When someone operates a company, the last thing they want to do is pay an invoice that is either false or erroneous. The use of three-way matching can assist in protecting the accounts payable from being exposed to fraudulent or incorrectly submitted invoices. A growing number of corporate leaders and departments responsible for the company’s finances are turning to three-way match processing to reduce risk and rein in expenditure at their organizations. Integrating automatic three-way verification into the accounts payable procedure is an excellent protective method from overpaying for products and services or making a payment on a fake invoice.
- Plus, if you run into any errors during the matching process, you will have to backtrack and start from scratch.
- By automating your three-way matching process, your company will need less manpower to maintain the process, freeing up your team to work on more complex tasks.
- If the hospital has a five percent tolerance, then they might accept 2,850 masks or 3,150 masks.
- A growing number of corporate leaders and departments responsible for the company’s finances are turning to three-way match processing to reduce risk and rein in expenditure at their organizations.
- And while typically, you’ll be able to get this overspend back from your long-term suppliers, some businesses might be less cooperative.
Simply put, you check that the information on these documents matches up, ensuring that the amount you’re paying to the vendor is correct and lines up with the goods or services you actually received. NetSuite Invoice Management simplifies the three-way matching process, and thereby improves a business’s cash flow, by automating the matching of POs, item receipts and vendor invoices. Once a purchase order, order receipt and supplier invoice are entered, the software can quickly determine whether the details align.
On the packing slip, the numbers should match those detailed on the original invoice and the PO. As a business owner, the last thing you want to do is pay a fraudulent or inaccurate invoice. Three way matching can help safeguard your accounts payable against incorrect or fraudulently submitted invoices. In paper-based three way matching and invoice approvals approver delays can result from procrastination, heavy workloads, resolving questions with the requester, and holidays/leaves.
Consistency and accuracy of data are essential in any payment process. Any wrong information and duplication can lead to fraudulent vendor invoices and overpaid transactions. With the three-way match, overpaying and other potential payment problems are immediately flagged by the payable department, even before delivery. Manual matching of thousands of supporting documents can be time-consuming, expensive and extremely labour-intensive. AP teams end up spending lots of man-hours manually hunting for every invoice, PO and receipt!
Two-way versus three-way matching
While this scaled-down matching process might not flag issues as efficiently, it still helps avoid the common problems previously discussed and can capture increased value for your business. An automated digital-first approach ensures that all records are consistent and provide a single source of truth. When data is readily accessible at all times, businesses can access clear audit trails and pinpoint financial inconsistencies quickly. A variation arises when the line items, quantities, extended amounts, or total due on a vendor invoice don’t match the purchase order or receipt of goods or services. Handling variations or exceptions manually can be extremely tricky and hard to document. Though it’s a popular method, three-way matching isn’t the only way to cross-reference and check orders and invoices; there is also two-way and four-way matching.
Harry’s Haberdashery Haven is the premiere seller of hats, capes, tie tacks, cufflinks, and other men’s clothing accessories in South Boston. And since St. Patrick’s Day and the related parade are a major part of the local culture, Harry sells a ridiculous number of the green bowler and top hats every year in the first weeks of March. Here is everything you need to know about 3-way matching, from how it works to its drawbacks.
But companies are increasingly adopting three way matching to add an additional layer of verification and prevent overspending. Three way matching compares line item details and totals across purchase orders (PO), receipts for good, and vendor invoices sent to the customer. Three-way matching provides transparency into a business’s relationship with vendors and suppliers so it’s easy to see their supplies to the business and the payments they’ve received for them. This is useful for tracking payments to a particular supplier as well as for litigation, should that come up. Since manual matching takes so much time, it can often delay payments to suppliers, which can hurt your relationship with vendors.
Ideally, any vendor you work with should value your working relationship and your business enough to mitigate and minimize any invoice or shipping issues proactively. Proper documentation is a relative term, particularly across industries and geographies. Not all businesses generate each of the needed documents for 3-way matching in every transaction.
The construction company then uses the three-way matching process to verify that the supplier’s invoice amount for $120,000 matches the PO and that the delivery receipt confirms siding was delivered. If only half of the order was delivered, the company may pay part of the invoice or withhold payment until the entire order is fulfilled. If the purchase order, invoice and delivery information match, the company can pay the invoice.
It delays payment to suppliers
In a manual invoice approval workflow, the invoice literally gets pushed from one desk to another until final approval. It is hard to keep track of which level of approval a document is currently stuck at, and who the approver is. If an accounts payable employee encounters a one-off matching error, they will need to investigate the problem to solve it. If the 3 documents don’t match then the invoice is put on hold until the errors/issues are sorted.
It is very labor intensive, and it can be difficult to accumulate the required information, which can result in delayed payments while the accounts payable staff searches for missing information. Delays can annoy suppliers, and also prevent a company from taking early payment discounts. You can make three-way matching more efficient by excluding small-dollar and recurring invoices from the matching requirement. Another efficiency measure is to allow the accounts payable staff to approve invoices if the prices and units listed in the supplier invoice are within a few percent of the amounts designated in the purchase order. When trying to scale for growth, manual accounts payable processes can be a major deterrent.
In the world of accounts payable, there are a slew of steps and checks to ensure that a company pays its bills quickly and accurately. This guide will walk you through exactly what three-way matching is, how it works and which departments work on it, why it matters in the AP process, and how to streamline it with AP automation software. Automating the matching process can help save time, money, resources, and energy. Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. As much as companies want to pay their suppliers promptly, manual processing may cause delays because of backlogs or misplaced documents. Late payments tarnish a company’s reputation and may affect future transactions.
And once everything has been found, your A/P team will still need to meticulously compare the relevant details across several documents, whose layouts will vary with each new supplier. With 3-way matching, you’ll be much more likely to notice those erroneous invoices or payment requests that spontaneously list a different bank account. And that same year, one Lithuanian fraudster pled guilty to using invoice fraud to bilk Google and Facebook together for a combined total of over $100 million. Your payment efforts will be a common target for criminals and other ne’er-do-wells looking to make a quick buck.
All of these improvements make 3-way matching an essential piece of your invoicing process and your AP automation system as a whole. The most basic definition of 3-way matching is a comparison of data across three documents to make sure that all of the relevant information matches. This is generally done to make sure that payments are issued correctly and on time. 3-way matching can be performed manually by physically comparing the data included in all three documents, or using automated software that can extract and compare data without direct human touch points.
There are several key reasons why business owners are moving to adopt 3 way match in accounts payable in droves. Under a 2-way matching system, the quantity and amount issued on the invoice are verified against the quantity and amount on the corresponding PO notice. If the three documents fail to match, a hold is put on the invoice, effectively stalling operations until the issue is rectified. To get the most out of three-way matching, it’s important to use it as a policy. Here are some tips about how a company can make three-way matching more efficient.
What is three-way matching in accounts payable?
If they don’t, a hold is placed on the invoice and payments cannot be rendered until the hold is released or resolved. A held invoice operates as a sort of fail-safe that prevents the payment of an unmatched and unverified order. The printer, which gladly accepted this lucrative assignment, receives the hotel’s PO along with the digital files needed for printing the brochures. It completes the job in the agreed time frame and delivers the brochures to the receiving address. When this invoice is received, the hotel’s AP team sets about to verify its authenticity by using three-way matching.