Today, an increasing number of businesses are using 3-way match processing to mitigate this risk and reign in company spending. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. Harry initially verifies that the business name and payment details are consistent across the documents, making it unlikely that a rogue fraudster is attempting to misdirect a legitimate payment. He then verifies that the inventory total of the 100 hats that he requested in the initial purchase order is matched by the packaging slip and invoice.
- With 3-way matching, you’ll be much more likely to notice those erroneous invoices or payment requests that spontaneously list a different bank account.
- What if you discovered that as much as 2% of your business’s payments are duplicates, charged for the wrong amount, or contain some other error?
- In case of discrepancies, the payment against the invoice is kept on hold.
If your 3-Way Matching In Accounts Payable procedure isn’t fully automated, it’s possible that some of the numbers entered into one document may not match those in other papers exactly. Additionally, if you demand that every time, your statistics must match, supplier payments and invoice settlements may be delayed. This validation procedure aims to confirm that each invoice accurately reflects the items and quantities ordered as stated on the purchase order. Following that, it ensures that these correspond to the items that were delivered to the receiving department and listed on the related receiving report. In one dashboard, manage and match the details of your POs, GRN, and bill.
When to Use 3-Way Matching
A 3 way match is an internal control process that cross-references a supplier’s invoice against its corresponding purchase order (PO) and good received note (GRN). 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. It allows your AP department to identify any inconsistencies that could indicate a supplier error or fraud, and ensures that there are no overpayments.
Receiving high-quality goods and services is vital for improving your business. If you don’t get the materials or other goods or services you paid for, your business will suffer one way or another, whether it’s through defective products or impaired internal processes. Without it, your business would have lost money, or you and the supplier would have wasted time trying to unravel the overpayment when it was discovered. In high-growth businesses, every operation (both front and back-office) is inexplicably tied to investment versus reward. To survive this uncharted road ahead, the modern finance team has to future-proof their organization with technology.
The accounts payable (AP) three-way match process involves processing an invoice by matching the data with a purchase order and with the goods received in the note. Automating the 3-way match in the accounts payable process brings transparency and consistency to the accounts payable process. The supplier invoice is the document that triggers the matching process. Once the invoice is received, the purchase order and receiving report data are retrieved and cross-checked with the invoice data. All the information on all three documents needs to match for the invoice amount to be paid. A great way to eliminate fraud is by automating your procurement process.
It can be laborious to manage 3-Way Matching In Accounts Payable manually; use an automated solution instead
Manual processing includes obtaining physical documents in the form of journals or ledgers. Four-way matching is the most intricate, time-consuming, and labor-intensive invoice-matching method. The receiving report and the packing slip or order receipt are compared to the supplier’s invoice and the purchase order. Manually matching documents and checking for discrepancies can be tedious. It can lead to delays in processing payments, issues with tracking and analyzing data, and it’ll be harder for companies to make informed financial decisions.
Way Match Automation
2-way matching is the process of cross-checking invoices that businesses usually practice. The process only requires two documents, the invoice and purchase order to ensure that the items, quantities, and prices match. The 3-way match increases revenue by protecting enterprises from unwanted, fraudulent financial transactions. The 3-way check helps businesses achieve cost savings and improve the transparency of procurement and accounts payable transactions.
Strategies for Overcoming Challenges of 3-Way Matching
Manual verification of information on various documents is a time-consuming process. In some cases, even gathering the required documents also debt service coverage ratio takes a long time. Three-way matching helps protect business from unnecessary expenses which, in the long run, adds to your bottom line.
Someone from the accounts payable team must review three documents for each invoice. The reality is that a lot can go wrong, so it’s essential to have a process to check that your business is never losing money to inaccurate or fraudulent invoices. With the three-way matching process, you won’t overpay because of these issues. A car manufacturer wanted to a order 200 lithium-ion batteries and have them delivered to his plant. The manufacturer shared a purchase order for 200 batteries at a cost of Rs.7,250.
If they don’t, a hold is placed on the invoice and payments cannot be rendered until the hold is released or resolved. A held invoice operates as a sort of fail-safe that prevents the payment of an unmatched and unverified order. For service-related purchases where a receiving report might not be essential, a 2-way match is preferred over a 3-way match. And once everything has been found, your A/P team will still need to meticulously compare the relevant details across several documents, whose layouts will vary with each new supplier.
Even while trying to avoid overpaying, firms might frequently incur substantially greater processing expenses when using a manual procedure. Establish procedures for verifying the accuracy of incoming invoices, including comparing them to purchase orders and delivery receipts. This ensures that invoices accurately reflect the goods or services received. By using the three-way matching process, businesses can ensure that they only pay for goods or services that have been received and approved–preventing losses due to fraud and carelessness. The process is allowing businesses to resolve them before payment is made.
The Process and Journal Entry Example of 3-Way Match
The number of goods ordered, billed, received, and accepted must be in sync to clear the 4-way matching process. 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. Three way matching helps businesses track the origin of invoices and confirm their legitimacy to avoid fraud. The supplier issues an invoice to the buyer, billing them for the delivered goods or services.
Components of a three-way match
A Three-way match is the process of matching the purchase order (PO), invoice, and goods receipt (GRN) note to validate the supplier’s invoice before payment is made. A 3-way match in accounting helps determine if the invoice should be paid in full or part and reduces the risk by preventing reimbursement of unauthorized purchases. 2-way and 3-way matching of invoices are the most common matching methods in accounting. Comparing the invoice for the purchase of goods and services with the purchase order is a 2-way match in accounts payable.