2-Way, 3-Way, and 4-Way Matching Made Easy for Accounting Departments

Different companies choose to use various automation solutions in their day-to-day work. Depending on their size, structure, and needs, they might go with complex ERPs, specialized comprehensive procurement software, or a combination of several solutions for different processes. It can be measured in percentages from the purchase order total or set to a specific amount of money. When an invoice has a discrepancy that falls within the tolerance limit, it can still be approved for payment without further investigation. While three-way matching is a straightforward process, it might be complicated by departmental specifics. Financial specialists might have to spend extra time figuring out more about the requester’s needs and purchase order details before they can match the documents.

Invoices are matched to purchase orders , receiving information , and inspection information as applicable. The invoices must meet matching tolerances or a hold is placed on the invoice and payment cannot be made until the hold is resolved or manually released. Refer to «Tolerances» and «Invoice Holds» for more information. This process is still seen as an effective business process for both suppliers and buyers. However, it doesn’t necessarily need to be as difficult as the manual process suggests. An automated invoice matching process that ensures an accurate three-way match.

Duplicate Invoice

The order might have been received, but the system doesn’t have a receipt or packing slip. In the later sections, we will cover specific steps you can take to reduce the number of exceptions by defining certain tolerances or working with your vendors. This would cause the invoice price and PO invoice to mismatch. There could be a Unit of measure mismatch between purchase order and vendor’s sales order system. For example, you ordered in Each’s, and the vendor always ships in Dozens. The exception is defined as any issue with the invoice that you need to manually review and resolve the exception.

Book a demo to see how automation can streamline three-way matching for your business. This makes three-way matching easy and straightforward, as all required information is available anytime it’s needed. Checking documents is quite time-consuming and requires considerable effort. Each of the three documents includes a substantial amount of data to analyze, especially if it’s a larger order. On the other hand, four-way matching is a stricter option that includes additional confirmation by someone who was physically there to witness the delivery .

When the total amount on the invoice is higher than on the purchase order or packing slip. This could indicate that the vendor used an incorrect unit price or just be a data entry error. This process is important for large purchases or purchases with newer vendors, but businesses may choose not to use three-way matches for small or recurring purchases. Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate. As the name of this accounts payable process suggests, there are three components of a three-way match. Let’s examine each of these three essential documents in more detail.

It delays payment to suppliers

Either the reason behind the hold should be fixed or proceed for manual release of the hold. If you’re an accountant you may be familiar with the topic – 2-way, 3-way, and 4-way matching. Let’s dive deeper to know more about what is 2 way, 3 way, and 4-way matching and their difference.

They quickly flag errors and potential cases of fraud so that AP teams can take immediate action. 3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Issues could include wrong payment details, incorrect prices, wrong or damaged products etc. With these three documents in hand, the accounts payable personnel can crosscheck to determine whether a supplier’s invoice is legitimate, before making payment. This helps avoid fraud from unwarranted and falsified invoices. Most companies use a manual matching processes to record financial transactions.

Nothing, if it doesn’t have documents to back up the transaction. Invoice matching is a payable process utilized by the payable team. It ensures there are no discrepancies between a purchase order , an invoice, and other required documents.

The use of three-way matching can assist in protecting the accounts payable from being exposed to fraudulent or incorrectly submitted invoices. A growing number of corporate leaders and departments responsible for the company’s finances are turning to three-way match processing to reduce risk and rein in expenditure at their organizations. Integrating automatic three-way verification into the accounts payable procedure is an excellent protective method from overpaying for products and services or making a payment on a fake invoice. Authorize accounts payable personnel to complete payments for invoices if the figures across the received invoice, purchase orders, and receiving report differ with a small margin of error. This way, when your documents have matching details with just a little difference in the figures, your accounts payable team can proceed without escalating all the way through the entire organization.

Three-way matching is an AP invoice process that determines whether a supplier invoice should be paid. Doing this can help companies root out fake or unauthorized transactions, which can cost a company an estimated 5% of its annual revenue, according to the ACFE report. No matter which level of matching your business will implement, robust AP automation software and invoice processing tools will make your teams more efficient and accurate. A purchase order is a document, often legally binding, that confirms an order of products or services without requiring immediate payment.

How to Implement a 3-Way Match Process

🐱 Combines passion for writing, PR, and SEO with expertise in SCM, spend management, and automation software. A complete guide on purchase order process steps, the best optimization practices, and ways POs make a difference in your business operations and expenditures. Ways to make sure your company’s purchase orders are managed smoothly, cost- and time-efficiently, with the best procurement practices brought to life.

AP teams end up spending lots of man-hours manually hunting for every invoice, PO and receipt! Delays and errors force the accounts payable team to work overtime and could also bring on penalties for late payments. NetSuite Invoice Management simplifies the three-way matching process, and thereby improves a business’s cash flow, by automating the matching of POs, item receipts and vendor invoices.

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. This is most likely a clerical error on their part and not an attempt to get double paid but should be checked against nonetheless. This is easily caught when the AP team goes to sign off on a 3-way matched invoice and sees that the invoice has already been paid.

