The main difference between 2-way and 3-way invoice matching is the number of documents involved in the matching process. But, there's more to it!
All About 3-Way Matching: Meaning, Features and FAQs
Enhanced accuracy in invoice processing, reduced risk of overpayments and fraud - learn all about 3-way matching.
Managing accounts payable metrics can be overwhelming. Accounts payable challenges include human errors, delayed payments and unauthorised purchases. Luckily, AP teams can make sure that invoices are legitimate and authorised by using 3-way matching. If you’re still unsure about what it is or what it does, read on.
What Is Three-Way Matching?
3-way matching is a type of invoice matching—so what is invoice matching?
Invoice matching is when you compare an invoice with supporting documents to make sure that the information is correct. This is done before payment to guarantee that all payments are legitimate and accounted for. Companies can do this either manually or using an invoice matching software.
3-way matching is one of the most common types of invoice matching. This is when you compare the purchase order, invoice and goods receipt of a purchase to make sure they accurately match. This is done before invoice approval to guarantee that the customer’s order, the delivery and the goods received note (GRN) all show the same information. Once the 3-way matching process confirms that all details are correct, then you may proceed with payment.
What Are the Features/Components of Three-Way Matching?
3-way matching consists of a purchase order, goods received note and invoice, which are all essential in the 3-way matching process.
1. Purchase order
A purchase order is a document that a buyer generates so they can order goods from a supplier. Each time an individual or a department needs to purchase anything for work, they send a request that details the item they need, the quantity and the reason for ordering it.
Once the purchasing department receives the request, they create a purchase order for the supplier. The purchase order should contain the service that the buyer needs, the quantity, the expected quality and how much they agree to pay.
2. Goods received note (GRN)
A GRN is a document that confirms the delivery of goods from the supplier to the buyer. It outlines the record of goods that the buyer has received so they can compare the items they ordered against the items they received.
This document must specify that someone has accepted the goods that the supplier delivered, and it must record the quantity, delivery condition and any other relevant notes.
The accounts department receives the GRN once the receiver has accomplished the needed details.
Unlike a purchase order which is generated by the buyer, the invoice is generated by the supplier. It serves as a record and confirmation of how much the item costs.
The supplier must use the invoice to clearly outline the goods/services offered, the quantity they supplied (If it’s a service, they could detail the time duration), the price of each supplied item and any other relevant information. Simply put, an invoice is a request to pay money from the buyer to the supplier.
How Does the Three-Way Matching Process Work?
3-way matching in accounts payable has a straightforward process that finance departments can follow.
- The buyer places an order with the supplier through a purchase order.
- The supplier’s accounts payable team creates an invoice based on the information on the purchase order.
- The buyer receives the invoice.
- The one who does 3-way matching checks if the details on the invoice match the details on the purchase order.
- The supplier issues a receiving report and the buyer acknowledges this. This serves as proof of payment and completion.
- The one who does the matching once again checks if the three documents match.
- If the documents match, the designated department approves the invoice and releases payment.
What Are the Benefits of Three-Way Matching?
Apart from the obvious reason that it guarantees accuracy, there are many other benefits of 3-way matching.
1. It improves business relationships
Since the main goal of 3-way matching is to ensure accuracy and legitimacy, it forms a trusted bond between the supplier and the buyer, which is especially important when they make regular purchases. When there’s a solid relationship between the two parties, it could also result in better pricing and terms.
2. It leads to easier auditing
3-way matching is pretty much like a mini audit because it checks the accuracy of all information. This makes it easier for your finance team to audit your finances when they have to.
3. It catches fraud
Comparing the three documents and ensuring that there are no discrepancies is a surefire way to make sure that everything is accounted for. Therefore, 3-way matching can catch any fraudulent activity and attempts of theft before they happen.
4. It saves money
When you catch fraudulent invoices, you save yourself from paying scammers or fake suppliers. This process also helps you prevent overpaying which, in turn, helps the company save money.
Why Should I Get Rid of the Manual Matching Process?
The benefits of 3-way matching are best achieved when done with automation. After all, manual matching is prone to human error. When you automate 3-way matching, you get to do the following in just a few taps or clicks:
- File purchase orders once they are created
- Collect and file GRNs from the team
- Record invoices once they are received
With automation, you get to evaluate these three documents with one another once you receive them. Additionally, just imagine the costs of manual 3-way matching—the simplest mistake could cost you actual dollars!
With expense management software, you get the benefits of automation and more.
3-way matching is an excellent way to ensure that you’re making legitimate payments. When automated, it guarantees an even more accurate matching process.