A 3-way matching process is the comparison of a purchase order with the goods receipt note and supplier invoice before honoring said invoice. It determines whether a payment should be made, in full or in part. The primary reason for implementing a 3-way matching process is to reduce the likelihood of fraudulent payments being made. However, it can also result in other benefits in your organizational workflow.
Today, there is sophisticated software that eases the management of supply chains, including enabling automated 3-way matching. It allows for easy submission and storage of electronic copies of purchase orders, invoices, and receipts. It enables the creation of a trial and assignment of clear roles in the procure-to-pay process. Implementing a 3-way matching system is therefore manageable in any organization. Here are X reasons why you need to implement 3 way matching in your organization.
Eliminating Fraud in an Organization
Comparing the supplier’s invoice with the purchase order ensures that your organization is only billed for goods or services that it ordered. A purchase order is created following an approval process, based on an assessment of organizational needs. This process helps to take away chances of arbitrary spending occurring.
The goods collection receipt proves that ordered items were indeed delivered in the right quantity. In some cases, the verification might extend to verifying the condition of the goods when delivered. A 3-way matching process minimizes the opportunities for unethical employees to collude with third parties to defraud the business. Such an occurrence can easily lead the company to financial ruin.
Proper Records of Suppliers and Expenses
A 3-way matching process leads to the creation of a proper record of suppliers. This is better implemented when P2P software is being used. The company can track transactions with suppliers. Should any dispute or litigation arise from previous transactions, it is easier to resolve using the records.
A proper record of suppliers is also helpful in building mutually beneficial relationships with the most important suppliers. A 3-way matching process also ensures accurate payments which is important in preserving relationships. Genuine human error can easily destroy relationships because suspicions of ill intent might start to arise. Software that allows suppliers a portal to track the verification of their invoices adds to the transparency.
An automated system also allows for use of analytics in tracking business activity. The business can see which invoices have been rising gradually. It can also see any sudden surges, the cause of which might need to be explained. Analytics also helps to track opportunities for savings in procurement. For instance, it is possible to highlight those invoices that offer attractive discounts for prompt payment. It might make sense to process those quickly.
Another advantage of 3 way matching in your organization is the ease with which auditors will be able to verify your payments. In a situation where proper records are not kept; it can feel a bit adversarial when auditors start to ask for supporting documents for payments made to suppliers. The management may feel like they are being accused of impropriety. However, having ready records not only makes the process quicker but is also a sign of organization and transparency in company dealings.
It’s easier for your organization to turn a profit when it’s not losing money to fraud or human error. Creating systems to verify invoices, therefore, protects the value of investors in the company. Your company, however, needs to find the most efficient way to handle a 3-way-matching. Relying on human labor alone can be inefficient because of the cost and time factor. Slowing down the approval process too much can lead to strained relationships with suppliers. Automated 3-way matching can save costs by up to 80%.
Efficient 3-way Matching
When handling large volumes of invoices per day, it is impossible to scrutinize each one. In some organizations, 3-way matching is done through sampling. 5 to 10 invoices might be picked out of every 100. The keenness might also depend on the relationship with particular suppliers. Risk level might be assigned depending on the length of the relationship can any cases of errors in previous invoices. Big dollar amounts will naturally be assessed more keenly than routine petty cash transactions. Each organization is different and 3-way matching should be designed to minimize risk in the most efficient manner possible.
Possible Challenges with Invoice Matching
A challenge that organizations may face with 3-way invoice matching is having too many cases of the error to resolve, some of which may be marginal. One way to do this in an automated system is to only flag discrepancies that are above a certain dollar amount or percentage of the invoice dollar amount.
This will be determined by the size of the organization, the frequency of transactions, and the organization’s cost of processing invoices. It goes against the accounting principle of materiality to spend hundreds of dollars investigating discrepancies worth cents or a few tens.
It’s also crucial that the organization has an elaborate path to follow when resolving flagged discrepancies. Cases should be sent to the right people and resolved in the most efficient manner. Unless fraud is discovered, the process should not create animosity with suppliers or ill will against employees.
ProcurePort P2P Software
If your business is seeking a tool to help manage 3-way matching efficiently, check out ProcurePort’s procure-to-pay software. With the software, your organization can easily create purchase orders, fill out goods receipts, and compare them with supplier invoices. This will help your organization save money, prevent fraud, and always be audit-ready.