A systematic 3-way matching system aids businesses in maintaining accurate and comprehensive records. By documenting and cross-referencing each step of the procurement process, companies can create a reliable audit trail. This not only supports internal control but also facilitates compliance with regulatory requirements and external audits. Before processing vendor profitable coaching business payments, AP teams go over these 3 documents to verify that the product/service received by the company matches the details of what was initially ordered. In order to avoid processing fraudulent invoices, your accounts payable team has to be extra careful. What that means is that you end up spending more time getting invoices fulfilled than you’re supposed to.
- To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice.
- A vendor invoice for 5000 INR for 1000 integrated circuit boards is received by the buyer.
- Among the options of 2-way and 4-way matching, the 3-way match process stands out as the optimal selection for internal control measures.
- Make sure to jettison old records to streamline your chart of accounts for the future.
- A 3-way matching process has been in practice in this regard for quite some time.
Storage and retrieval of documents in manually managed invoice processing is a challenge. 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. On the other hand, the three-way process checks the purchase order against the goods receipt note and the supplier invoice. The goods receipt note provides information on the actual goods or services delivered and stipulates shortages or damaged goods.
Provide training and education to personnel involved in the 3-way matching process, including accounts payable staff, purchasing staff, and other relevant personnel. The PS Team can identify when there are discrepancies in invoices to minimize the risk of vendors overpaying or underpaying which can impact cash flow and relationships with suppliers. The accounts payable team can quickly verify whether the goods and services were actually provided. Automating the procurement process is an effective way to eliminate fraud in the system. Businesses should do this three-way matching to avoid costly errors, such as duplicate payments or payments for goods or services that were never received.
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The invoice fields are then automatically extracted using optical character recognition technology. Softwares like ClearTech also promise 100% accurate invoice digitization with a combination of OCR technology and tech-enabled human-led managed services. A 3-way match can then be automatically performed on the extracted data, and any invoice with discrepancies beyond the acceptable threshold will be flagged and raised to the vendor. Performing a 3-way match can also prove to be more economical since the ROI of accounts payable automation is typically higher. 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.
Downstream processes involve processing vendor payments and managing your financial data. The payment cycle can begin once an invoice has been received and verified. Accounts payable, up until quite recently, has been a largely manual process, miring the work in tedium and inefficiencies, and opening a business’s record-keeping up to costly human error. The rise of artificial intelligence (AI), though, has been monumental in making accounts payable faster, more accurate, and infinitely more secure. Understanding what your company needs and how you can improve, especially with invoice processing, can be a good starting point for gaining long-term traction.
How does 3-Way Matching Work?
A vendor invoice for 5000 INR for 1000 integrated circuit boards is received by the buyer. The first step is to cross-check whether the PO was approved before fulfilling the invoice. The second step is matching invoices to purchase orders in terms of price and quantity.
Set up vendor details
Having a transparent invoice verification process promotes strong vendor relationships. Timely notification of issues during the 3-way match of sales, 3-way match of receiving, 3-way PO match, or 3-way invoice match, ensures that payment to suppliers is done on time. If this three-way match reveals that the supplier invoice is in good order, then the accounts payable staff processes the invoice for payment. If not, the staff contacts the supplier regarding any issues it found, which may result in the issuance of a revised invoice or perhaps a credit memo by the supplier. While three-way invoice matching is important and can save your business time and money, you will run into issues if you’re doing it manually.
An Example of Three-Way Matching
This validation procedure aims to confirm that each invoice accurately reflects the items and quantities ordered as stated on the purchase order. Following that, it ensures that these correspond to the items that were delivered to the receiving department and listed on the related receiving report. The convenience store manager matched the PO, GRN, and Invoice and found all three documents aligned, thus processes the payment. 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. The goods receipt note is a record confirming that the receiving officer has accepted the goods delivered by the supplier.
Purchase Order
An automated 3-way matching system works on the digital verification of documents. Digital data verification is much faster and more accurate compared to manual matching. The 3-way matching process requires accurate verification and matching of information in the invoice, purchase order, and goods received in the note. Gathering all these documents and verifying the data is a time-consuming process when done manually. As mentioned before, manual data verification is prone to errors and discrepancies.
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In 3-way matching, in addition to verifying PO and invoice information, the goods received information is also verified and matched against the invoice and PO. If your business purchases inventory or goods, as opposed to primarily services, and you use item receipts to track delivery, then three-way matching is probably the best choice for your business. Additionally, informing your suppliers of discrepancies enables them to deliver the correct goods and services in the future, saving both your time and money. To be successfully verified, the invoices must satisfy matching tolerances. If they don’t, a hold is placed on the invoice and payments cannot be rendered until the hold is released or resolved.