By acquiring, requiring, and matching the three documents, businesses can ensure a foolproof and secure payment process. Zerocater had a complex, inefficient, and time-consuming invoicing process. AP had trouble keeping track of suppliers, and they spent days on invoicing.

If everything checks out, they’ll issue a GRN confirming the delivery of goods and enter it into the inventory management software. For example, three-way matching involves comparing the invoice with the PO and GRN to ensure all details are aligned. Three-way matching is the process of matching the invoice with the purchase order and Goods Received Note (GRN) to verify invoice details. Three-way matching has the added benefit of simplifying bookkeeping and audits. With all your historical ordering and matching data centralized, you surface other purchasing insights, refine your reporting process, and get to the bottom of issues and exceptions more quickly.

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. Proper https://www.kelleysbookkeeping.com/management-accounting/ 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. It doesn’t account for other errors, like misplaced paperwork or misinterpreted agreement terms.

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2. The specific products, quantities, and prices of each item on the invoice and purchase order are called line items.
3. The supplier invoice is matched against the PO and the receiving report, which is matched to the packing slip or order receipt.
4. One effective way to improve payment processes and supplier relationships is to adapt the three-way matching process to your supply chain.
5. The first step in the procurement process is to submit a purchase order to the supplier.

AP innovations are vital elements for a sustainable and centralized global business solution, one payment at a time. 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. It ensures there are no discrepancies between a purchase order (PO), an invoice, and other required documents.

Doesn’t Handle all Errors

The procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness. Two-way matching is the most basic approval process, where the vendor’s invoice number and details are checked against the purchase order (PO) number to ensure that these documents match. Two-, three-, and four-way matching are all accounts payable approval processes—however, each version takes the matching process to a different degree.

In theory, it’s an entirely valid solution—however, in practice, the process used to implement this cost-saving system often has glaring flaws. For many companies, manually verifying payments is more expensive than just paying the occasional erroneous invoice. Every business can benefit from speeding up payments and reducing the threat of human error. The AP department receives an invoice from the supplier once the purchase has been shipped. As its name would suggest, 3-way matching is an accounts payable best practice that compares the relevant details from three of the key types of documents generated during a typical procurement process.

You can’t issue a GRN for services since they’re rendered on an ongoing basis. You’ll need a team member to audit the quality of service manually and inform the AP team so they can release the payment. Confirm that the PO has all the order details required at the time of order placement, including the vendor’s name and address, items to order, and quantity and rate of those items. To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice. If documents are complete and error-free, compiling them becomes less of a hassle.

Once the differences are resolved, your AP team can complete the three-way matching process and issue payment. Businesses must ensure their accounts payable (AP) departments verify the legitimacy and accuracy of every invoice they pay. Companies use this reconciliation method to detect fraudulent invoices, embezzlement, computer glitches, or human error.

Understanding 3 Way Matching Process In Accounts Payable

Download the invoice tracking template to avoid costly mistakes, clarify financial patterns, and track spending throughout the year. Learn more in our articles on A/P software features to look for and how to automate accounts payable. Conversely, when all three documents align, a buyer can be more confident that the submitted invoice is legitimate and move forward with payment. On the other hand, reconciliation is the process of checking two data sets to see if they agree.

The receiving department has a packing slip that specifies the cost and quantity of the items ordered. The numbers on the packing slip should match those detailed on the invoice and the PO. Internal and external auditors may examine purchase orders, order receipts, and invoices during an acquisition and payment cycle audit. The auditor needs to follow the purchase process from requisition to payment to verify accuracy, completeness, cut-off, occurrence, and classification.

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In high-growth businesses, every operation (both front and back-office) is inexplicably tied to investment versus reward. To survive this uncharted road ahead, the modern finance team has to future-proof their organization with technology. In our e-book, The Ultimate Accounts Payable Survival Guide, we’ll help you navigate tasks like automating the invoice process and demonstrate how real-life survivalists scaled their businesses. The buyer acknowledges a receiving report issued by the supplier as proof of payment and order completion.

One benefit of a three-way match is to help the company save time and money. Any wrong information and duplication can lead to fraudulent vendor invoices and overpaid what is product cost transactions. With the three-way match, overpaying and other potential payment problems are immediately flagged by the payable department, even before delivery.

It allows your AP department to identify any inconsistencies that could indicate a supplier error or fraud, and ensures that there are no overpayments. Upon delivery of the purchase, the receiving department completes an order receipt, indicating the items received and the quantity of each. Your AP team will verify the PO number, supplier, items delivered, and quantity received against the purchase order and invoice as part of the three-way matching process. The Association of Certified Fraud Examiners (ACFE) estimates that companies lose 5% of their revenue every year due to fraud. Not only can your employees easily overlook transposed numbers or unintentionally miss process steps, but they also might cause transcription errors on the original documents. Smaller organizations are even more susceptible to invoice scams than larger organizations.