What is the three-way match process? The practice of matching the goods received note to the supplier invoice and purchase order of a received purchase is an important match process that helps AP teams validate the order before payment is issued.
As organizations grow and more purchases are made, it naturally becomes harder to keep track of all the important information between buyers and vendors. This purchasing information, such as itemized invoices, shipping and delivery confirmations, and confirmation of receival is vital to maintaining accurate records and properly managing business spend.
If keeping these documents in order is a struggle, implementing the 3-way match process can help get you back on track. In this article, we’ll explore the 3-way match process and explain how each step is in place for your benefit and protection.
What is 3-Way Matching?
To be a bit more detailed, the three-way matching process is the method of matching the vendor or supplier invoice to the purchase order, and getting confirmation of this match with a goods received note before issuing payment.
Teams look to 3-way matching to:
Avoid mess – With 3 way matching you can keep purchasing documents aligned and organized for records or audit purposes, and prevent documents from falling through the cracks.
Ensure compliance – This process requires both the buyer and supplier to follow procedures and ultimately ensures that the vendor has complied with the terms of the purchase order.
Prevent fraud – 3-way matching helps prevent, or reduce the risk of, fraud by preventing payment for purchases that were not authorized or that did not comply with vendor terms.
For example, if a falsified invoice requests payment for a purchase or services that were never requested, it would be caught when no purchase order for that request was found.
Documents Required to Confirm a 3-Way Match
There are, you guessed it, three essential documents involved in confirming a three way match.
Purchase order
The purchase order (PO) outlines the type of item or items, the quantity requested, and prices according to the terms agreed upon between the buyer and seller. This document will have a unique PO number.
Vendor invoice
This states the amount and price of goods or services the vendor or supplier is requesting payment for. It is an official document based on the purchase order that includes a unique invoice number and often a scheduled delivery date.
Goods received note
Once the buyer receives the purchase, it is compared to the invoice and the PO to make sure that they align. The buyer can then confirm that the purchase was accurately received with the goods received note (GRN).
How Does a 3-Way Match Work?
Even with a good grasp of each of the above documents, it can still be helpful to walk through the process from start to finish in order to truly understand how three way matching helps you as the buyer. The steps are as follows:
- First an order is placed and the PO is sent to the vendor
- A vendor invoice is created based on that PO
- The buyer is sent the invoice
- Invoice details are checked against the PO
- Items are received by the buyer
- Goods received is confirmed with GRN and sent to AP team
- AP compares all three documents (the PO, invoice, and GRN) before issuing payment
- What’s known as a receiving report based on the GRN is sent to the buyer. It acts as proof of purchase and order completion
Once all of these steps are completed, it is confirmed that the order according to the invoice has been fulfilled, and the business requesting those goods has in fact received them. This is the easiest way to determine the validity of an invoice and ensure only authorized payments are being made.
With an efficient 3 way matching process in place, accounts payable staff or the accounting department will be able to easily follow the above steps each time a supplier’s invoice is received, and needs to be matched to the GRN and order receipt.
The Benefits of Using a 3-Way Match Process
Some teams may be inclined to put off implementing this process because it’s an added step. But the three way match process is not complicated and does not actually require much added time or man-power. Performed correctly, it’s a very smooth procedure that provides huge benefits when weighed against the effort it takes to carry out.
It makes audits easier to conduct
A completed three-way match makes record-keeping easy, as well as making it easier to track payments and keep more accurate records overall. If there are ever discrepancies, or an audit needs to be conducted, it will be easy to look back and verify invoices when documents match.
It helps eliminate fraud
Even huge, established companies like Google and Facebook can fall victim to invoice fraud. So it’s no wonder small businesses have to face it all too often. Comparing the invoice against the PO in the 3-way match process allows AP to more confidently identify and avoid fraudulent invoices. It probably goes without saying, but preventing the payment of those fraudulent purchases saves you money, time, and headache.
It supports a strong buyer-vendor relationship
Keeping accurate documents submitted in a timely manner adds a trustworthy nature to the relationship between buyer and vendor. Successfully delivered goods without any late payments supports this as well. Being able to rely on each other as business partners is beneficial to each, as the vendor will consider the buyer’s company as reputable and the buyer will have a reliable vendor they can continue to work with in the future.
The Difference Between a 2-Way Match and 3-Way Match
Though a 3 way match process has many benefits and seems like a no-brainer to implement, it’s not nearly as common as its cousin, the 2-way match. two way matching is more common in most businesses, and is simply the process of matching the invoice against the PO to ensure they align before issuing payment.
With the addition of the GRN and receiving report, 3-way matching provides organizations more internal control and helps them avoid accounts payable (AP) related issues connected to making and processing payments or mismatching bills.
Improve the 3-Way Match Process by Automating
Automation at any stage of the purchasing process will have multiple benefits. Whether you find it more reasonable to automate your entire purchasing process or your invoice approval process, you can expect to:
Save time
Automated matching processes are expedited and less time-consuming when compared to a manual matching process. If taking up time is a deterrent when considering implementing a three way matching process, automation will help you process invoices faster, as well as speed up the accounts payable process. Comparing documents the manual way not only takes longer, but is never as accurate.
Stay on track
With an automated process, you’ll be able to better store, search through, and pull up receiving reports, order receipts, and other documents from the match process. Being able to easily store and access information helps your team avoid human error and delayed payments, plus automated matching is less labor intensive.
Whether you’re a mid-sized expanding company looking to add a layer of security and organization to your purchasing process, or you’re a veteran Shark Tank investor fallen victim to invoice fraud, three way matching is a smart and secure method of invoice and payment processing that continues to provide benefits for every type of business, supplier, and payment. Don’t put off implementing a three way match process in your organization and support a faster, more secure payment process that improves the workload of the accounts payables department and keeps both the buyer and vendor satisfied.
FAQs
A 3-way match in Accounts Payable, or AP, is the three step process of matching the purchase order, the goods received note, and the invoice against each other to ensure they all align or match each other.
Organizations should use a three-way match process to help avoid processing incorrect or fraudulent invoices. Conducting the three-way match process helps AP teams identify any mismatched or incorrect billing information before making a payment.
Organizations automate their three-way matching process in order to remove the manual work involved. This not only prevents error, but also saves time and allows for AP teams to match larger numbers of invoices at once.
