Accounts payable (AP) refers to amounts owed to suppliers or vendors for products or services received. You will find the entire accounts payable at a particular moment on the company’s balance statement under the current liabilities section. The 3-way matching technique avoids invoice discrepancy and ensures proper payments when procurement and invoice clearing choices are based on it. Orders and payments are essential daily irs form 1065 instructions activities in every business that significantly impact other operations. With a large volume of purchases and payments, companies must carefully review all the data to avoid anomalies that may cost them a lot of money and affect the ultimate income. Regularly review and monitor the 3-way matching process to ensure that all procedures are being followed, and any issues or discrepancies are identified and addressed promptly.
- ERPs do not have an automated way of handling these exceptions and in many cases companies may spend days trying to clear up the differences between purchase orders and invoices.
- It requires your AP team to examine three documents related to the purchase, confirming that all the pertinent information is consistent between them before a payment can be issued.
- The PS Team can identify when there are discrepancies in invoices to minimize the risk of vendors overpaying or underpaying which can impact cash flow and relationships with suppliers.
- This type of match involves matching Purchase Order (PO), Goods Receipt Note (GRN) & Invoice.
In addition, with more frequent errors occurring throughout the matching process, you’ll likely be escalating a higher percentage of your invoices for further review, extending payment timelines. One of the major red flags that an auditor might encounter in their investigation is discrepancies between financial documents. And depending on how many manual steps are involved in your vendor’s invoicing efforts and your own A/P processes, common errors might even be unavoidable. But it might be time to have a serious conversation with them when most invoices from a particular vendor include mistakes that all err in their favor.
Example of Three-Way Match
There will be no delays or bottlenecks in the invoice payments when the 3-way matching process is automated. The three-way match process provides better internal control over the accounts payable and purchase process. Procurement and finance teams can prevent fraud and duplicate invoices through three-way matches before paying an invoice. Accurate purchase order matching and matching payments to invoices ensure that payment is made only to the goods or services received. Making procurement and invoice clearance decisions based on the 3-way matching procedure eliminates invoice discrepancy and accurate payments. A vendor invoice for 5000 INR for 1000 integrated circuit boards is received by the buyer. 
To ensure that every order is complete, 3 way matching invoices highlights discrepancies or inconsistencies between any of the critical documents listed above. These automated systems are so expensive that they are not a viable solution for smaller businesses. Your Accounts Payable team must take extra precautions to prevent processing false invoices. The result is that you end up taking longer than necessary to satisfy invoices. You can think about eliminating smaller value invoices and recurring invoices from the 3-Way Matching In Accounts Payable procedure in order to make it simpler.
- The goods receipt is also matched to ensure the goods specified in the purchase order and invoice were delivered.
- This not only supports internal control but also facilitates compliance with regulatory requirements and external audits.
- The Receivers will still need to verify the contents of packages against what’s printed on the packing slip.
- Close your books faster by syncing your 3-way match directly on to your ERP or accounting automation software.
- The goods receipt note is a record confirming that the receiving officer has accepted the goods delivered by the supplier.
If there are any discrepancies, the documents are flagged for review by the AP department. Automating your three-way matching process is a key element of accounts payable optimization. The bottom line is that three-way matching is an essential element of your AP automation system that saves money and time, all while helping maintain positive relationships with vendors and suppliers. Plus, it helps ensure your company isn’t subject to fraud and is ready and organized for audits.
Prone to Errors
Unfortunately, fraud happens, and it’s up to your business to have a system in place to prevent it, internally and externally. Three-way matching serves as a checks and balances to make sure an invoice is legitimate. By comparing the three documents, PO, invoice and delivery/order information, your business can be confident about issuing a payment. 3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Issues could include wrong payment details, incorrect prices, wrong or damaged products etc.
