You've successfully subscribed to Routable Blog
Great! Next, complete checkout for full access to Routable Blog
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.
Success! Your billing info is updated.
Billing info update failed.

What is 3-way matching in accounting?

What is 3-way matching in accounting?
A three-way match compares for accuracy across the purchase order, receipt, and invoice. Learn more about how it works and how it prevents fraud.

Invoice fraud is no laughing matter. While errors on invoices can be the result of a misplaced decimal point or an out-of-date international exchange rate, they can also be the strategic work of fraudsters looking to cash in on a lax or incomplete AP process. In 2019, a Manhattan man was caught in a scam of over 122M dollars as a result of invoice fraud by simply utilizing a familiar name of a common vendor. But how can you prevent these kinds of errors—the seemingly mundane as well as the cleverly crafted?

In the landscape of AP processing, different processes can be implemented to prevent invoice errors that result in overcharges. Each style of oversight in the payment process includes different checkpoints along the way to ensure accuracy. Two-way matching, a default verification process, reviews purchase information against final invoice. Four-way matching on the other hand includes a quality control step on top of purchase data information verification. Three-way matching is an accessible middle ground to two-way and four-way. A three-way match compares for accuracy three documents in the buying transaction process. By closely reviewing documentation data like quantity, line item, unit cost, the AP team is able to ensure that what is approved for disbursement is accurate.

How  3-way matching works

Three-way matching is a detailed paper trail between supplier and buyer. It involves the close examination and comparison of three forms that occur throughout the buying transaction process. All three forms are used in audits.

  • Purchase Order (PO). This is a document created when a buyer submits an order with a supplier with an assigned tracking number. It includes specific information including item names, quantities, and unit cost.
  • Goods Received Note (GRN or GN). This is an internal document created by the buyer when items ordered are received. It verifies the exact items and quantities that were received. This document may be based on a supplier provided packing slip or order receipt that is proof of payment and delivered goods.
  • Invoice. This document is created by the supplier that documents goods or services that have been provided to a buyer. It establishes the transaction of payment to the buyer. It includes supplier information, a unique invoice number to help track the payment, payment terms including benefits for early payment, and should include the PO number for reference.

The 3-way matching process

Step 1. Once a buyer submits an order to a supplier, the Purchase Order is used to track the purchase from beginning to end. This document is created by the supplier and may be sent to the buyer to confirm that the order has been received.

Step 2. When the products or services are sent to or completed for the buyer, a packing slip or goods received documentation is used by the buyer to verify what was received; an accurate account of items as well as verification of unit costs and quantities.

Step 3. Once goods have been received, the supplier will send an invoice to the buyer that includes all line items of goods or services. The buyer’s AP department uses this document to complete payment.

Step 4. All of the details from these three documents must match prior to a buyer completing payment. Item names, quantities, and unit costs must match line item costs and total cost. The buyer’s AP department will scrutinize these details and flag any discrepancies. Where discrepancies do occur, stakeholders are sought out for approval and, where necessary, updated or corrected documentation is requested from the supplier.

Step 5. After discrepancies have been addressed and the documents match, payment is released to the supplier. The transaction is now complete.

Example of 3-way matching

Imagine that your company has recently placed an order for ten boxes of paper. Your vendor sends you an invoice for 10 boxes of paper. In two-way match processing, the product is delivered and you pay your bill. However, let’s say that instead of 10 boxes of paper, your receiving department only counts 9 boxes of paper. In a three-way match process, a receiving department will be required to submit a goods received note, or packing slip, to the AP department. Before the overpayment for the missing box of paper is made, the match process flags the discrepancy and the appropriate communication is conducted between vendor and stakeholders.

The relevance of 3-way matching

Because there are so many details and stages that exist in the purchase-to-payment process, use of three-way matching is critical to prevent overpayment or fraud. Suppliers will do all they can to ensure that quantities and costs are accurate, but errors can occur, and three-way matching holds the supplier accountable to the original information in the Purchase Order. The most common errors that may be found and addressed during three-way matching:

  • Unit quantity or cost errors. And additional 0 or a misplaced comma during manual data entry can be the difference between a $100 cost and a $1,000 error. Further, if the original quantities ordered do not match those that were received or if the unit costs have been modified these discrepancies need to be acknowledged and approved.
  • Unexpected line items. If a supplier did not provide information related to shipping or surcharge costs on the PO, these line items will be a red flag on an invoice.
  • Missing or inaccurate tracking information. Payment delays occur where an invoice PO number does not match the original PO or due date or payment terms are not included.

3-way matching technique

Three-way matching can be conducted both manually and through automation. In both instances, the benefits of three-way matching are the same: improved trust and visibility in vendor relationships, accuracy of disbursements, and ease of review of documents by auditors. Manual three-way matching, however, is very time consuming. And while the matching process itself is intended to catch errors, when performed manually, human error remains a factor. Together, these limitations can delay vendor payments which can strain relationships and result in late fees. To offset the drawbacks of a manual matching process, many AP departments have turned to automation for three-way matching. The automation reduces the amount of time AP staff spends on these critical oversight processes, freeing them up for other necessary tasks.

Routable helps companies speed up their business payments using a secure invoice and bill payment platform. To learn more, schedule a demo with us.

Ready for a demo?

Routable Schedule a Demo

1

We reach out to quickly learn about your needs.

Routable Schedule a Demo

2

We show you the goods in the first 2 minutes of the demo.

Routable Schedule a Demo

3

We work with you to make onboarding a success.