What is a Three-Way Match in Accounts Payable? GEP Glossary

It is hard to keep track of which level of approval a document is currently stuck at, and who the approver is. If the 3 documents don’t match then the invoice is put on hold until the errors/issues are sorted. Such a system would obviously contain vendor information, so the AP team could easily see how many invoices they’ve processed from the same vendor, which can inform the vendor’s rating.

When looking at other ways, such as automated processing, it is possible to use up a significant portion of the money that was set aside for human treatment. It’s important to note that 3-way matching in personal finance is rare. Still, it can be a useful tool to help you better understand your spending, budgeting, and investing habits and identify any discrepancies or errors that may have occurred. 3-way matching is primarily used in business and finance but can also be adapted to personal finance management. A few ways you can use 3-way matching in everyday life are budgeting, bill paying, receipt tracking, and investment tracking. Four-way matching goes even further by adding an inspection process after the delivery.

It helps in creating a Strong Bond Between Vendors and Customers

Let’s see some tips that help you make the most out of the process without getting stuck in the details. Another issue to be found during matching is that the shipment confirmation might be missing. Whether it wasn’t issued when expected, misplaced, or lost, a missing receipt complicates delivery control.

• Three-way matching can be done automatically using an e-procurement system or by taking advantage of your existing ERP system’s procurement functions.
• In addition to these tools, many businesses have also found it helpful to further leverage partner applications to further simplify these processes.
• Most companies will require purchase order approvals as a key control activity in the accounts payable cycle.
• Receiving high-quality goods and services is vital for improving your business.
• The goal here is to ensure that financial details (order quantity, order amount, total amount, PO number etc.)  match across all 3 documents.
• As your operations increase in complexity, scope and scale, intelligent AP automation is the key to the future of your AP department.
• These changes can affect the way finance, HR, procurement, and other business functions operate.

Once a purchase order, order receipt and supplier invoice are entered, the software can quickly determine whether the details align. When they don’t, the system will notify AP, which can then investigate the discrepancies. This functionality is included as part of NetSuite Procurement, which is available as an add-on module to NetSuite ERP.

What is a Three-Way Match?

The multitudes of minute details that need to be monitored are ripe for the mistakes that only humans can make. As a result, there will be extra work for the AP team, https://www.bookstime.com/ and they may even have to include the warehouse and procurement managers in finding a solution. Performing a manual three-way match has expenses beyond monetary ones.

Three-way matching serves as a checks and balances to make sure an invoice is legitimate. By comparing the three documents, PO, invoice and delivery/order information, your business can be confident about issuing a payment. With approval happening automatically and in accordance with the customized workflows, the accounts payable team can invest time into investigating other invoices’ unmatched details. This way, discrepancies and other issues are brought to light as soon as documents are registered in the procurement system. When three-way matching is done regularly and quickly, it’s easier to build trusting relationships with vendors and suppliers. Confirming documents on time and paying invoices promptly makes business partners feel valued.

How the three-way matching process works

Three-way matching brings undeniable benefits to the company’s procurement, but it also has its challenges and problems – especially when done manually. If discrepancies are found during three-way matching, it’s important to communicate them openly and cooperate on solving the issues. Organizations will improve vendor relationships and build long-term trustworthy partnerships by recognizing the problem, acting on it, and learning how to improve.

• With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support.
• Doing this lets you quickly identify discrepancies and take appropriate action.
• Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces.

By sticking to a uniform policy, the business will get the most out of three-way matching. After receiving the order and the digital files, the printer completes the job in the agreed time frame. At the same time, it delivers the placeholder cards to the receiving department with a delivery note and a packing slip. Three-way matching creates a built-in check to the vendor payment process, ensuring a positive supplier-buyer relationship.

Several Options for Matching

Traditionally, the accountant is in charge of matching the invoice, PO, and GRN data. All the relevant paper documents need to be gathered in order to manually verify the goods and price information contained in them. Storing paper documents can be challenging in terms of space and safety.

The two most common types of matching are two-way and three-way matching. However, three-way matching is considered the golden standard, as it offers security by comparing essential order information while keeping things simple and quick. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

What Is 3-Way Matching in Accounts Payable?

3-way matching is an automatic process conducted by SAP and is controlled by tolerance keys. Tolerance keys are used for invoice blocking for reasons such as discrepancies existing due to https://www.bookstime.com/articles/what-is-3-way-matching-in-accounting price, quantity or another variance on the invoice. Every business is subject to these errors from time to time, so matching the purchase order, goods receipt, and invoice is necessary.

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. Unfortunately, fraud happens, and it’s up to your business to have a system in place to prevent it, internally and externally.