It helps reduce unnecessary costs, such as over-ordering or under-ordering, and helps ensure that the correct goods are being delivered at the right price. The system also helps reduce wasted time and effort, which helps reduce the overall cost of the supply chain. It helps to ensure that any issues can be quickly addressed and resolved and that what are retained earnings the supply chain runs smoothly. The system also helps to improve communication between the supplier and the customer.

The Real Cost of Weak PO Matching Controls

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. Then, they check the goods receipt note to ensure that the delivery matches the request. The purpose of the three-way match is to provide assurance that financial transactions are accurate, authorized, and in compliance with the company’s policies and procedures. Invoice fraud is a serious issue that affects businesses of all sizes.

Three-Way Matching Can Save Money and Time

• Additionally, the documents could be misplaced, lost, or damaged due to poor handling or storage issues.
• Fraudsters often send fake invoices for payment to scam money out of companies.
• A manual invoice approval process is always subject to the potential for human error, such as making duplicate payments or matching invoices incorrectly.
• The AP clerk looks at the quantity and price in the PO and verifies that the vendor invoice has the same quantity and price.
• Implementing three-way matching can make the invoice processing system more accurate, secure, and cost-effective.
• It will help to reduce errors and improve the overall efficiency of the process.

It’s particularly important for controlling spend and preventing unauthorized or fraudulent payments in cases where goods and services are received before payment is made. This control mechanism helps organizations prevent errors, detect fraud, and enforce accountability in the procurement and payment process. Alternatively, a software program takes on automated matching processes.

What is Three-Way Matching?

Additionally, it helps prevent overpayments by ensuring that the quantities and prices on the supplier invoice align with the purchase order and goods receipt. This three-way comparison acts as a control mechanism to safeguard against errors, inconsistencies, or fraudulent activities within the procurement and payment process. 3-way matching is an accounts payable process that verifies an invoice against Retail Accounting its corresponding purchase order (PO) and goods receipt before approving payment. This ensures that businesses only pay for goods or services that were ordered, received, and billed correctly, preventing overpayments, fraud, and accounting errors. By comparing these three documents, organizations can ensure that they have received what they ordered, at the agreed-upon price, and that the supplier’s invoice matches the goods received. This process helps prevent overpayments, underpayments, duplicate payments, and other financial discrepancies.

• This allows business owners to make faster, data-driven decisions, reduce errors, enhance tax compliance, and stay audit-ready.
• The main downside of this approach is increased paperwork, which can extend the time required to issue payments to suppliers.
• If the information from the document coincides with the actual delivery, there is a three-way match.
• For example, when a customer orders a product from a business, the business can use 2-way matching to ensure that the customer's order is accurate and matches the product's description.
• Let’s examine each of these three essential documents in more detail.

As you establish your procurement workflow, opt for a system where all your documents and key data are centralized in one dashboard. what is a 3 way match in accounting This creates workflow efficiencies that cannot be achieved when records are siloed in separate applications. The three-way matching process happens in a series of repeatable steps. In this article, we will focus on how to record the 3-way match process in accounting. We’ll provide easy-to-understand explanations and examples of journal entries, aiming to simplify this important aspect of accounts payable.

3-way matching is the gold standard for preventing financial loss in AP because it ensures companies only pay for what was ordered and received. But doing this manually can lead to mistakes, delays, and frustration. This extra check helps prevent overpayments, fraud, and missing items. It also improves vendor trust by confirming they’re paid for what they delivered. Both 2-way matching and 3-way matching help businesses verify invoices before making payments.