching doesn’t only benefit your business—because of the expedited invoice approval process, it also maintains a positive buyer-supplier relationship. Three-way matching creates a built-in check to the vendor payment process, ensuring a positive supplier-buyer relationship. A goods receipt note is a document that confirms the acquisition of goods or services. It should include your receiver’s signature, the name of the vendor, date and time of delivery, products delivered, and quantity of each product.
When to Use a Three-Way Match
Your AP team will verify the PO number, supplier, items delivered, and quantity received against the purchase order and invoice as part of the three-way matching process. The first step in the procurement process is to submit a purchase order to the supplier. A purchase order should clearly state the supplier, PO number, requested item, desired quantity, and the agreed-upon price. During the three-way matching process, your AP team will verify that the information on the purchase order matches the details of both the invoice and the order receipt. The Association of Certified Fraud Examiners (ACFE) estimates that companies lose 5% of their revenue every year due to fraud.
Benefit #4: Improves supplier-buyer relationships
And the invoice price should match the price quoted in the purchase order. This AP process guarantees that what is delivered matches the original order every time. Additionally, the AP team can be empowered to determine the best course of action when they encounter a discrepancy. They can decide if they want to pre-pay the amount, or reach out to the vendor for credit, or find another possible solution. 3-way matching is a secure method of preventing overpayments and, subsequently, monetary losses. You can also use technologies like fuzzy matching to detect invoices from fake companies.
The Benefits of Automated 3-Way Matching
Accurate purchase order matching and matching payments to invoices ensure that payment is made only to the goods or services received. Making procurement and invoice clearance decisions based on the 3-way matching procedure eliminates invoice discrepancy and accurate payments. A great way to eliminate fraud is by automating your procurement process.
What you need to perform a three-way invoice match
Once the tolerance levels were met, the payment was released to the vendor. The ice cream company’s accounts payable department approves the invoice once it has been submitted. The vendor sends a receipt in return, including the payment amount, payment method, and any other payment-related details. To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are. The purchase order is an official confirmation receipt of the order sent by the buyer to the vendor.
