Matches can be made up to 4 ways, depending on the contract and processing standards. In the world of accounts payable (AP), one of the most challenging jobs is managing the onslaught of supplier invoices that arrive. 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. Thus, the “three-way match” concept refers to matching three documents – the invoice, the purchase order, and the receiving report – to ensure that a payment should be made.
This process enables your AP department to detect different kinds of payment errors, including fraudulent invoices, duplicate invoices, and even minor errors in supplier invoices. Before AP can issue a payment to a supplier, the three-way matching process requires verification of three component documents to check that each contains the same data. This ensures that your company is only paying for items it has actually received. Fortunately, accounts payable process automation systems can streamline the three-way matching process. These systems can automatically match invoices to purchase orders and order receipts, verifying that the data across each is consistent. If there are any discrepancies, the documents are flagged for review by the AP department.
In accounts payable, three-way matching is an internal control process that ensures invoices, purchase orders, and receiving reports all have consistent line item details. Automating 3-way matching is simple when you upgrade to Planergy’s e-procurement system. Without any human intervention, issues are best construction accounting software brought to light early so you don’t slow down the payment process. You’ll significantly reduce processing costs and be able to spend more time on valuable work. Automating 3-way matching makes your accounts payable team significantly more efficient while ensuring you don’t overpay your suppliers.
You’ll need to notify the vendor about products delivered in unacceptable condition so they can send a fresh delivery or adjust the total amount in the invoice. Two-way matching compares line items on the PO and invoice, but not the GRN. 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. Understanding what your company needs and how you can improve, especially with invoice processing, can be a good starting point for gaining long-term traction.
Benefits of Automating the Matching Process
As a result, they consider the company as a reputable and trustworthy business partner. If the three essential documents (PO, invoice, and receiving report) coincide with the actual delivery, then it’s a three-way match. XpresSpa had a chaotic list of vendors, products, and carriers, only 70% of which complied with their corporate standards.
The 4-way match is the most time-consuming but meticulous of all the processes. It should be done only when strict compliance or verification is needed. Thus, a three-way match should be utilized as often as possible (for a business of any size) when the necessary paperwork and resources are available.
What Are the Disadvantages of 3-Way Matching? Why Is Manual 3-Way Matching Bad?
Three-way matching may be labor-intensive and time-consuming because both the supplier and the buyer will allocate resources to accomplish the task. The process also requires both parties to check and https://www.bookkeeping-reviews.com/getting-started-on-xero/ send documents back and forth to each other. If everything matches, the supplier’s invoice will be approved for payment. A 3-way match also helps decide if an invoice should be paid partly or in full.
- Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts.
- By migrating to automated matching processes, you can streamline your accounts payable procedures and handle an increased workload without missing a step.
- By leveraging automated 3-way match, accounting departments can streamline payment processes, mitigate the risk of human error and exchange business documents digitally.
- It allows your AP department to identify any inconsistencies that could indicate a supplier error or fraud, and ensures that there are no overpayments.
Keeping these documents together will streamline the audit process, saving countless hours for audit personnel. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. Manually handling your 3-way matching process will require increased work from your A/P staff, who routinely have more strategic tasks that they should be performing. Instead, they’ll need to physically search through your filing cabinets and relevant databases to secure all documentation related to an invoice.
Ensures Optimal Vendor Relationships
They have more than proven the value and efficacy of automating the three-way matching process. The most complex, labor-intensive, and time-consuming invoice matching technique is 4-way matching. The supplier invoice is matched against the PO and the receiving report, which is matched to the packing slip or order receipt.
The Drawbacks of Manual Matching
Investing in automated 3-way matching is an excellent way for organizations to make an impact in all three of those priorities. Teams that are able to achieve automation will make the entire procurement process more efficient while positively impacting their organization’s bottom line. Sometimes, an exception is found between the three documents in 3-way matching (which means the process worked). When this happens, the buyer will typically reach out to the vendor for clarification to make sure they’re paying the right amount and received the goods or services they ordered. While it’s always an important internal control, the disadvantages of 3-way matching come into play when it’s done manually, rather than automated. When done manually, it can be labor-intensive, time-consuming, and a considerable cost to your organization.
A cash flow statement created using the indirect method is an excellent example of a reconciliation between the net profit and the cash flow. Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice of internal control. All the documents are cross-checked and inspected before finally accepting the goods or services. There are several key reasons why business owners are moving to adopt 3-way match in AP.