Three Way Matching Definition, Example

The primary purpose of 3-way matching is to prevent any incorrect and fraudulent invoice or payment from happening in a company. The 3-way match helps companies avoid problems related to AP by resolving any possible mismatches on bills and orders before payments are processed. The agency’s accounting department then conducts an invoice approval process. During this process, the purchasing and accounting departments have to verify the items listed in the invoice if they match with the PO, including each line item and PO number.

After ordering the items from the supplier, the agency’s purchasing department receives a $10,000 invoice or billing information. The invoice is based on the PO sent by the purchaser to the supplier. The three main benefits of the three-way matching process focus on eliminating any discrepancies in the purchasing process. Electronic document originating from supplier that informs users that products have been shipped. Interface with suppliers to populate the CedarCreek Advanced Shipping Notice database tables.

One major drawback to three-way matching is the time and manpower involved in compiling the information and going over each form. It is especially time-consuming when companies still depend on paper invoices and human intervention. Sometimes, this can delay payments to the point where you have to pay extra for not meeting the terms and conditions of the transaction.

Way Match Processing: Step By Step Guide To Optimization

AP automation streamlines the invoice process from receipt to payment approval, saving time, money and resources. When that cannot be accomplished, then the invoice is again routed through the pre-designated exception process for final validation and approval.

The proper process is to match the invoice against the accepted accrual of goods and services before you pay any invoice. Three-way match is used to match the details of PO, Goods Receipt and the Invoice document received from vendor. In Three way match the Quantity & Price is matched between PO, GR & IR. AP automation saves at least $13 on average for each invoice processed. For companies processing 300 invoices per month, this is an annual savings of $46800. When goods are received, the person receiving the goods opens up the PO in your PO or ERP system and checks off the goods received by the PO, line by line. This goods receipt against the PO is then passed to the provider’s AP matching automation solution.

Use Of Ai And Ocr In Three Way Matching Of Invoices

3 way match and 2 way match are part of the purchase order invoice process. Talk to one of our process experts today for a free consultation, and let us know what’s going on in your accounting department – we may be able to help. When the documents are stored digitally , they become more secure and are free of the troubles of the infamous “piles” of organization that exist on desks throughout most companies. The allowance for “less than or equal to” means that a vendor shipping more than the agreed upon quantity for the same price, or charging less for the agreed upon quantity is acceptable. A flag is only thrown if the vendor sends less or charger more than the amounts agreed upon. Ready to gain greater control and visibility over your company’s finances? An employee needs to purchase something to be able to perform a specific task or execute their job.

The authorized person will collect the figures from the inventory department. In this case, only 2850 pieces of inventory are received, so the bill cannot be authorized for payment. The authorized person will instruct the inventory department to rectify the bill from the supplier. After this, finally, the invoice is given for authorization and then to the cashier or cash department for payment to the supplier.

It Prevents Loss Due To Fraud And Carelessness

Manual data processing and checking is laborious and may be prone to errors and misinterpretation since everything is done by hand. Physical copies may also be misplaced, lost, or damaged due to mishandling or storage problems. Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice of internal control. See how you can automate your club processes, saving you time and money. Electronic document originating from supplier that informs users that products have been accepted for return. Many suppliers are willing and able to use the CedarCreek standards interface formats and protocols and others will want CedarCreek to conform to their technical formats.

3-way matching is an important part of the accounts payable process. When small businesses are starting out, essential processes and related workflows undergo a slow evolution. With a small workforce, most early efforts involve staff members handling paperwork and entering information manually. This slow pace often applies to processes what is 3 way matching in accounting such as three-way matching in accounts payable departments. The receiving document references the purchase order number, facilitating document matching. In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or supplier.

Straight Through Processing: How Stp & Automated Payments Help Drive Growth For Business Owners

A three-way match is an accounting control that ensures that the purchase order, inventory receipt, and invoice all match in terms of product, quality, quantity and price. The process emphasizes accuracy and accountability since more than one department is involved. If certain inaccuracies are commonplace, any flagged documents can be checked to see which department is most responsible for them.

Digitizing the matching process ensures accurate and consistent data verification and matching. The matching process can be mapped through a detailed 3-way match flow chart, which is the basis for effective automation.

