3-way matching in accounts payable: all you need to know

3-way matching in accounts payable

Last modified on March 26th, 2024

In 2022, an accounts payable clerk in Rhode Island stole more than $300,000 worth of suppliers’ funds and covered it up on company records. The firm may have prevented these losses by implementing better financial processes including 3-way matching. Keep reading this article to find out a definition of 3-way matching, why it is important, and what the steps are…

Trustpair secures the account payable process by constantly monitoring vendor data. Request a demo to learn more!

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What is 3-way matching?

The process of 3-way matching involves comparing an invoice with the applicable purchase order (PO), and order receipt, also known as a goods receipt note (GRN). This operation is completed to ensure all details are correct so that an invoice can be paid.

Additionally, it provides peace of mind and the certainty that you’re paying the right amount to the right person.

 

Why is 3-way matching in accounts payable important?

Ensures that payment details are correct

If 3-way matching in procurement wasn’t completed and mistakes were made after processing payment, work time and resources would have to be spent identifying the errors and correcting them.

This could be better spent on higher priority tasks if 3-way matching has been completed.

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. 3-way matching identifies these discrepancies.

Additionally, ensuring that details are correct means that the accounts team doesn’t risk overpaying or making payments twice. Therefore, the company can be better off financially and improve profitability.

Helps with audits

The three-way match process can help businesses be ready for an internal or external audit. Having clear data and documents on purchases makes it easy for auditors to do their job and outline potential issues.

Fosters a good relationship with vendors

Checking details for what your vendor is owed and matching them with documents enables there to be a solid working relationship between the management team in your business and the supplier.

They are correctly paid what they are owed on time, with no delays, and you get the goods or services you require. Everyone is happy and a trusting relationship can continue.

Helps avoid fraud

Before making invoice payments, employees must confirm the request and delivery of goods and services.

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.

Alternatively, fraudsters could change the banking details compared to the details on the invoices.

However, as 3-way matching has been completed by the buyer and clear data is outlining the purchase order, the buyer shouldn’t be caught out by fraud.

 

3-way matching vs 2-way matching vs 4-way matching

The difference in matching methods refers to the number of times that orders are matched.

For example, 2-way matching in accounts payable refers to matching the invoice and the purchase order. The 3-way matching in the procurement process relates to comparing the invoice with the purchase order and the order receipt as well.

In contrast, 4-way matching in accounts payable adds a fourth condition to the process. The same invoice, purchase order, and order receipt are inspected. 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.

When is it best to use the different types of matching?

  • 2-way matching: when you are rushed and working with a trusted supplier or when you work with a supplier that doesn’t use order receipts
  • 3-way matching: the industry standard for matching
  • 4-way matching: when details must be checked very carefully and inspected using a slip. This occurs when using the likes of manufacturing services to ensure purchases meet safety requirements

 

What are the steps of 3-way matching?

  1. The buyer will place an order with the respective vendor or supplier for goods, services, or products
  2. Following this order, a purchase order is sent to and received by the vendor
  3. The accounts payable staff produce an invoice using the purchase order
  4. The buyer gets sent the invoice from the vendor
  5. The invoice and the purchase order will be checked to see if they match
  6. The buyer will receive an order receipt from the supplier which confirms the order and payment
  7. Provided the details align following the 3-way matching, the invoice can be approved for payment

 

How can you make 3-way matching more efficient?

Automated software

The manual task of 3-way matching every payment process can be resource and time-consuming, so why not look at automating the process?

Accounts payable automation can support tasks such as invoice scanning as invoices can be matched to purchase orders and order receipts. This then triggers payment.

The benefits of an automation system in the matching process include:

  • Creates time for other high-priority tasks as it’s not a manual task
  • Avoids human errors
  • Avoids late payment or overpayment
  • Saves on resources spent on the task

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. Accounts payable fraud is avoided.

Standard operating procedures

Deploying standard operating procedures for how to conduct 3-way matching in the accounts payable process will ensure that all employees are on the same page and are receiving the same information to know how to act in this situation.

This should outline the necessary steps and enable a streamlined process.

Recap

3-way matching is the process of linking an invoice with the relevant purchase order and order receipt. This ensures that details are correct and there is a continued good relationship with suppliers. The process can be even more efficient with automated software. Trustpair can secure the accounts payable process by constantly monitoring vendor data.

FAQ

One of the example of 3-way matching is a situation where the accounts payable and finance team in a business gets a supplier invoice for 80 printers. 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 numbers should all match up. Then, payment can be made.

Trustpair’s software helps the accounts payable process by securing it. The platform constantly monitors vendor data to stay up to date with any suspicious activity by merchants.

Our software provides automated account validation, detailed risk analytics, and customized workflows.

Manage the risks related to corporate treasury.

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