A three-way match in the p2p process is a payment verification procedure used to verify a supplier’s invoice before a payment is made. When the accounts payable department receives the supplier’s invoice, it matches up the following information:
- The payable department matches the information in the supplier’s invoice to a copy of the purchase order initially sent by the purchasing department when ordering the products or services. The purchase order PO form quotes the price and quantity at which the buyer agreed to pay.
- The accounts payable match the supplier’s invoice with the receiving documentation sent by the receiving department (or officials), to ensure that the goods have indeed been received, are in proper condition and are in their exact quantities. The documentation received is known as the goods received notes GRNs.
So, the three-way matching process in the procure-to-pay refers to verifying the three documentation – invoice, goods received notes (receiving report), and the purchase order – to ascertain that payment should be made to the supplier.
The three-way matching process has gained relevance in the procure-to-pay processes because of rising cases of fraud and duplicate payments. The procedure is leveraged to ensure that only authorized purchases are paid for, thereby preventing losses and damages due to carelessness or fraud.
Three-Way Matching Process
The three-way matching process verifies a vendor’s invoice to ensure that payment made is accurate and complete. The goal of the three-way matching process is to identify and highlight slight differences in the three important documents in the purchasing process – supplier’s invoice, purchasing orders, and receiving reports. Matching is done to prevent businesses or organizations from overspending or paying for items they did not receive.
Three crucial documents used in the three-way matching process
The purchase order refers to the official confirmation of purchase. When an organization needs something, they declare this need to the purchasing department who then initiates a purchase from a trusted and verified vendor or supplier.
Purchase orders generally capture the name of the enterprise or company purchasing, date, specific supplies or products, and their exact details or specifications. Also captured are the prices, quantities, mailing address, invoice address, payment information, and the PO number.
Receiving Reports or Goods Received Notes
The receiving report is proof of payment and delivery of goods or services. An order number is given by the supplier together with the delivery of supplies. The goods receipt notes detail exactly what’s in the order or package. Receiving reports contain the same information as the invoice, together with the mode of payment.
An invoice is an official document requesting payment for a purchase. The vendor sends the invoice to the purchaser for payment of goods delivered. The invoice captures the same information as the purchase order, including vendor’s contact information, invoice number, discounts and credits for early payments, and total amount due to the supplier.
The accounts payable department reviews the prices, quantities, and contract terms before paying the supplier’s invoice and depositing money to the vendor’s business or personal account. This matching ensures that what was ordered via the PO matches what was delivered via receiving a report, which matches what they are now being charged via the supplier’s invoice. Businesses may choose not to use the three-way matching process for small and recurring purchases.
If issues are found – wrong prices, inaccurate quantities, damaged goods, or other issues, payment is not issued until the issues are rectified. Once the purchase is validated by this matching process, payment is issued according to the contract terms.
Why Do You Need to Implement the Three-Way Matching Process?
Verifying that data and information are consistent across receipts, purchase orders, and supplier invoice helps save businesses from paying for duplicate items, overpaying, or paying for products they haven’t received. Keeping tabs on purchases decrease fraud and averts any financial losses.
Optimal Vendor Relationships
Professional vendors value the significance of POs, receiving reports and invoices. Frequent mistakes on invoices and receipts can signify a deep-seated business issue and indicate it’s time to search for alternative suppliers.
Auditors are on the lookout for discrepancies in payments. Compiling these documents in advance and checking that the numbers line up using the three-way matching process is a huge leap in the right direction.
Benefits of Automating the Three-Way Matching in P2P Processes
Three-way matching is an effective and water-tight procedure for verifying payments. But truth be told, it’s expensive and labor-intensive. Thumbing through a pile of papers looking for these three pieces of documentation is difficult and time-consuming. Layer on top of this challenge the need to scan documents to ensure the correct order numbers are accurate and aligned.
Not only is this process inefficient, but it’s also prone to human error.
The three-way match in p2p process occurs automatically when you upgrade to the e-procurement software – like ProcurePort; no human effort is required to initiate a three-way match. Any issues like payment inaccuracies are brought to book early, so you don’t have to slow down or bottleneck when issuing the payment. By using an automated e-procurement solution, you’ll not only save substantial processing costs, more importantly, but you’ll also dedicate more time to doing mission-critical business activities.