Proactive Detection & Prevention of Accounts Payable Fraud: A Detailed Guide
As the business grows, these processes develop quickly in scope and complexity—suddenly, the old ways of doing things might not be as effective as they were before. Understanding the manual invoice-matching procedures that your teams must execute and how they work is essential to identifying the best way to approach your company’s challenges. Order.co gives you one platform for purchasing, vendor management, and automating your AP processes to save you the time and expense of manual data entry and human error. Zerocater had a complex, inefficient, and time-consuming invoicing process. AP had trouble keeping track of suppliers, and they spent days on invoicing.
What is the 3-Way Match Process in Accounts Payable?
In accounts payable, three-way matching is an internal control process that ensures invoices, purchase orders, and receiving reports all have consistent line item details. A systematic 3-way matching system aids businesses in maintaining accurate and comprehensive records. By documenting and cross-referencing each step of the procurement process, companies can create a reliable audit trail.
The 3-way match of purchase orders in SAP enables efficient data processing and invoice verification. The accounts payable department then creates an invoice based on the information on the purchase order. This invoice is then sent to the buyer from the supplier based on the information gathered from the purchase order. The invoice details would be validated against the details mentioned in the PO before approving the invoice. The supplier then sends a receiving report to the buyer once the order is completed.
In this blog, we will understand the process of a 3-way match and uncover its importance in fortifying financial integrity within organizations. With the holiday quickly approaching, Harry needs to bulk up his inventory, so he submits a purchase order to Put a Lid On It Manufacturing for 50 bowler hats at $25 apiece and 50 top hats at $35 apiece. A few weeks later, the shipment of 100 hats arrives, and after inspecting the packaging slip along with the quality and quantity of the products, Harry accepts the delivery. Conversely, when all three documents align, a buyer can be more confident that the submitted invoice is legitimate and move forward with payment.
3-way matching involves comparing three separate documents, which can be complicated and time-consuming. Businesses should evaluate the benefits, process, costs, and challenges of each method and choose the one that best suits their procurement process. An example of 3-way matching for inventory, the purchase order specifies that the buyer ordered 100 units of inventory products at a certain price. The purchasing department receives this and records it as a PO–agreed upon by the buyer and supplier.
Pain points in manual 3 way matching
However, because AP is often separated from the team responsible for raising purchase orders, these teams are in a position to coordinate between the areas of the business. While AP automation saves businesses thousands of dollars on manual approval process costs, that’s not the only benefit to automation. The right platform can save you time on needlessly complex procurement processes that eat up your schedule. Expenses from manual invoice matching could amount to thousands or even millions of extra dollars in processing costs, all while trying to avoid overpayment. Companies that choose to employ three-way matching do so to reduce mistakes, catch illegal activity, and save money. However, with a manual process, even when trying to avoid overpaying, businesses can often end up with much higher processing costs.
If an item interpreted by AP Essentials or AP Agility is of uncertain accuracy, or if it falls outside of the rules defined by the AP administrator, the program flags the information for review. If an invoice does not match, users can quickly double-check the imported data against the original image or look deeper for the discrepancy. While the purchasing department creates and issues POs, the receiving department creates the reports regarding what physically arrives at the warehouse. Without systems sharing data appropriately, departments may silo their efforts with poor communication that hinders operations. Most companies do some form of matching of vendor invoices to purchase orders and/or goods receipts.
If you’ve done three-way matching throughout the year, you won’t have to do any of the extra work around the time of a company audit. By keeping secure records and checking each payment, you’re making sure you’re not over- or underpaying invoices, missing discounts, or potentially subjecting the company to fraud. You’ll also avoid any potential payment problems that can create costly headaches and time sucks down the line.
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. Manual matching allows human error to be introduced to the mix—from misreading an invoice to missing information on a document, you might not get the exact confirmation that you would from an automated process. Trust between suppliers and buyers is one of the benchmarks of a healthy supplier relationship relationship and a successful business. If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties. Show that you value your relationship with them, and they’ll see you as a reputable partner.
