What Is 3 Way Matching In Accounts Payable?
The three-way matching process is an essential tool in accounts payable. It involves comparing the purchase order, supplier invoice, and receiving document to ensure that all the data matches. This process helps companies detect discrepancies in payments before they are issued, ensuring accurate recordkeeping and fraud prevention. But what exactly is 3 way matching, and how does it work? In this blog post, we’ll discuss the basics of 3 way matching and why it’s important for accounts payable departments. Read on to learn more!
What is 3 Way Matching?
In accounts payable, 3-way matching is the process of comparing the purchase order, the goods receipt, and the invoice to ensure that they all match before the invoice is approved for payment.
This process helps to prevent errors and fraudulent activity, and ensures that only valid invoices are paid.
To perform 3-way matching, the Accounts Payable department will first check that the purchase order matches the goods receipt. They will then compare the invoice to both the purchase order and the goods receipt to make sure that all three documents match up.
If there are any discrepancies between the documents, the Accounts Payable department will investigate further before approving payment on the invoice.
3-way matching is a key part of Accounts Payable processes and can help to improve accuracy and efficiency in paying invoices.
How to Use 3 Way Matching in Accounts Payable
In accounts payable, 3 way matching is the process of matching the invoices you receive from vendors with the purchase orders you’ve issued to them, and the receiving reports for the products or services you’ve received. This ensures that you’re paying for what you’ve ordered, and that what you’ve received matches what was ordered.
To match invoices to purchase orders and receiving reports:
1. Review your invoices carefully when they come in. Make sure that the invoice date, vendor name, PO number, and product or service description all match the purchase order.
2. Compare the invoiced amount to the expected cost on the purchase order. If there are any discrepancies, reach out to your vendor to resolve them.
3. Once you’re satisfied that the invoice matches the purchase order, find the corresponding receiving report in your records. Make sure that the quantities and descriptions match up.
4. If everything matches up, you can enter the invoice into your accounts payable system and schedule it for payment according to your company’s policies.
The Benefits of 3 Way Matching
The benefits of 3 way matching are many and varied, but can be summarized as follows:
1. It ensures accuracy in the accounts payable process by requiring that all three documents – the purchase order, the invoice, and the receiving report – match before payment can be made. This eliminates errors and avoids over- or under-payments.
2. It saves time by preventing manual reviews and reconciliations of invoices.
3. It improves vendor relations by timely payments based on accurate invoices.
4. It strengthens internal controls over the accounts payable process.
The Disadvantages of 3 Way Matching
There are several disadvantages of 3 way matching in accounts payable. First, it can be time consuming to set up and maintain. Second, it can be difficult to track down invoices and match them up with the correct purchase orders and receipts. Third, if an invoice is incorrect or there is a discrepancy between the purchase order and the receipt, it can be very difficult to resolve the issue. Finally, if an invoice is lost or misplaced, it can be extremely difficult to find it and match it up with the correct documentation.
Conclusion
Three-way matching is a simple yet effective way to ensure accuracy in accounts payable transactions. It’s an important part of the accounts payable process and can help prevent costly mistakes that could lead to financial losses. By checking invoices, purchase orders, and receiving reports together against each other, you can quickly identify any discrepancies that need to be addressed before moving forward with payments. Three-way matching helps streamline the entire accounts payable process, allowing it to run more efficiently while keeping costs low and reducing the potential for errors or fraud.