3-way matching: Definition, process, benefits, and best practices

An invoice is a document generated by your supplier and sent to you during or after the delivery of the goods or services you ordered. It contains details such as vendor information, product details, amount owed, and when and how the payment should be made.

It serves as both a transaction record from the vendor’s side as well as a payment request to you as the receiving end of the invoice.

Suggested read: Guide on how to raise GST invoice for business

Once your procurement team has confirmed with other departments that an order needs to be made, they will issue a purchase order to the relevant vendor or supplier. This is an official authorization that a purchase is to be made.

It is a legally binding document that is used to inform vendors of the goods or services you would like to order, including the quantity and agreed-upon prices. Vendors will then have to fulfill this order.

Sometimes also called a goods receipt or a delivery receipt, a receiving report confirms that the goods or services promised have been delivered. This could be done in full or partially.

If the order has only been partially fulfilled, the receiving report will state this and you will get another report confirming the rest of the order once the other half is fulfilled. Unlike an invoice, a receiving report is not a payment request.

A 3-way match helps you validate your supplier invoices. This means that you will be preventing any fake invoices from being processed, as every invoice will have to be compared to a corresponding purchase order and receiving report.

Not only that, but you will also be validating that the invoice data received is correct.

It’s important that are match your invoices with the purchase orders and receiving reports as this helps you maintain a high level of accuracy throughout your payment processing.

You will also be able to ensure that your invoice processing complies with your vendor contract terms and local regulations.

Sometimes mismatches between invoices and their corresponding purchase orders and receiving reports are small and unintentional. It could be something as small as an extra zero tacked onto a number.

However, these errors could create significant issues for you. 3-way matching allows you to detect these errors and resolve them before they blow up.

The last thing you want is to pay more than the agreed-upon price of the goods or services delivered to you. It’s even worse if you end up making a double payment on the invoice.

3-way matching in accounts payable ensures that this doesn’t happen and every invoice is paid accordingly.

Every business needs preventive fraud measures. Implementing a 3-way match in accounts payable is one of these measures to eliminate fraud risks.

You won’t have to worry about fraud invoices being generated and processed when you are matching every invoice you get against its purchase order and receiving report.

Issues with your invoice payments such as discrepancies in the paid amount will be tedious to fix for you and your suppliers. Ensuring that you do a 3-way match for every invoice you get reduces the chance of this extra strain.

Business with your suppliers will go smoothly, thus improving your relationships.

Consistently performing a 3-way match in accounts payable will automatically make you pay more attention to your invoices. As a result, you’ll get a tighter rein on your finances.

Identifying overspending trends is made much easier. Not only that, but you’ll also avoid overpaying invoices, which will in turn grant you better financial health.

While it may seem like you’re spending more time on each invoice by setting them aside for 3-way matching, doing this will actually improve your efficiency.

Instead of blindly processing payments only to later realize that errors have been made, you can nip issues in the bud before they disrupt your processes.

Considering that you need the right documents for the 3-way match process, it begins with the issuance of your purchase order. This is done by you as the buyer after your procurement team determines what you need to order.

The purchase order will contain details such as the goods or services you’re purchasing and the respective quantities.

After the vendor has delivered the goods or services according to your purchase order, they will issue a receipt with details of each item in the order. This is what is referred to as a receiving report or delivery receipt.

You will be able to verify whether the order has been fully or partially fulfilled.

Sometimes vendors will issue an invoice on the same day as the order delivery. Other vendors may only send you an invoice a few days later.

Regardless, you will receive an invoice from your vendor, which will also function as a bill that you have to settle and process payment.

Before you make any payments, you’ll want to make sure that your invoice is accurate. This is where the 3-way matching process comes into play.

You’ll need to collect all the components necessary and put the information from each side by side. This way, you’ll be able to check the documents against each other.

Quantities: Make sure that the quantity ordered and quantity delivered match before you pay an invoice. If an order is only partially fulfilled, that should be noted in the receiving report.

Prices: You want the price billed to be less than or equal to the price ordered and delivered.

Terms: Ensure that the delivery receipt shows that the vendor has upheld their end of the agreed-upon terms.

You may find that there are some discrepancies after you do a 3-way match. If this happens, then these discrepancies must be resolved.

This is done by checking with your vendors if there have been any errors in the delivery process or if the invoice should be revised. Minor errors like typos also need to be rectified.

Once an invoice has been matched and all its discrepancies resolved, you are ready to process the invoice for payment. An assigned approver will review the invoice and approve it.

