What is Three-way Matching?

To eliminate fraud, save money, and maintain adequate records for auditing, three-way matching involves matching purchase orders (POs), goods receipt notes, and supplier invoices. In most cases, payment is issued to the supplier after a 3-way match has been made.

Verification of invoices through three-way matching involves examining relevant documents proving that:

  • Invoices are issued for items requested by businesses, and for those goods/services
  • The goods/services have been received by the business.

In order to determine whether an invoice is legitimate or fraudulent, one needs only verify whether the business requested and as well received the goods/services claimed on the invoice.

 

Key Elements of Three-way Matching

Cross-verification of related documents is part of the three-way matching process. Before making payments, the related documents must be verified. An invoice can be confirmed to represent goods supplied or services rendered by matching three documents. These documents include:

A Supplier’s Invoice

Suppliers will clearly detail the goods or services they have delivered, the quantities, the unit prices, and any other relevant details in their invoices. An invoice from a supplier essentially asks for payment of money owed.

A Purchase Order

In order to accomplish their work, individuals or departments submit request detailing what they need, how many, and for what purpose they need it. The request is then sent to the purchasing department, which documents the product or service the individual or department needs, the quantity and quality desired, as well as the price it will pay.

Goods Receipts

A receipt of delivery note indicates that the goods have been accepted by the receiver and outlines the quantity, title, and delivery condition of the goods. This is then usually forwarded to the Accounts department.

The Account department can use these three documents to crosscheck an invoice before making payment, in order to verify that it is legitimate. The process helps prevent fraud by detecting falsified invoices as well as human error.

 

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What are the Benefits of Three-way Matching?

Businesses can track the source of invoices and confirm their legitimacy by using three-way matching. Below are the key benefits of 3-way matching:

Minimise Fraud

Accounts payable staff can compare an invoice received from a supplier to the corresponding purchase order and a goods receipt to determine immediately whether it accurately represents products and services delivered to the company.

Verify Expenses 

It makes it easy for businesses to view what goods and services they have received from their vendors’ and suppliers‘ and the payments they’ve received for them with three-way matching. 

Protecting a Company’s Bottom-line

This practice helps businesses avoid unnecessary expenses, lowering their overall costs in the long run. Whenever you don’t lose money to fraudulent claims, it affects your bottom-line.

Good Housekeeping

Keeping track of the inflow and outflow of cash from a business is a critical component of an audit trail. In addition to preserving a paper trail of legitimate expenses, three-way matching also creates a system that allows businesses to verify their expenditures.

How to Improve Your Three-way Matching Process?

Through three-way matching, fraud can be reduced, and all incoming invoices are thoroughly scrutinised before being paid. In the Accounts Payable department of a business, an organisation’s efforts to ensure that suppliers are paid on time usually encounter stumbling blocks.

You can simplify your three-way matching process by following these three tips, which will make AP processes faster and more secure while remaining transparent.

Limit Three-way Matching 

If companies want to simplify the three-way matching process, they may eliminate smaller invoice values and recurring invoices from it. Recurring payments often mean that they have a contract in place with that supplier and that they’re also trusted resulting in less opportunity for fraud. Three-way matching is best left to the larger invoice amounts as well as suppliers that may only be used once and therefore have lower trust levels against them.

Be Flexible 

Even if the figures on the goods receipt and purchase order differ slightly, the accounts payable department may complete payments for invoices. This might sound strange, however if there is very little difference in the amounts, a company will often save resource time and effort by accepting the suppliers invoice amount rather than investigating the matter for several hours.

 

Additional Resources

These external articles contain useful points to consider:

  1. Working with Trusted Suppliers
  2. What is Supplier Management?
  3. Three-way Matching Definition – Investopedia

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