• Depending on the results of such investigation, the differences may be resolved or they may be approved and the vendor invoice is then processed for payment.
• Line items may also include additional information, such as comments or charges.
• Workflow and process automation, accounting teams gain the tools to automate a large amount of this process and the visibility into where the work is at any stage in the flow.
• When the receiving department enters receiving reports into the system, the operations department, accounts payable, and finance team members can access the verified receipt or its data.
• Hearst Newspapers participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites.
• Not only do businesses need a consistent supply of goods/services to keep the business running, but also need mechanisms to protect against overpayment and financial fraud.
• Accurate purchase order matching and matching payments to invoices ensure that payment is made only to the goods or services received.

CedarCreek’s procure to pay system is uniquely designed to help the club Industry to maximize spend coverage. The Purchase Order contains an electric copy of all the line item detail and the GL code distribution (GL codes are automatically added using CedarCreek’s Declining Checkbook feature). These include the invoice subtotal, invoice tax, invoice freight and the PO number. AP clerks will receive a detailed report listing the invoice that did not pass the auto-matching process. The report includes the exact reason the invoice failed to facilitate resolution. These unmatched invoices will go through a workflow process where they are routed to the appropriate resources to be reviewed and resolved. The Auto-Matching engine leverages the electronic Purchase Orders, automatic GL coding process, workflow and Receiving functionality embedded in CedarCreek’s eProcurement offering.

Accounts Payable Generates Aging Reports

You’ll also avoid any potential payment problems that can create costly headaches and time sucks down the line. Trust between suppliers and buyers is one of the benchmarks of a successful business. If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties. Show that you value your relationship with them, and they’ll see you as a reputable partner.

When business owners expand their ventures and investments, changes in the company landscape start to become visible. Changes, such as hiring new staff or gaining new suppliers, can affect the business’ overall process in terms of financial gains and losses. Interfaces to bring electronic invoices into the CedarCreek system from your suppliers eliminating the need to manually enter invoices from these suppliers. Exceptions that don’t pass your matching tolerances are sent through a custom configured workflow where they can be put on hold, paid with an override or otherwise resolved. The three way matching procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness.

Traditionally, Accounts Payable would review the relevant information on each of the three documents. The information on these documents falls into two categories – line item data or header data. Line item data refers to a product or service that has been added to an invoice along with its relevant quantities, rates, and prices. Header data is all other information on an invoice, such as invoice number, total price, and document date.

What Is Three Way Matching And Why Is It Important For Your Accounts Payable Team?

If the information doesn’t match, a member of the accounts payable team will need to follow up with the purchaser and the vendor to sort out the discrepancy. 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.

The 4-way match is the most time consuming but most meticulous among all the processes. It should be done only when strict compliance or verification is needed. All the documents are cross-checked and inspected before finally accepting the goods or services. To enhance the three-way match processing, a payment service, like Tipalti, with end-to-end optimization, from order placement to payment release, is a must for a standardized procedure. Hearst Newspapers participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. Two-way match is used to compare the invoice received from vendor with the Purchase Order. If an error occurs, no payment is sent out from the purchaser until the mismatch in information has been resolved.

And it can also enable you to be eligible for early pay discounts on invoice payments. And CoreIntegrator Enterprisefor enterprise-sized companies as well asA/P OneAP automation for small and medium sized companies provideautomated PO matching.

Invoice

The purpose of the three-way match is to avoid paying an incorrect and perhaps fraudulent invoice. It’s important to mention that businesses may choose not to use three-way matches for small or recurring purchases. If your three-way matching process in accounts payable isn’t 100% automated, it can happen that figures that get entered into one of the documents may differ just a bit with other documents. And if you insist your figures must be identical every single time, this might hold up supplier payments and invoice settlements. When it comes to supplier invoices, a paper or emailed invoice is received by Accounts Payable, frequently before the delivery of the goods, which causes a delay in the matching process. If this is a supplier that a company does considerable business with, invoices could be coming in constantly, making it difficult to match.

Unfortunately, 3-way matching has a reputation for being labour-intensive, time-consuming, and tedious when done manually. https://www.bookstime.com/ It requires both the purchaser and the vendor to send several documents back and forth for verification purposes.