Before authorizing payment, the person involved in payment will use the three-way matching process. This indicates that goods were received by the business and an invoice was sent by the supplier. The amounts are tallied to determine whether the invoice should be cleared in its entirety, or if a partial payment must be made. Confirming delivery information, including whether the description of the goods or services laid out in the purchase order matches those received. In paper-based three way matching and invoice approvals approver delays can result from procrastination, heavy workloads, resolving questions with the requester, and holidays/leaves. The chances of missing a fraudulent invoice or payment are really low with a 3 way match process in place.

Who performs the three-way match?

The data files are uploaded directly into A/P Pro with no user intervention required. This allows A/P Pro to set flags and to make changes to the uploaded data without touching the data in the accounting system. A/P Prohas two processing modules, one for processing Purchase Order invoices and one for processing Operating Expense invoices.A/P Procan be configured to run with either or both of the modules. A/P Pro works with any accounting software package that can import and export .csv files, including Great Plains, Dynamics GP, Business Central, QuickBooks, and many more.

Let’s review both of these processes and how they differ from three-way matching. In this case, it’s the 1,000 masks, which, together, will cost $3,000 dollars. The mask vendor will provide you with a purchase order that will confirm the quantity and cost of the items or services ($3,000). Book this 30-min live demo to make this the last time that you’ll ever have to manually key in data from invoices or receipts into ERP software. Here are three key tips to apply in order to simplify your three-way matching process so you can process accounts payable faster, without sacrificing security and transparency.

Recurring payments can be verified at setup, leaving zero room for fraud. Similarly, it’s counterintuitive for fraudsters to try defrauding an organization of small-dollar micro transactions. If this three-way match reveals that the supplier invoice is in good order, then the accounts payable staff processes the invoice for payment.

3-way matching frees AP teams from menial tasks and allows them to focus more on important things, ultimately improving employee satisfaction. Manual 3-way matching is often time-consuming and repetitive, putting a significant burden on AP teams. This could increase the risk of losing talented staff to competitors that invest in AP automation tools.

A three-way match can assist in deciding whether only a portion of the invoice should be paid or the whole amount should be paid. The invoices must fall within the matching limits for the verification to succeed. If they do not, the invoice will be put on hold, and payments will not be made until the hold is lifted or the issue is resolved. A retained invoice is a fail-safe that prohibits payment of an order that has not been matched with a customer and is not confirmed.

Goods Receipt Note

Accountants are critical in ensuring that the process is carried out effectively and that discrepancies are identified and resolved. 3-way matching is when a business pays for goods or services with cash, cheque, or direct deposit. A business uses 3-way matching to ensure its accurate and up-to-date payments.

The 3-way matching process helps ensure that the payments are made in compliance with the company’s financial policies, external regulations, and accounting standards. This is especially important for publicly traded companies, as non-compliance can lead to penalties and fines. Accounting automation, it goes beyond buzzwords like “lean accounting” and “cloud accounting,” to something even more powerful – automated accounting. Suddenly, accountants don’t have to perform 3-way matching or manually enter data. They only need to intervene when there are exceptions or when higher-level thinking is required. The truth is that accounts payable fraud is a risk that all businesses must contend with.

You’re also paying more money for employees to work on processing and checking invoices, which can lead to higher personnel costs. People can only work so quickly, and taking the time to track down all the approved versions of the documents from suppliers creates a lot of back and forth. When it comes time for a business audit, having accurate records and information of all of your outgoing payments is essential for your company’s reporting. If you’ve done three-way matching throughout the year, you won’t have to do any of the extra work around the time of a company audit. Trust between suppliers and buyers is one of the benchmarks of a healthy supplier relationship relationship and a successful business. If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties.

It indicates payment details and which goods the shipment includes. You can use a manual invoice matching process or use AP automation tools to automate 3 way matching process. When combating fraud, many organizations rely on standard internal procedures and checks. 3-way matching can help avoid these issues by automatically comparing accounts payable data against known risks. By doing this, you can quickly identify any discrepancies and take appropriate action. If you’re looking to streamline AP processes, automate invoice or payment processing, or curious about how accounts payable automation works, this is the guide for you.

• A company can adapt these methods to suit its specific purchasing process.
• Matching is a process performed for goods and services ordered through a purchase order that takes place during the online invoice approval process.
• Three-way matching is usually done before issuing payment to the supplier post delivery.
• Accountants are critical in ensuring that the process is carried out effectively and that discrepancies are identified and resolved.
• And the invoice price should match the price quoted in the purchase order.

Modern restaurant bookkeeping solutions support integrations for seamless information import and synchronization. By avoiding manual document input, companies avoid typos and reduce the risk of omitting information; they meanwhile save hours of work that can be reinvested into more valuable tasks. Managers create guidelines for three-way matching and configure the workflows to ensure that everyone involved is acting within their competencies. Responsibilities are clearly distributed and everyone knows what role they play in the matching and payment processes.