Then, your finance team will be able to schedule and create a payment. When it has been sent, you’ll want to ensure that it has been received.

Related read: How to create an efficient automated invoice approval workflow?

During the 3-way matching process, there will be steps that require you to communicate with your vendors. For example, if an invoice does not match the receiving report or purchase order, you’ll have to let your vendors know.

Once a payment has been made, you also want to communicate that with the respective vendor.

The results of your 3-way matching process are useful and even necessary for year-end audits. Each business will have its own filing system to ensure that documents don’t get lost before the audits.

When you finish matching each invoice, it’s important to keep detailed records of each document for better future access.

First and foremost, 3-way matching in accounts payable is done to improve the accuracy of your payments and financial data.

It ensures that you are processing your invoices correctly by matching the amount on your invoice with the purchase order and receiving report. There are fewer risks of error when you pay greater attention to your documents.

It may seem like you’re taking more time to process each payment by doing a 3-way match in accounts payable, but the truth is that having improved accuracy is a time saver.

By adhering to the three-way matching concept, you’re ensuring that fraudulent transactions and other payment issues don’t happen, saving you time by going error-free.

You might also be interested to read: Guide to vendor payment automation for businesses

The last thing you want is to have paid your invoice only to later realize that your invoice payment needs to match up with your order.

3-way matching in accounts payable ensures that you are paying the amount according to your purchase order and receiving report. This holds both parties accountable for the contract.

Suggested read: What is procure-to-pay (P2P) cycle?

Build better relationships with your vendors by proving to them that you can be trusted to make accurate and timely payments every month.

You want to make your vendors feel like your business arrangement is valued and respected, which will also improve your reputation as an organization to do business with.

Make sure that your funds are protected by performing 3-way matching in accounts payable. Matching your documents with each other guarantees that you aren’t processing fraudulent invoices. Each invoice must have other supporting documentation to prove its existence.

This is useful when you have a lot of invoices to process and need to implement fraud prevention measures quickly.

Your stakeholders, both internal and external, will appreciate transparency within the business. Performing a 3-way match for all your invoices introduces a new level of transparency for your processes.

Your employees will also know that there is no room for internal invoice fraud when you establish a clear policy about doing 3-way matching.

It’s no secret that preparing for audits and resolving audit findings can be tedious and time-consuming. Doing a 3-way match in accounts payable helps you nip problems in the bud immediately, meaning that you’ll have fewer errors to resolve after audits.

The documentation that you use for 3-way matching is also often required for auditing.

Paying your invoices accurately and on time will guarantee that your operations go smoothly. Without 3-way matching, you may end up with payment errors that could put a halt to your vendors’ delivery of goods or services.

A standardized 3-way matching process ensures that everything goes according to procedure efficiently.

How accurate your accounts payable processes are will impact the accuracy of your financial reports. If an error made during invoice processing is not spotted, it will carry over as you record it after the payment is made.

As a result, your financial and accounting reports will also contain inaccuracies.

The entire goal of 3-way match and 2-way match is to identify data discrepancies and resolve them, but often the latter can still be challenging even with an effective matching process.

Data discrepancies cannot solve themselves, instead requiring you to establish a process to delve deeper into them. This could take a lot of your time.

While it seems simple to match your invoices with purchase orders, that’s not always the case. You may have big and complex purchase orders that will take a while to match.

A purchase order also does not guarantee that all the goods or services you’ve received are a perfect match to the purchase order.

3-way match and 2-way match are incredibly important, but they can be difficult and time-consuming to do. This is especially true when you have a lot of transactions to process.

Your accounts payable department will be swamped with the sheer volume of transactions you have and will have to spend the larger part of the month invoice matching.

Doing your invoice matching processes manually can weigh down on your team. There are many repetitive and time-consuming tasks that must be completed, which will feel impossibly long without automation.

Having a lack of automation tools will result in slow processing and an unmotivated team that is faced with a mountain of manual work.

While the goal of 3-way matching in accounts payable is to ensure there are no errors or discrepancies, you can still run into issues with manual matching.

There could be typos and errors during your data entry process, which includes entering important information from your documents. Wrong dates or values could lead to payment delays.

Regardless of the size of your organization, size of your organization, you may find that you don’t have enough dedicated staff for the invoice-matching process.

This is because the bigger your business is and the more employees you have, the more invoices you’ll have to process. As a result, you may consistently feel like you’re restricted by resources.

There are several departments involved in the 3-way matching process, many of which will have their own filing methods. It can be challenging to get all departments to adapt and synchronize.

