Three-way matching is a procedure for processing a vendor invoice to ensure that a payment is complete and accurate. The goal of three-way matching is to highlight any discrepancies in three important documents in the purchasing process – purchase orders, order receipts/packing slips, and invoices – in order to save businesses from overspending or paying for an item that they did not receive.
“Accounts Payable Or Departments In Charge Of Finances Use Three-Way Matching To Manage Financial Risk And Control Company Spend.”
purchase order is the official confirmation of an order. a document authorizing vendor of a purchase.
This is the proof of payment and delivery And is included by the vendor with goods that have been delivered.
An invoice requests payment for a purchase. Invoices are sent from the vendor to the purchaser.
WHAT IS THREE WAY MATCHING
Before an invoice is paid, accounts payable reviews the quantities, prices, and terms to ensure that what is ordered (via the purchase order) matches the goods received (via the order receipt/packing slip) which matches what they are being charged (via the invoice). It’s important to mention that businesses may choose not to use three-way matches for small or recurring purchases.
If any issues are found – inaccurate quantities, wrong prices, damaged goods, or more, payment is not sent until the issue is rectified. Once the invoice has been validated by the three-way matching process, payment is sent according to terms.
WHY USE THREE WAY MATCHING
SAVES BUSINESSES MONEY
Verifying that data is consistent across purchase orders, receipts, and invoices helps businesses avoid overpaying, paying for duplicate items, and paying for things they haven’t received. Keeping such close tabs on finances also helps decrease the possibility of fraud.
ENSURES OPTIMAL VENDOR RELATIONSHIPS
Professional vendors respect the importance of purchase orders, invoices, and receipts to the accounts payable process. Frequent mistakes on receipts and invoices can be a sign of a broader business issue, and may indicate that it’s time to begin shopping around.
PREPARES BUSINESSES FOR AUDITS
Auditors are specifically on the lookout for financial discrepancies. Compiling these documents in advance of an audit and checking that the numbers line up using the three-way matching process is a big step in the right direction.
WHAT ARE THE BENEFITS OF AUTOMATING THREE WAY MATCHING?
Three-way matching is a great business practice, but truth be told, it is labor-intensive and time consuming. Thumbing through stacks of paperwork to find these three documents is difficult enough. Layer on top of that the need to scan each document carefully to ensure the numbers are aligned. Not only is this inefficient, it’s highly susceptible to human error.
The three-way matching process happens automatically with our Accounts Payable platform – no human intervention required. Issues are brought to light early, so you don’t bottleneck or slow down the payment process. You will significantly reduce processing costs, and perhaps more importantly, be able to spend more time doing more valuable work.
Trends suggest that the future of procurement is automated. In Deloitte’s 2016 Global CPO Survey, Chief Procurement Officers indicate that they are investing increasingly in innovation and digital technologies in an effort to shift their teams towards more strategic tasks. Organizations want procurement teams to “make day-to-day execution ruthlessly efficient, lightning quick, and transparent.” In our humble opinion, automating the three-way matching process is an excellent start towards making the entire procurement process more efficient.