3 Way Match: Automate AP Matching Process

If any issues are found during the three-way match, payment isn’t issued and the involved parties play their role in rectifying the issue(s). After an invoice is validated during the three-way match processing, payment can be sent. The presence of many mistakes can be a sign of a business-wide issue or that a vendor’s business is not that important to you. Rather than burn any bridges, 3-way matching ensures that good vendor relationships are maintained. NLP and ML algorithms can read the payment schedules on the supplier invoice and the purchase order and arrange the recurring payments.

• This invoice is then sent to the buyer from the supplier based on the information gathered from the purchase order.
• Naturally, managing stacks of paperwork and invoices is an arduous task that is bound to incur its share of difficulties.
• It should be done only when strict compliance or verification is needed.
• In some cases, even gathering the required documents also takes a long time.
• To survive this uncharted road ahead, the modern finance team has to future-proof their organization with technology.

Only when all three documents match, the invoice is approved and paid. The vast majority of businesses record their financial transactions using manual matching methods. Acquiring tangible records in the form of journals or ledgers is part of what’s involved in manual processing. It helps to streamline the process of managing accounts payable by catching errors before payments are made and having all the right documents to support the payments.

Who Are the Stakeholders in Three-Way Matching?

Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces. When documents are not organized properly, retrieval for reference becomes a headache. The https://www.bookstime.com/articles/what-is-3-way-matching-in-accounting 4-way matching adds another verification layer to the 3-way check by checking the quantity accepted. The number of goods ordered, billed, received, and accepted must be in sync to clear the 4-way matching process.

While the purchasing department creates and issues POs, the receiving department creates the reports regarding what physically arrives at the warehouse. Without systems sharing data appropriately, departments may silo their efforts with poor communication that hinders operations. The Goods Received Note is then submitted to the accounts department for cross-verification and recording.

The main benefits of using a 3-Way match in the P2P process are:

Naturally, everyone involved in the buying process wishes to find no discrepancies. When misalignments are found, it only means one thing – the three-way match process is efficient. If an error occurs, no payment is sent out from the purchaser until the mismatch in information has been resolved. He received his bachelor’s degree in economics from the University of California, Davis, and his master’s degree in economics and finance from Bogazici University. He writes on IoT, RPA, process automation, and to jazz it up a bit, sometimes fintech. If you believe you’re ready to automate a financial process in your business, we have data-driven of FinTech solution providers.

A 3-way match in accounts payable (AP) highlights the discrepancies or inconsistencies between any of the above-mentioned documents. When discrepancies are discovered in three-way invoice matching, the payment will be withheld until the discrepancy is resolved. Advanced automation tools like SofCo’s AP automation software allow businesses to mitigate the potential for human error and reduce invoice fraud.

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They contain information on the goods included in the shipment and the payment method. An invoice is a paper or EDI form document that is sent from the vendor to the buyer. Information contained in invoices is unique invoice numbers, vendor contact details, applicable discounts or credits, and the total amount due. To understand the three-way match in accounting better, let us first understand what invoices, purchase orders, and goods receipt notes are.

This ensures a perfect match between all three pieces of information (via the invoice). Manual three-way matching requires a lot of time, especially if you’re using paper documents. Someone from the accounts payable team must review three documents for each invoice. The process is even more demanding for businesses with many suppliers. With three-way invoice matching, it is easy to identify discrepancies between the goods and services ordered, delivered, and invoiced.

Why Implementing 3-Way Matching is Important

Using this system, you can quickly and easily identify discrepancies and take appropriate action. For these reasons, businesses should strive to automate three-way matching. Yet, few steps can compare to the right automation solution for three-way matching. Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate. The number of items delivered should match the quantity on the purchase order. As the name of this accounts payable process suggests, there are three components of a three-way match.

• Data entry from POs, invoices and other documents is a crucial step in the matching process, as the entire process is based on this information.
• Or if the discrepancy is less than 10%, a partial payment can be made, along with an automated email to the vendor asking to clarify why the invoice price is 10% higher than the PO amount.
• This could increase the risk of losing talented staff to competitors that invest in AP automation tools.
• By sticking to a uniform policy, the business will get the most out of three-way matching.
• When making a payment, all your information must be correct and consistent.
• If errors are flagged in the 3 way matching process, the invoice is put on hold and payment is withheld.

Only when stringent compliance or verification is required should it be done. To illustrate how three-way matching works, let’s look at a hypothetical situation. An event-planning agency has ordered 1,000 copies of placeholder cards for a client. The buyer and the vendor should have already agreed to everything listed on a purchase order.

Why Are 2-Way, 3-Way, and 4-Way Matching Important?

The payment can only go through after an investigation of the discovered discrepancies. This payment verification technique validates the information across the trio of related documents. BILL and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal, or accounting advice.

• Small businesses experience billing fraud almost twice as often as larger companies.
• If the two documents don’t align, the invoice is held without being paid until mistakes are addressed or corrected.
• AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows.
• Each PO typically has a unique number assigned to it for easier filing.

While two-way matching is the simplest and most straightforward form of invoice matching, it isn’t the only type of matching. Some companies choose the use of three-way or four-way invoice matching, which increases the level of complexity, but also the level of security and accuracy drastically. Now that we know what two-way matching is, we should have a look at how the process of invoice matching works. Because of this, people see the firm favorably and consider it a reliable and trustworthy collaborator. An invoice’s legitimacy may be established relatively quickly by checking whether the company requested and got the items or services for which payment is being demanded.

Way, 3-Way, and 4-Way Matching Made Easy with Accounting Automation

3-way matching is integrated in modern AP automation tools, and ERP integrations are also available. GEP NEXXE is a unified and comprehensive supply chain platform that provides end-to-end planning, visibility, execution and collaboration capabilities https://www.bookstime.com/ for today’s complex, global supply chains. Built on a foundation of data, artificial intelligence and cognitive technologies, GEP NEXXE helps enterprises digitally transform their supply chains and turn them into a competitive advantage.

By quickly matching and paying on (or ahead of) time, buyers can also expect to negotiate better prices and credit terms with the suppliers. While three-way matching helps to detect fake invoices and prevent accidentally paying them, it can’t guarantee total elimination of fraud. If there are too many documents for too few procurement officers, three-way matching is done in a hurry – and mistakes are bound to happen. The matching process might seem tedious and complex, especially when done manually. Some companies might choose to refrain from using a 3-way match for small or recurring purchases, or when purchasing from trusted vendors. But with new vendors or large purchases, the matching process shouldn’t be ignored.