Three-way matching is a common procurement business practice. It provides a clear way to confirm, verify, and validate the purchase order, the receiving document, and the supplier invoice. It paves the way for the supplier to be paid.
The three-way match process also acts as a tool that mitigates fraud while building trust between the buyer and the supplier.
However, it is also a process that is little understood and a question that’s often asked is which document typically triggers the three-way match?
In this post, we’re going to tackle this question and more. Let’s get started.
What is the Three-Way Match?
Before we can answer the question, which documents typically trigger the three-way match? we first have to have an understanding of the three-way matching process.
Accountingtools.com defines the three-way matching process as a:
“…payment verification technique for ensuring that a supplier invoice is valid.”
So, prior to the accounts payable department actually releasing any payment they must reconcile the supplier invoice and make sure it matches both the purchase order and the receiving document.
From this, we can see that the document that triggers the three-way match is in fact the supplier invoice.
How the Three-Way Matching Process Works
Now that we are cognizant of which document typically triggers the three-way match let’s consider how the matching process works.
1. Purchase order sent to supplier by buyer
It is impossible to dissociate the purchase requisition and purchase order process from each other. The step that starts the entire transaction is different departments within the buyer organization sending requisition orders to the procurement team.
These requisition orders are then compiled into a single purchase order. The purchase order details the relevant quantities required and the price per commodity or service being purchased.
Once the purchase order is ready it is sent to the preferred vendor for fulfillment.
2. Vendor confirms their ability to fulfill the order
So, what happens when the buyer sends the purchase order to the vendor?
Well, the supplier must be sure that they have the products the buyer wants before replying. Therefore, they will assess their own stock prior to answering the buyer’s purchase order.
And this is because the purchase order itself is not a legally binding document when it is first received by the supplier. It only becomes contractually binding when the vendor confirms receipt and answers in the affirmative that they can indeed fulfill what’s needed.
3. Vendor delivers goods and or services to the buyer
Once the vendor has affirmed that they can fulfill the purchase order, they set to task gathering the required products. The goods are then packed and shipped to the buyer to be delivered by the agreed-upon timeframe.
4. Buyer’s receiving department issues a receiving document
When the goods arrive, the buyer’s receiving department inspects the goods, generates a receiving document, and sends it back to the supplier
Receiving documentation refers to the paperwork done after the goods have been delivered. It validates that the products were indeed sent by the vendor.
It also authenticates those correct quantities were sent and that the products were in an acceptable condition.
The receiving department is normally in charge of this quality assurance process. After generating the receiving document, they send it to both the supplier and the accounting department.
5. Supplier invoice generated by the vendor
The supplier waits for the buyer’s receiving department to send them a report of their quality assurance findings. Whether the goods arrived in good condition, the quantities are correct, and that everything checks out.
As soon as the receiving department sends the receiving document to the supplier, the supplier can then move forward with generating a supplier invoice.
This is, of course, the document that triggers the three-way match process as we have seen already. The vendor then sends this invoice to the buyer’s accounts department and awaits the release of payment.
6. Invoice reconciliation by the buyer accounts payables department
Following receipt of the supplier invoice, the buyer’s accounts payables department sets out to corroborate it with the purchase order and the receiving document.
This is the three-way matching process.
The accounts payable department verifies the details in each of these three documents to ensure that they are paying the correct amount for products that were actually delivered.
It’s a rigorous and thorough process and this leads us to the final step…
7. Invoice approval and payment by accounts payables department
If there are no discrepancies noticed during the three-way matching process then the accounts payables department can go ahead and release payment to the vendor.
This invoice payment process and approval in the procurement cycle is so important because of the increasing procurement fraud cases being reported on a daily basis.
That’s why there are also so many steps and different independent departments in charge of each step of the procurement lifecycle.
The supplier invoice sets the ball rolling for three-way matching to begin. The process is engineered to reduce fraud, ensure vendors are paid correctly and improve overall vendor/ buyer relationships.
The three-way matching process follows documented evidence to confirm that the buyer is indeed paying for what they ordered. It acts as a safety mechanism for all involved in the transaction.
Three-way matching is made easier thanks to procurement tech solutions such as those provided by ProcurePort.
If you would like to discuss your enterprise procurement tech needs with a consultant or to schedule a demo of our suite of procurement solutions contact us today.