Whether an individual, a department, or an organization requires anything, they forward a request that details what they want, the quantity, and why they need it. The purchasing team receives the request and expands it into a purchase order for the supplier, outlining the goods needed quality and quantity, and the cost of the purchase. Even though there are many ways to check your accounts payable process, three-way matching is a best practice of all good accounts payable departments.
Managing all the invoices that the accounts payable (AP) department receives each month can be challenging, especially as your business grows. The accounts payable three-way matching process is one of several systems that help to ensure your company pays its bills accurately and on time. An automated routing system ensures that each document has gone through all of the proper channels before the matching process begins. When errors or exceptions do occur, they are automatically flagged and re-routed to the teams or individuals who can fix the error.
- The essence of three-way matching is to eliminate fraud, and to ensure all incoming invoices are properly vetted before making payments on them.
- If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties.
- The three-way match takes the information considered in a two-way match and adds the receiving report.
- The purchase order is the initial document created by the buyer, specifying the details of the intended transaction.
The last thing that business owners would want when their business grows is fraud or inaccuracies in business transactions. Interested in learning more about how Accounting Automation can improve the efficiency of your accounting processes? Find out how DocuPhase can help you increase the audibility of your accounts payable processes by requesting a free demo.
AP doesn’t have to file and pull purchase orders or packing slips for matching. Verification of correct GL account codes and department codes is still an AP task, but in most instances, modification of default information will be infrequent. The pre-populated fields that Purchasing entered initially for each vendor are typically unchanged with any new order placed.
Inventory and Receiving
To be successfully verified, the invoices must satisfy matching tolerances. If they don’t, a hold is placed on the invoice and payments cannot be rendered until the hold is released or resolved. A held invoice operates as a sort of fail-safe that prevents the payment of an unmatched and unverified order. It may result in delays in processing invoices, and require additional resources to handle the increased workload.
- There are several ways for an organization to set up their receiving department.
- The three documents that are matched are the purchase order, the goods receipt, and the invoice.
- By verifying whether a business requested and as well, received the goods/services an invoice claims payment for, it can easily be determined whether an invoice is legitimate or fraudulent.
- This document contains product/service details, quantities, prices, criteria, and all records of their needs.
- And depending on how many manual steps are involved in your vendor’s invoicing efforts and your own A/P processes, common errors might even be unavoidable.
Understanding the manual invoice-matching procedures that your teams must execute and how they work is essential to identifying the best way to approach your company’s challenges. A 3 way match example is when someone in an organization orders goods, and issues a purchase order. Once the goods arrive the invoice is checked against the purchase order to ensure the agreed upon quantity and amounts are the same. The goods receipt is also matched to ensure the goods specified in the purchase order and invoice were delivered. Once delivered, the recipient views the package of information which includes an invoice image, a copy of the PO, the goods receipt information, and a description of the error.
What is the three-way match?
AP departments must check all three against each other to ensure legitimacy and consistency. Likewise, unless your business deploys security systems to vet invoices and send instant notifications, there’s no telling how much loss you stand to incur should you become a victim of an invoice attack. Yes because the purchase order the 14 best ways to raise money for your startup or small business and goods receipt is compared against the invoice related to the purchase. Whereas the AP staff member might not have the information at hand, Intelligent 3-Way Match isolates the problem that is preventing a proper match. Learn more in our articles on A/P software features to look for and how to automate accounts payable.
The automated matching system needs to be configured such that goods received are rechecked on an ongoing basis until the entire order is complete. Verification of the goods received against the goods ordered and billed should be done at the end of the order. At the point where checks are cut and signed, the only papers being shuffled around will be the invoices, the checks and a copy of the cash requirements journal. The checks can be pre-printed with a signature, perhaps requiring an additional signature for checks in excess of threshold amounts. The AP Manager, Accounting Manager, Controller, or CFO will not spend much time handling the checks.
What Is 3-Way Matching in Accounts Payable?
Using an automated system for your invoice processing, procurement, and other systems saves time, realizes better cost savings, and leaves more energy for accounting teams to perform higher-level tasks. The co-working unicorn WeWork faced significant challenges in streamlining ordering and payments across their 800 global office locations. By implementing an integrated ordering and payment system, the company increased visibility into its AP processes and eliminated maverick spending. Replacing their manual 3-way matching with an automated process allowed them to process millions of invoices with ease. This move brought the company better ordering continuity, improved leverage with suppliers, and considerable cost savings.
Why You Should Automate 3-way Matching
Thus automation can help save costs while establishing a stable supply chain. Automated 3 way matching software operate on preset rules/workflows based on tolerance levels and approvals. They quickly flag errors and potential cases of fraud so that AP teams can take immediate action. 3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Issues could include wrong payment details, incorrect prices, wrong or damaged products etc.
It delays payment to suppliers
When an invoice, PO, and receipt are all compared, it’s much easier to double check your work. It also increases visibility, because it is more clear where company money is being spent. And when you find discrepancies, you can act on them as needed, such as by reaching out to the supplier to correct the price. Before processing vendor payments, AP teams go over these 3 documents to verify that the product/service received by the company matches the details of what was initially ordered.
That’s why finance teams are increasingly adopting a 3 way match of vendor invoices as an essential step of their accounts payable process. No matter which level of matching your business will implement, robust AP automation software and invoice processing tools will make your teams more efficient and accurate. The three-way match takes the information considered in a two-way match and adds the receiving report.
Along with matching the PO, receiving reports and invoices, you must match an inspection report. Inspectors consider the quality and quantity of goods received and may reject damaged, incorrect or faulty items. A four-way match ensures that a business can hold invoices for payment when a vendor does not meet the business’ standards for product quality.
Other times, it’s a third-party posing as your supplier committing the fraud. Maintaining accurate documentation and sending prompt payments will improve the relationship between your company and your suppliers, potentially incentivizing better pricing and payment terms. It requires your AP team to examine three documents related to the purchase, confirming that all the pertinent information is consistent between them before a payment can be issued. In addition, the invoice states the quantity and duration of delivery and records other applicable details. The supplier’s invoice is essentially a formal request to pay money owed to the supplier.