The 3-way matching is the process of matching the purchase order, goods received, and invoice to validate the purchase details before issuing a payment. By matching these documents, three-way matching provides an efficient way for businesses to confirm and verify payment details before issuing payments to vendors and suppliers.

Three-way matching emerged due to increasing invoice frauds targeting loopholes in procurement processes. By gaining unauthorized access to business-critical information, hackers can commit crimes that cost billions of losses to organizations and businesses of different sizes and sophistication. Three-way matching improves payment processes, enabling you to manage many transactions and prevent invoice fraud.

What Is 3-way invoice matching?

The 3-way matching compares and contrasts the purchase order, invoice, and the goods received notes (or orders receipt) to validate payment details. The goal of the three-way matching is to identify discrepancies in purchase processes. Verifying these documents saves businesses from overspending on what they didn’t receive.

How It Works

To better understand the three-way matching, it’s crucial to identify the three documents involved in the purchase processes and their relationship in any purchase process or payment cycle.

  • Purchase order – The purchase order is essentially an official confirmation of an order for products or services. It’s the document sent by the client to the vendor requesting specific products or supplies. Purchase orders generally entail specific elements: the company’s name intending to purchase particular goods, quantity, product descriptions, and date. The order includes price, payment information, address, and purchase order number.
  • Order receipts – This is an official confirmation of payment and delivery of the requested supplies. An order receipt is included by the vendor with the goods or products delivered to the purchaser. The order receipt details what is contained in the shipment order. The order receipt typically includes the same information as the invoice and specifies the payment method.
  • Invoices – The supplier’s invoice requests payment for a purchase. The invoice is sent from the vendor to the purchaser. Invoice contains the same information as the purchase order. In addition, it contains vendor contact information, discounts, payment schedules, and the total amount due.

Before payments are issued, the accounts payable department reviews the quantities and terms of purchase. The accounts payable does this to ensure what’s paid matches the goods received (via goods received notes) and conforms to the ordered products (via purchase order). Thus, three-way matching is a foolproof method of validating payment information before settling payments with your supplier.

Why You Should Use The 3-way invoice matching?

The 3-way invoice matching process offers a host of procurement advantages to businesses.

1. Cost Savings

Verifying that the data is consistent across purchase orders, goods received notes, and invoices prevent you from overpaying, paying for duplicate products, and settling payments for goods and services that are yet to be delivered. Keeping close tabs on purchase processes decreases the possibility of invoice fraud, saving you thousands or millions in losses.

2. Optimal Vendor Relationships

Professional vendors and suppliers respect invoices, received notes, and purchase orders in any accounts payable process. Frequent errors on invoices and receipts can reflect a broader business issue, thus affecting crucial business relationships with promising suppliers and vendors.

3. Prepares Enterprises for Audits

Auditors are always on the lookout for slight financial discrepancies in payment and purchase processes. Having correct receipts and up-to-date invoices protects enterprises in case of rigorous auditing processes. Three-way matching certifies the transparency and integrity of purchase processes. In addition, the three-way matching process provides supplementary business benefits;

  • By matching up numbers across the three documents, the AP can ensure it doesn’t incur the same costs or pay similar bills twice.
  • Discrepancies can be avoided when your data is triple-checked and routinely kept in order.
  • By regularly sorting out your financial problems, you keep yourself safe from regular investigations.
  • The 3-way matching process promotes accountability through visibility. Inaccuracies can be identified because they’re easy to trace.
  • There’s no room for non-compliance when you follow each step of the three-way process.

Why Transition from Paper-based Processes?

So, as you expand your operations and optimize mission-critical business processes, you need to shift from a paper-based to an intuitive procurement solution. The paper-based processes lead to inefficiencies in the accounts payable. In addition, there are delays in paper-based payment and purchase order cycles which include;

  • Receiving and filing separate purchase orders
  • Requesting replacements for lost paper receipts and documents
  • Manually registering the vendor’s invoice in the computer system
  • Visually matching invoices with other supporting documentation if your enterprise resource planning system doesn’t support software-based procurement.
  • Visually approving vendor invoices.
  • Quarterly, monthly, and year-end financial closing delays from accruing invoices the accounts payable hasn’t registered in the system.
  • Experiencing constant vendor interruptions from unpaid supplier invoices

The paper-based purchase processes also present significant customer risks. For instance, there are errors associated with manually entering payment details, approval of duplicate documents, and financial statement errors from under-accrual of unrecorded payables.

ProcurePort – Top Partner for Automated Procurement

ProcurePort is a powerful and intuitive platform that makes any procurement process a breeze, with fast and practical solutions to all your procurement needs. ProcurePort is cognizant of dynamic changes in your procurement and extends a one-time solution to your workflow demands. And now, with industry-leading service support, ProcurePort transforms into an ideal procurement solution to all your workflow needs.

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