Automating the matching process can help save time, money, resources, and energy. Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. But since manual matching processes can potentially lead to significant mistakes, many businesses opt for two-way matching instead. Thankfully, three-way matching can be done without the manual work through automation. While three-way invoice matching is important and can save your business time and money, you will run into issues if you’re doing it manually. When a supplier consistently sends accurate invoices, the purchasing company can pay the supplier faster.
Drawback #2: You’re exposed to human error
The system flags malicious behavior so you can jump in before it’s too late. Three-way matching can be a lengthy and tedious process when you’re first setting it up. Longer processing times at the beginning could translate to delayed payments and stand in the way of building a good relationship with the supplier. Four-way matching goes a step further than three-way matching by comparing invoices with inspection slips. An inspection slip shows the quantity of goods accepted after inspection.
- This process helps prevent fraud, save costs, and ensures a robust audit trail.
- Of course, invoices often have minor errors because of rounding off or other legitimate reasons.
- From lost invoices to late payments and less-than-stellar payables visibility, manual 3-way invoice matching can put any finance department in jeopardy.
Reduce error rates & fraud
The AP clerk looks at the quantity and price in the PO and verifies that the vendor invoice has the same quantity and price. Essentially, two-way matching doesn’t verify that the product was actually delivered. The 2 way matching process is the default approach to verify invoices across organizations.
In a manual invoice approval workflow, the invoice literally gets pushed from one desk to another until final approval. It is hard to keep track of which level of approval a document is currently stuck at, and who the approver is. Book a 30-min live demo to see how Nanonets can help your team implement end-to-end AP automation. The entire 3-way matching process starts with the procurement process when a request for goods is sent to the vendor. For service-related purchases where a receiving report might not be essential, a 2-way match is preferred over a 3-way match.
How the 3 Way Matching Process Works
Suppose the accounts payable team detects an error or an issue. The payment can only go through after an investigation of the discovered discrepancies. Accounts payable automation can support tasks such as invoice scanning as invoices can be matched to purchase orders and order receipts. This verification process of accounting for goods can prevent cyber criminals from committing invoice fraud. They may impersonate suppliers and claim that they supplied more goods than they did and that they are owed more money. These mistakes could involve paying the wrong amount or quantity of money on an invoice, or inputting the wrong account details when paying a new supplier.
How Does Three-way Matching Work
According to an ACFE report, companies lose up to 5% of their annual revenue on fraudulent or unauthorized spends. That’s why finance dividend definition formula types benefits and limits teams are increasingly adopting a 3 way match of vendor invoices as an essential step of their accounts payable process. It is no secret that 3-way matching can help prevent overpayments by matching invoice quantity with that ordered and received.
Save your AP team from tasks involving mountains of paper work. Book a demo to see how Nanonets can automate all your AP processes. Close your books faster by syncing your 3-way match directly on to your ERP or accounting automation software. This provides visibility and accessibility of all business data in a single organised database.
If there are any issues, your business will usually withhold payment until the discrepancy is rectified. The supplier’s invoice is a document that details the goods or services supplied and is a request for payment from the buyer. It includes the supplier’s contact information, a description of the goods or services provided, payment details, and the total owed. Because you used three-way matching, resolving this issue is simple. Other times, it’s a third-party posing as your supplier committing the fraud. Two-way matching compares line items on the PO and invoice, but not the GRN.
You can’t issue a GRN for services since they’re rendered on an ongoing basis. You’ll need a team member to audit the quality of service manually and inform the AP team so they can release the payment. The PO indicates a total value of $15,000 and includes details like the quantity and price of the ordered monitors, expected delivery date, and internal accounting codes. The PO authorizes the purchase of listed items and includes specifics like the quantity and price (as agreed with the supplier) of items. Each PO has a unique number that you can use to reference and track it.
Benefits of Automating the Three-way Matching Process
Suppliers feel important and valued when necessary documents are fulfilled and submitted on time. As a result, they consider the company as a reputable and trustworthy business partner. Three-way matching may be labor-intensive and time-consuming because both the supplier and the buyer what is the significance of fob shipping point and fob destination will allocate resources to accomplish the task. The process also requires both parties to check and send documents back and forth to each other.
These documents are the purchase order, the delivery receipt, and the supplier’s invoice. A company can adapt these methods to suit its specific purchasing process. Invoice fraud is a serious issue that affects businesses of all sizes.
They check the invoices against corresponding purchase orders and order receipts. This process reduces the chances of paying for fraudulent invoices. It also improves business relationships, and saves time and money.
Fraudsters often send fake invoices for payment to scam money out of companies. In the absence of 3-way matching, these invoices get paid, leading to monetary losses for the company. A purchase order is generated by a customer and sent to a vendor stating the quantity and often the agreed-upon price for goods or services purchased.
AP Automation is an easy solution for tackling the long manual matching process. The automated system takes care of everything, from matching details to the corresponding PO and GRN to making the payment. Three-way matching is an accounts payable (AP) invoice approval process. It is crucial to determine whether the received supplier invoice is valid and correct.