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Streamline Financial Operations with 2-Way or 3-Way Invoice Matching

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!

Invoice matching in accounts payable is a critical process that ensures financial accuracy, reduces errors, enhances supplier relationships, and contributes to overall operational efficiency. 

With the aid of modern technology and automation, businesses can streamline this process, ultimately saving time and money while mitigating risks and ensuring regulatory compliance.

It involves comparing three key documents: the purchase order (PO), the receiving report (also known as the goods receipt or Goods Received Note/GRN), and the supplier's invoice. The goal is to validate that the goods or services ordered have been received and that the prices and quantities on the invoice align with the corresponding purchase order and goods receipt.

Benefits of Invoice Matching for Businesses:

Error Reduction: Invoice matching helps identify discrepancies between the PO, GRN, and supplier's invoice. This reduces the chances of errors, such as incorrect pricing or quantities, leading to fewer payment disputes and reconciliation issues.

Cost Savings: By catching discrepancies early in the process, businesses can avoid overpaying suppliers. Additionally, identifying billing errors can prevent costly disputes and the need for time-consuming invoice corrections.

Improved Supplier Relationships: Accurate and timely payments based on correct invoices enhance supplier relationships. Reliable payments can lead to additional benefits like discounts, better credit terms, and favorable negotiations.

Enhanced Compliance: Many industries and regulatory bodies require strict compliance with procurement processes. Invoice matching helps ensure adherence to these regulations, reducing the risk of non-compliance penalties.

Operational Efficiency: Automation of invoice matching through modern AP software  can significantly improve efficiency. Automated systems can process invoices faster, allowing AP teams to focus on more strategic tasks.

Better Cash Flow Management: Accurate invoice matching prevents overpayments and ensures that cash is allocated correctly. This can improve cash flow management and help a business maintain healthy financial operations.

Financial Transparency: Accurate matching provides a clear audit trail, making it easier to track and report on expenses. This transparency is essential for financial reporting and budgeting.

Fraud Prevention: By reconciling invoices with purchase orders and receiving reports, invoice matching can help detect and prevent fraudulent invoices or duplicate payments.

2-Way and 3-Way Invoice Matching: Understanding the Difference

2-way and 3-way invoice matching are methods used in the accounts payable (AP) process to ensure accuracy in financial transactions. These methods involve comparing different documents to verify that goods or services have been received and that the corresponding invoice aligns with the purchase order.

The key difference between them is the number of documents involved in the matching process.

2-Way Invoice Matching:

In 2-way invoice matching, two of the three primary documents involved in a procurement transaction are compared:

1. Purchase Order (PO): This document outlines the details of the purchase, including product or service descriptions, quantities, prices, and delivery terms.

2. Supplier's Invoice: The supplier provides an invoice for the delivered goods or services, detailing the same information as the PO.

In 2-way matching, the AP department compares the information on the supplier's invoice directly with the corresponding details on the purchase order. The goal is to ensure that the price and quantity on the invoice match the PO. If they match, the invoice is considered valid, and the payment process can proceed. This method is efficient for relatively straightforward procurement transactions where the receiving of goods is not a complex or critical part of the process.

Benefits of 2-Way Invoice Matching:

  • Simplicity and speed in processing invoices.
  • Effective for standard, low-risk procurement transactions.
  • Reduced processing time and costs.

3-Way Invoice Matching:

In 3-way invoice matching, all three key documents in a procurement transaction are compared:

1. Purchase Order (PO): This document outlines the purchase details.

2. Goods Received Note (GRN): Generated when the goods or services are received, it verifies the condition and quantity of the items.

3. Supplier's Invoice: This document specifies what the supplier is billing for.

In 3-way matching, the AP department not only checks that the prices and quantities on the supplier's invoice match the PO but also compares them with the details on the receiving report. This additional step ensures that the goods or services were indeed received and are in the expected condition. If all three documents match, the invoice is considered valid, and payment processing can proceed. 3-way matching is particularly important for businesses dealing with complex or high-value transactions where verifying receipt is critical.

Benefits of 3-Way Invoice Matching:

  • Enhanced accuracy in invoice processing.
  • Reduced risk of overpayments and fraud.
  • Assurance that goods or services were received as expected.
  • Compliance with regulatory requirements in certain industries.

In summary, the main difference between 2-way and 3-way invoice matching is the number of documents involved in the comparison process. 

BUT, Not all 3-way matching are created equal!

Many providers that claim they do 3-way matching might match the documents we discussed above but do this at a header level or provide the option for the individual to match these manually by selecting the correct record. When evaluating software that can help you with your AP Invoice Automation process, ensure that the solution offers some AI or Automatic matching but can also control and do line-level scanning and matching. This is where the ProSpend 3-Way Matching comes into its own.

Additional benefits with ProSpend’s 3-Way-Matching:

  • Save days each month by automating the 3-way matching process.
  • Advanced OCR and matching AI algorithms automatically match each bill line with the corresponding Purchase Order and Purchase Receipt lines.
    • Users can manually override the matching, even choosing how much quantity they want to match and which lines.
    • Brilliant UI ensures all the information you need is right there when you need it and makes it easier for you to visualise the matching and variance.
  • Maintain your ERP as the source of truth and continue to create Purchase Orders and Purchase Receipts there, or skip the ERP and raise them in ProSpend.
    • There are multiple ways to bring your Purchase Orders and Purchase Receipts into ProSpend, including real time syncing with ERPs.

Closing the Books on Efficiency: Game, Set, 3-Way-Match

The adoption of automated 3-way-matching is a strategic decision for businesses aiming to digitally transform their financial operations landscape. It not only ensures financial accuracy and compliance but also contributes significantly to cost reduction, operational efficiency, and the development of strong supplier relationships. 

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