You will also be required to conduct training sessions for your employees to ensure that they know how to 3-way match, which could be costly.

● Components

As the name suggests, there are two components involved. A 2-way match is the comparison between an invoice and its corresponding purchase order.

● Matching factors

During a 2-way match, the product quantity and price stated on your invoice must be equal to or less than the quantity and quoted price on the purchase order.

● Purpose

The purpose of 2-way matching is to guarantee that you are only paying for what you ordered and not more than that. It’s also less labor-intensive than a 3-way match.



● Discrepancies

If there are any discrepancies between the invoice and purchase order, the process will be halted until the discrepancies are resolved and the invoice is ready for payment.

● Components

In addition to the invoice and purchase order being necessary components, 3-way matching also factors in the receiving report or delivery receipt.

● Matching factors

Instead of the price and quantity of the invoice being less than or equal to the price quoted and quantity ordered, it’s also compared to the goods or services delivered.

● Purpose

A 3-way match and 2-way match both serve the purpose of enhanced accuracy, but 3-way matching takes it a step further. However, it can also take more time as it accounts for more details.

● Discrepancies

Similar to a 2-way match, if there are inconsistencies and discrepancies between any of the three documents, it would have to be solved before payment is processed.

If you don’t already have 3-way matching in accounts payable, then the first step is to familiarize yourself with the concept. You want to be sure you understand the process thoroughly before you implement it.

Even if you already have some form of invoice matching, you’ll still want to improve your understanding of a 3-way match.

It’s always wise to review the processes you already have in place before implementing new ones. Make notes about how you process your invoices and identify any pain points you have.

Now that you have a better understanding of the three-way matching concept, you can also adapt it to fit your business needs.

The traditional way of 3-way matching in accounts payable is time-consuming, especially when you have a large number of invoices to process.

This is why you want to choose the right tool to help you automate your invoice matching. You want to research invoice-matching software and choose the right one for your business.

There are multiple components in the 3-way matching process. It’s important that you establish roles and responsibilities, assigning each employee in the process with their respective ones.

A clear segregation of duties and knowledge of key persons involved will help employees set out their tasks and reduce confusion within the team.

One challenge that businesses may face with 3-way matching is that their documents don’t follow a consistent, standardized format.

To avoid confusion and streamline the process, speak with the involved parties and get all three components to follow a standard format. This way, matching them to each other is easy.

You’ll want to create a checklist of the things that need to be matched and verified during the 3-way match in accounts payable. This way, every invoice will be reviewed following a set of guidelines.

All employees will know which specific details need to match. If there are discrepancies within those details, further action will then be taken.

Once you have an outline of all the steps, established rules, and a checklist for when you match your invoices, you’ll want to implement your new automation software.

You likely will have configuration options that you’ll want to customize according to your processes. If you use various tools, you also want to integrate them seamlessly.

When you perform a 3-way match in accounts payable, you want to ensure that you have good-quality data that are accurate and useful.

Implement a data cleansing and validation process so that you have the most accurate, reliable, and recent data to work with. This reduces the chance of discrepancies.

With all the parts, tools, and guidelines ready, you will need to conduct proper training for your employees. This ensures that every part of the 3-way matching process goes smoothly.

Make sure that you walk your employees through the whole three-way matching concept. It’s also important that you address any queries and issues during the training.

There’s a trial-and-error element present in any new implementation. Even if the entire implementation journey goes smoothly, you still want to monitor the 3-way matching process, especially early on.

See if everything is working the way you want it to. If it doesn’t, make sure that you make all the necessary adjustments.

As with any other process in your business, you want to set some key performance indicators (KPIs). This helps you measure how effective your 3-way matching is.

Determine important outcomes you want to achieve and decide your performance metrics based on that. If you are not getting satisfactory results, review the process.

The last important step when implementing 3-way match in accounts payable is to conduct regular audits. The audit findings will also be handy in helping you make future decisions and deciding how to improve.

Audits document all findings and ensure that the quality of your 3-way matching process is up to your standards.

Your invoice processing cycle begins with the purchase order. To ensure the accuracy of the rest of the process, you first want to double-check that you are creating the right purchase order, or PO, before you issue it to your supplier.

This will allow you to see if the invoice and products you receive are accurate to the PO.

Use automation tools for your 3-way matching in accounts payable. It’s advised that you digitize your documents using OCR invoice processing technology and use automated matching software to compare and verify them.

