Three-way matching definition

His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners. Performing a manual three-way match has expenses beyond monetary ones. The AP department is under tremendous pressure when it has to hunt down details caused by inadequate or lost paperwork and when it has to deal with a growing backlog of bills. The AP department may then use this information to verify the legitimacy of the invoice and speed up the payment procedure. In addition to billing the Institute $500,000, the printer also sends an invoice. Once the Institute’s AP department receives this invoice, they will use three-way matching to ensure its legitimacy.

Way Matching

A successfully verified invoice must match the PO and receipt within acceptable tolerance levels. An invoice that fails matching tolerances is placed on https://bicyclepotential.org/blog/understanding-the-process-and-benefits-of-the-cycle-to-work-scheme hold and is sent for appropriate review. Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. Since 2011, Jayanti’s expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations.

• According to a report, best-in-call AP teams are twice as likely to automate invoices, which results in higher efficiency workflows and fewer exceptions.
• As a result, you save time on your 3-way match, and on all your operations in general.
• These verification processes ensure payment accuracy by systematically comparing purchase orders, supplier invoices, and delivery receipts before authorising payments.
• By completing the matching process, businesses can be sure that they are only paying for goods and services received.

AP Automation

• For recurring orders, 3 way matching ensures that consistency and accuracy is maintained throughout.
• So, one can state that 2-way is better over 3-way or vice versa, depending on the size of organisation, situation/risks, the costs and benefits.
• When paired with AP automation, two-way matching helps organizations scale efficiently, reduce costs, and maintain healthy supplier relationships.
• Initially, it may appear complicated but it’s definitely advantageous in the long run to ensure error-free data.

You will have all the information you need—purchase orders, goods receipt notes, and invoices—at your fingertips. This level of organization ensures you can show that all transactions are https://avhosting.us/practical-and-helpful-tips-2/ accurate and above board. It outlines the items or services you need, the agreed quantities, and the price. This is where you can catch overbilling or other discrepancies before payment is made. In contrast, 3-way matching adds another layer of verification by including the goods receipt note, making it ideal for transactions where confirming receipt of goods is crucial. This method significantly reduces the risk of overpayment and fraud but it takes more steps.

Drawbacks of Three-Way Matching for Businesses

This might involve adjusting the invoice or goods received note, or holding payments until the completion of the order, depending on your organization’s policies. Trust and reliability form the foundation of strong business relationships. The three-way match process supports this by ensuring fairness and transparency in transactions.

The purchasing department, the inventory department, the finance department, and the vendor are the key stakeholders in the 3-way matching process. A successful match isn’t the sole responsibility of the accounts payable team. It can help nip discrepancies in the bud, ensure timely resolution, and maintain the smooth flow of the process.

Three-way matching in action

The figures from the inventory department are to be collected and verified, and lastly, it https://www.imgzone.info/smart-tips-for-finding-8/ is to be verified from accounting entries. After verification at all three levels, the authorizer authorizes the bill for payment. Yes, three-way matching can be done manually by comparing physical copies of the PO, GRN, and invoice. However, manual matching is time-consuming and prone to errors, making automation a more efficient and accurate alternative. In order to simplify the three-way matching process, you might consider excluding smaller value invoices and recurring invoices from the three-way matching process.

Business is Our Business

3-way match accounting or 3-way in AP refers to the process of matching what was ordered, what was delivered, and the issued invoices to ensure accuracy. This process not only ensures high accuracy but also reduces the chances of fraud. This comprehensive matching process is important for maintaining accurate accounting records, which prevents overpayment, fraud, and financial discrepancies. Two-way matching is most effective when the risk of discrepancies is low and the procurement process is straightforward. Since it does not include verification against a receiving report, it assumes that the vendor reliably fulfills the agreed order. In high-volume AP environments, invoice matching supports working capital goals by reducing errors, minimizing exceptions, and enabling accurate DPO management.