Difference between Two Way and Three-Way Match Invoice

Invoice matching is the process of checking invoices from your suppliers against other documents such as a purchase order to verify the amounts and descriptions of items billed match. It’s an important measure to take to minimize opportunities for fraud or human errors. In large organizations that have tens or hundreds of suppliers, the invoice processing is usually a whole department charged with verifications before payments can be processed.

Two-way matching involves checking the invoice amount and details against the purchase order. In three-way matching, the invoice is checked against the purchasing order as well as the receiving report (sales receipt) before payment is approved. A purchasing order contains details of items, quantities, and prices agreed between the buyer and the seller. A purchasing order is created by the purchasing department after receiving a purchase requisition from the department that ends the items. It is important in preventing payment for unauthorized purchases. A sales receipt ensures that what was requested was indeed delivered.

Example of Invoice Matching Process

Take, for instance, an events company that needs 300 seats after landing a new long-term corporate deal. They get in touch with a supplier and agree on the price per seat, the quantity, and other finer details. The buyer will need to send a purchasing order to the supplier. Using the purchase order, the supplier will generate an invoice and send it to the events company. They conduct an invoice approval process by checking the invoice against the purchasing order. In a two-way matching system, the invoice would be paid at this point if the two documents match.

In a 3-way matching system, the events company would wait for the goods to be delivered so they can generate a receiving report. The invoice approval would involve comparing the purchase order, the invoice, and the receiving report before making payment. Some companies go a step further and conduct a 4-way matching process whereby goods received are subject to a physical examination of their condition. However, these risks slowing down the entire approval process.

Benefits of 3-way matching

A company that does thorough verification of purchase orders and invoices is less prone to fraudulent dealings. It also creates a good reputation with suppliers because of the care taken to avoid errors in payments. When documents are sent out on time and payments are made as agreed, the buyer-supplier relationship is likely to thrive. In addition, when the company is subjected to audits, the process is easy because purchase orders, invoices, and receiving documents will be well maintained.

However, the three-way matching of documents can lead to certain problems, especially when the process is carried out manually.

Drawbacks of Manual Invoice Matching

Manual invoice matching is tedious and will require investment in many people in the accounts department, depending on the organization’s size. The risk is that failure to invest in enough people will lead to delays in invoice approval, leading to strained relationships with suppliers. Again, reliance on a manual approval process leaves the organization vulnerable to human error. Fatigue could lead to subpar checks, loss of documents, or misinterpretations.

Automating the three-way matching process will cost more than a manual process will. It’s estimated that a manual process results in costs of $12-$30 per invoice, which is a large organization that can run into hundreds of thousands annually.

Automating Invoice Matching

Automating invoice matching reduces the workload for the invoice approval department by up to 80%. This means the organization will require less staff that will be involved in higher-level and non-repetitive tasks. It also eliminates the possibility of human error in the approval process.

In an automated system, a portal exists from where purchasing orders can be sent from supplies and invoices received. The system can automatically pick figures from these documents. The matching process is automated, and discrepancies will be highlighted. Many invoices can be checked, reducing the approval time significantly. In such a system, it’s also possible to batch a big number of related invoices for approval.

Another benefit is that a trial can be created to show how discrepancies noted were resolved. A backup of any correspondence made in the resolution is maintained, which can aid in case of an audit query. The organization can also take advantage of early payment discounts by being able to organize and prioritize invoices according to discounts offered.

ProcurePort P2P Software

ProcurePort’s procure-to-pay software allows your company to automate all the steps in your procurement process. It helps guard against opaqueness involved in contract awards because the software includes templates to request quotes. It supports three ways matching of purchase orders, receiving reports, and supplier invoices. Your accounts payable balance will only change after approval that products received match what was ordered and invoiced. To learn more about ProcurePort’s P2P software, get in touch for a demo!