Accounting Process Best Practices: Three-Way Match

three way match accounting

In two-way match processing, the product is delivered and you pay your bill. However, let’s say that instead of 10 boxes of paper, your receiving department only counts 9 boxes of paper. In a three-way match process, a receiving department will be required to submit a goods received note, or packing slip, to the AP department. Before the overpayment for the missing box of paper is made, the match process flags the discrepancy and the appropriate communication is conducted between vendor and stakeholders.

Then, in the event of an audit, you can rest assured knowing that all of your approved files and documents are organized and secured in one centralized, accessible location. For companies attempting to scale operations, automating accounts payable is a necessary step in enabling future growth. Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate. A business can form a strong bond with partners who always send accurate vendor invoices. As a result, it will pay them faster, which often leads to better pricing and credit terms.

Inventory and Receiving

The quantity billed (in the invoice) should match the quantity ordered (in the purchase order). And the invoice price should match the price quoted in the purchase order. A successfully verified invoice must match the PO and receipt within acceptable tolerance levels.

  • The third step would be to match the PO and invoice data with the goods received receipt data.
  • Three-way match accounting is the best way to mitigate those concerns.
  • It helps ensure that potential problems are identified and addressed on time.
  • General ledger accounting codes are entered at the inception of the order, saving time by eliminating redundancy.
  • When three-way matching is performed manually, chasing down each document from different team members and cross-referencing each detail can take enormous amounts of time.
  • The simplest way to send and receive business-to-business payments.

When an accounts payable team identifies a fraudulent invoice, they stop the company from wasting money on a phony supplier. Plus, the 3-way matching process can help catch invoice discrepancies. Otherwise, these can result in overpaying or making duplicate payments. Simply three way match accounting put, this straightforward process benefits the business’s bottom line. A great way to eliminate fraud is by automating your procurement process. Three-way matching represents an accounting process that helps ensure your business never pays a fraudulent invoice.

The Accounts Payable 3 Way Match: An In-depth Guide

You’re also paying more money for employees to work on processing and checking invoices, which can lead to higher personnel costs. Since manual matching takes so much time, it can often delay payments to suppliers, which can hurt your relationship with vendors. As hard as your employees may try to get payments in on the due date, manual matching can just be too tedious. If the information from the document coincides with the actual delivery, there is a three-way match.

However, some companies might choose this process just to be more thorough in their accounting. Let’s contextualize that definition with an example that demonstrates how three-way matching plays out, and how it intersects with some steps of the procure-to-pay process. In this example, let’s say you’re handling accounts for a hospital that’s ordering 1,000 surgical masks, priced at $3 each. In the event that they do, you have a successful three way match, which can be carried forward to your accounts payable for fulfillment. Cloud Technology is expected to become the primary medium for three-way matching. It will make it easier for companies to access and store data in one central location.

It improves data accuracy

As your operations increase in complexity, scope and scale, intelligent AP automation is the key to the future of your AP department. With tools such as Kofax AP Automation that can integrate directly into your existing ERP or provide valuable standalone functionality, saving time and money is not only possible but easy. Put all that together and you get a smarter three-way matching solution that eliminates error 100 percent at a fraction of the time and at even lesser cost.

The three-way matching process will verify if the supplier is asking for the correct amount of money. It has to be the exact amount the purchasing department authorized on the purchase order. It will also check if the supplier requests full or partial payment. This is especially important if the business received only a part of the order.

The «match» part of the three-way match refers to comparing the quantities, price per unit, terms, and other information appearing on the three documents. In other words, does the vendor’s invoice detail agree with the organization’s purchase order, and to the goods actually received as shown on the organization’s receiving report? Only if the details on the three documents are in agreement will the vendor’s invoice be entered as an account payable. For as useful as the matching process can be, it is a labor-intensive effort that is susceptible to human error—especially if your AP team must handle a significant number of invoices regularly. The care and attention that the process demands can mean that the entire department slows down when processing and matching invoices.

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 such as three-way matching in accounts payable departments. If the information matches, accounts payable staff approves the invoice and the accounting department sends payment.

What Is 3-Way Matching in Accounts Payable?

Close the books 4x faster, collect over 95% of receipts on time, and get 100% visibility over company spending. Even though three-way matching consists of some drawbacks, it is still recommended due to the benefits and nature of the process. To illustrate how three-way matching works, let’s look at a hypothetical situation. An event-planning agency has ordered 1,000 copies of placeholder cards for a client. The buyer and the vendor should have already agreed to everything listed on a purchase order. Any relevant or necessary approvals are obtained electronically and even remotely.

three way match accounting

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