This makes the process faster and much more efficient while also reducing the risk of human errors. You want to automate as many steps as possible.

If you find that there is a discrepancy between an invoice with its corresponding purchase order or receiving report, you want to make a note of this discrepancy.

A match exception refers to some sort of warning indicator, bringing your attention to it. By using an automation tool, you can implement automatic flagging of discrepancies.

Automating your invoice matching process doesn’t mean that you no longer have to oversee it. In fact, letting technology do the manual work for you means that you have more time to pay attention to the data you’re processing.

Make sure that you set up real-time monitoring to tackle discrepancies in a timely manner.

If you find any discrepancies during the 3-way matching process, it’s important that you communicate them with suppliers.

That way, they’ll know if there is anything they need to resolve from their side. Your vendors will also be able to adjust their payment expectations accordingly if you maintain regular communication.

Ensure top accuracy for your 3-way match in accounts payable by implementing approval workflows. Even when you automate the manual matching process, you still want someone to look at and check the invoices before processing payments.

Route your invoices through an approval workflow for a quick review to make sure every payment has been approved accordingly.

Even when you start with the best practices on paper, there’s always room for improvement. As your company grows, your business needs and priorities will change.

This is why you want to conduct regular and timely reviews. You’ll be able to pinpoint which areas of the invoice matching process could be improved.

It can be difficult to pinpoint difficulties or oddities when your team is going through the same process every day.

While 3-way matching in accounts payable will significantly improve the accuracy of your process, this is why you still want to conduct regular audits. It helps you ensure the quality of your 3-way match process.

Say goodbye to manual matching errors and data misreads. It’s much easier to eliminate these risks to enhance your accuracy with a 3-way matching automation tool.

You can easily scan invoices using optical character recognition technology to automatically record all necessary information and match invoices through the system without human intervention.

While 3-way matching is incredibly valuable for your business, it’s no secret that doing it manually requires a lot of manpower, which equates to labor costs. Not to mention that manual errors are costly, too.

With 3-way matching automation, you can reduce your staff’s manual workload while maintaining a higher level of accuracy to save costs.

Manual interventions in the invoice matching process can lead to a lot of new problems, starting from manual matching errors to poor visibility and communication. It’s hard to keep everyone on the same page without tools to help you.

By leveraging automated invoice processing software, you’ll reduce these manual interventions and the problems they come with.

It’s no secret that the three-way matching concept is time-consuming, especially with a large volume of invoices to process.

Automating 3-way matching in accounts payable can help you reduce the time taken to less than half of what it would have been when done manually. You’ll be able to process payments faster this way.

Don’t complicate the process of 3-way match in accounts payable. Instead of confusing your employees with many long and error-riddled steps, use a 3-way matching automation platform that can streamline your workflows.

Each step of the process can be completed quickly. Once a step is done, you can automatically route the invoice to the next step.

Unlike with manual invoice matching, you can easily generate reports and have your data presented to you in any way you need with an automation tool.

All your invoice, purchase order, and receiving report information will also be stored in one place, meaning that you can access and filter through them with ease whenever you need to.

Automation software not only allows you to get work done faster, but it also lets you view information faster.

3-way matching updates will be automatically recorded and stored in the cloud, meaning that any involved departments will be able to access the data from anywhere. Get better visibility and minimize miscommunication.

The goal of a 3-way match in accounts payable is to reduce mistakes, but sometimes manual interventions may also lead to an increase in human errors.

Recording the invoice data or owed amount wrong, for example, will create errors. Automating your processes will prevent these errors from happening, ensuring that all data is accurate and errors are flagged.

When you automate your process, you’re also reducing the risk of threats to your business. Get notifications for any suspicious invoices, which means that no unmatched invoice can be forwarded for payment.

Automated 3-way matching in accounts payable will prevent any fraudulent or fake invoices from scamming you into paying a nonexistent order.

The turnover time of manual processes depends on many factors. During months when you don’t have many invoices to match, for example, you will be able to finish your 3-way matching faster.

But months with stacks of invoices could cripple your team. You can get consistent results in the same amount of time each month with automation.

A 3-way match in accounts payable is a necessary process for most businesses as it guarantees that a business is maintaining the highest level of accuracy when doing its invoice payments.

You’ll need to match your invoices with their corresponding purchase orders and receiving reports, ensuring that there are no discrepancies before payments are processed.

An accurate accounts payable process will lead up to smoother operational efficiency, better financial control, and stronger relationships with your vendors. In short, it will without a doubt impact your business positively.