3-way matching involves comparing three separate documents, which can be complicated and time-consuming. Businesses should evaluate the benefits, process, costs, and challenges of each method and choose the one that best suits their procurement process. Then, the invoice should reflect this information, and the receipt should confirm that the buyer received 100 units of the product. An example of 3-way matching for inventory, the purchase order specifies that the buyer ordered 100 units of inventory products at a certain price. The purchasing department receives this and records it as a PO–agreed upon by the buyer and supplier. A purchase order is a document created when a buyer orders a product or service.
A timely audit helps your business avoid costs you would have incurred if the auditor had needed extra time going through your documents. Most AP automation software, like Nanonets, can help organizations switch from manual 3 way the direct write off method and its example matching to a completely touchless automated workflow. AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows. A supercharged 3 way matching AP workflow ensures timely vendor payments.
- As hard as your employees may try to get payments in on the due date, manual matching can just be too tedious.
- AP had trouble keeping track of suppliers, and they spent days on invoicing.
- Put all together, and you get a procurement automation tool that simplifies the entire process so you can process invoices faster and safely.
- There’s a way to enhance the task, and it effectively halves time and increases accuracy ten-fold.
But it might be time to have a serious conversation with them when most invoices from a particular vendor include mistakes that all err in their favor. As its name would suggest, 3-way matching is an accounts payable best practice that compares the relevant details from three of the key types of documents generated during a typical procurement process. The 3-way matching process promotes transparency in financial transactions. This transparency builds trust among stakeholders and enhances vendor-supplier relationships. When all three components align, it signifies a successful three-way match, indicating that the transaction is accurate and can be processed for payment. This matching process is crucial for maintaining financial control, preventing overpayments or underpayments, and ensuring transparency.
What is 3-Way Matching in Accounts Payable?
The process can help the AP department make payments to the supplier more quickly, enabling the company to qualify for early payment discounts. Once all three documents have been received by your accounts payable department, you’ll need to scrutinize each to verify that all information is correct before payment is issued. If there are any discrepancies in the three components, the AP department may send only a partial payment or temporarily withhold payment. Once the differences are resolved, your AP team can complete the three-way matching process and issue payment.
- Book a 30-min live demo to see how Nanonets can help your team implement end-to-end AP automation.
- Potential delays can be caused by the approval process and by invoice discrepancies.
- Accurate 3-way matching prevents overpayments and errors in financial transactions.
- Manually matching documents and checking for discrepancies can be tedious.
- An automated 3-way matching solution virtually eliminates human touch points such as manual data entry, paper receipts, and physical signatures for approval.
When all the pricing, approvals, and documentation is secured, the invoice is finally ready for entry into the system for payment. The General Ledger account codes are entered with the line items on the invoice so that the organization can manage budgets and see where money is being spent. Potential delays can be caused by the approval process and by invoice discrepancies. Discrepancies between what was received and what is being billed for cause delays because someone must take the time to investigate the items in question. The PO number must also be referenced on the invoice once the items are shipped.
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If an accounts payable employee encounters a one-off matching error, they will need to investigate the problem to solve it. The chances of missing a fraudulent invoice or payment are really low with a 3 way match process in place. Book a 30-min live demo to see how Nanonets can help your team implement end-to-end AP automation. Not all companies need or will use an inspection report, so this fourth step isn’t always possible. However, some companies might choose this process just to be more thorough in their accounting.
In addition, this process also enhances the transparency of procurement and accounts payable operations. Besides, a three-way match can assist businesses in identifying fraudulent or unauthorized transactions, which can cost a company a significant amount of its yearly revenue. When a company has a high volume of purchases at certain moments, the manual three-way matching process can become overwhelming. Indeed, there is some importance of 3-way matching to ensure invoice and purchase accuracy, but there are also many challenges. Regularly review and monitor the 3-way matching process to ensure that all procedures are being followed, and any issues or discrepancies are identified and addressed promptly.
Benefits of automated 3 way matching
Businesses can track the origin of invoices and ensure their legitimacy to avoid fraud or duplication. Vendor invoices and order receipts are needed during the auditing process. Comparing the data present in these two documents before the completion of the transaction ensures a straightforward process. The three-way match procedure improves internal control and eliminates purchasing and accounts payable fraud. Payments are only made for the products or services received when purchase order matching and matching payments to invoices are accurate. With three-way invoice matching, it is easy to identify discrepancies between the goods and services ordered, delivered, and invoiced.
Which Method Is Best for Your Business?
Harry initially verifies that the business name and payment details are consistent across the documents, making it unlikely that a rogue fraudster is attempting to misdirect a legitimate payment. He then verifies that the inventory total of the 100 hats that he requested in the initial purchase order is matched by the packaging slip and invoice. The benefits of implementing an automated solution range from increased efficiency and accuracy to substantial cost savings and improved compliance. The goods receipt note is a record confirming that the receiving officer has accepted the goods delivered by the supplier. It outlines the received quantity, the condition upon delivery, and other details.
Procurement and finance teams can prevent fraud and duplicate invoices through three-way matches before paying an invoice. Accurate purchase order matching and matching payments to invoices ensure that payment is made only to the goods or services received. Making procurement and invoice clearance decisions based on the 3-way matching procedure eliminates invoice discrepancy and accurate payments. Authorize accounts payable personnel to complete payments for invoices if the figures across the received invoice, purchase orders, and receiving report differ with a small margin of error. Before processing vendor payments, your accounts payable (AP) team reviews the purchase order to ensure it matches the goods or services listed on the invoice.
The purchase order is the initial document created by the buyer, specifying the details of the intended transaction. It includes information such as the quantity, description, and agreed-upon price for the goods or services. This document acts as a foundational agreement between the buyer and the supplier.
Not only can your employees easily overlook transposed numbers or unintentionally miss process steps, but they also might cause transcription errors on the original documents. By automating the matching process, the AP teams get more time for productive work, and invoice and payment processing can be done faster and more efficiently. An automated 3-way matching system works on the digital verification of documents.
Ways Virtual Cards Reduce Headaches for Accounts Payable Teams
Any discrepancy in the information results in the invoice being withheld until the mismatch is resolved or rectified. 2-way, 3-way, and 4-way invoice matching processes require 3 documents, the invoice, the purchase order, and the receipt of the goods. By 3 way matching supporting documents, companies can detect duplicate, erroneous, or fraudulent payments to vendors. Three way matching is best performed as an automated financial workflow powered by AP automation solutions such as Nanonets. A reliable 3-way matching process should be an important element of any AP automation solution.
Automating the 3-Way Matching Process
The three-way matching process is critical for keeping a business’s finances healthy. That fact is true not only because it ensures a consistent supply of vital goods and services that meet the company’s needs but also because it protects against overpayment. In some cases, an effective three-way match can even expose potential fraud, as not all vendors operate above board.