Three-way matching is the process of matching the invoice with the purchase order and Goods Received Note (GRN) to verify invoice details. If the 3 documents don’t match then the invoice is put on hold until the errors/issues are sorted. The chances of missing a fraudulent invoice or payment are really low with a 3 way match process in place.
Importance of 3-way matching
The department checks the invoice against the PO and ensures the goods are of the right number and quality. Then, the team inspects the PO and the invoice vs the order receipt. The 3-way matching in accounts payable is essential for many businesses, especially those that manage substantial procurement activities or high-volume transactions. It helps ensure that the details on the PO, RR, and supplier invoice are consistent—which means that the A/P team can proceed with paying the invoice with confidence. If the company is still stuck in traditional payment workflows, a large number of transactions involving clients and suppliers will be challenging.
Why automate three way matching?
The 3-way match helps organizations avoid AP issues by resolving any possible mismatches on bills and orders before payments are processed. The reality is that a lot can go wrong, so it’s essential to have a process to check that your business is never losing money to inaccurate or fraudulent invoices. With the three-way matching process, you won’t overpay because of these issues. The goal here is to ensure that financial details (order quantity, order amount, total amount, PO number etc.) match across all 3 documents.
Purchase Order
At the same time, it delivers the placeholder cards to the receiving department with a delivery note and a packing slip. Two-way matching only compares the invoice to its purchase order. A three-way match process adds another step in verifying the delivery of the purchased products. The delivery receipt or a goods receipt note is a receiving report.
The number of items delivered should match the quantity on the purchase order. In the event of an audit, you can rest assured knowing that all of your approved files and documents are organized and secured in one centralized, accessible location. For companies attempting to scale operations, automating accounts payable is a necessary step in enabling future growth.
Benefits of Automating the Matching Process
The AP department is responsible for verifying the invoices are real, which is incredibly important since organizations lose an estimated 5% of their annual revenues to fraud. And three-way matching doesn’t only benefit your business—because of the expedited invoice approval process, it also maintains a positive buyer-supplier relationship. A purchase order (PO) is a document, often legally binding, that confirms an order of products or services without requiring immediate payment. This document is sent by the company to a vendor with the intention to track and control the purchasing process. Most companies will require purchase order approvals as a key control activity in the accounts payable cycle. Comparing details across three documents helps identify errors and fraudulent invoices.
Trustpair can secure the accounts payable process by constantly monitoring vendor data. For many companies, receipt of an invoice puts the payment process, and three-way matching, in motion. At that point the company should already have the PO and proof that an order was received. By verifying that the purchase order, order receipt, and supplier’s invoice match, you know that an invoice is valid and correct before paying it. It benefits trump’s tax plan your business by ensuring that the supplier invoice matches your ordered goods or services.
Upon migration, automated invoice management will improve existing delays, bottlenecks and processing costs that plague manual matching. It works by comparing the details on the PO, RR, and supplier invoice. Payment is approved only when all of these three documents match.
Receiving high-quality goods and services is vital for improving your business. Without it, your business would have lost money, or you and the supplier would have wasted time trying to unravel the overpayment when it was discovered. For example, in 2019, a Honda employee defrauded the company out of $750,000 by creating multiple purchase orders. Honda could’ve prevented this with an AI-powered AP system and saved $750,000. The purchasing department has decided to place an order with company A. A 2 way match, in comparison, only compares the PO with the invoice.
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- Additionally, an inspection report or slip must also be completed to agree that the goods or services have been provided before the invoice can be paid.
- Three-way match is the process of comparing the purchase order, invoice, and goods receipt to make sure they match, prior to approving the invoice.
- If there are any issues, your business will usually withhold payment until the discrepancy is rectified.
- Businesses lose an average of 5% of their annual revenue to fraud.
- Once all three documents are verified and matched without any discrepancies, the A/P department will then proceed to make the payment.
Most companies use a manual matching processes to record financial transactions. Manual processing includes obtaining physical documents in the form of journals or ledgers. That’s because the order receipts and vendor invoices are two standard documents needed for audits. Requiring these creating reports overview 2020 two documents before the completion of a transaction contributes to a straightforward tax process.
Matches can be made up to 4 ways, depending on the contract and processing standards. Still, the three-way match process is an effective business practice for suppliers and buyers. By acquiring, requiring, and matching the three documents, businesses can ensure a foolproof and secure payment process.
Unfortunately, this high volume of purchases offers plenty of opportunities for billing fraud. To mitigate the invoice fraud risk, many business owners and finance departments use 3-way matching. This way, they can verify the validity of the received invoices. If your business did invest in automation software like Kofax for 3-way matching, a platform like Trustpair would be an addition to accounts payable software for more security. The software secures the account payable process by consistently monitoring vendor data.