3-way matching in Accounts Payable: Why it is so important to implement?

3-way matching in Accounts Payable

Table of Contents

There are numerous procedures and checks in the field of Accounts Payable to guarantee that a business pays its bills promptly and correctly. 3-way matching in Accounts Payable is one of the system’s key components. This manual will explain exactly what 3-way matching is, how it functions, which departments are responsible for it, why it is important in the AP process, and how to automate it with AP software.

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What is 3-way Matching? The differences between 3-way, 2-way, and 4-way matching?

What is 3-way Matching?

3-Way Match Accounts Payable is one of the most popular types of invoice matching in accounting. Before approving an invoice, a 3-way match is performed to ensure that the purchase order, invoice, and goods receipt all match. This makes sure that the information reflected on the customer’s order, the supplier’s delivery, and the goods receipt note (GRN) are all accurate. The operation validates the invoice and prepares it for payment.

The supplier’s invoice will be accepted for payment if everything checks out. A 3-way match also aids in determining whether an invoice should be paid in full or in part.

The differences between 3-way, 2-way, and 4-way matching?

Accounts Payable approval procedures include two-, three-, and four-way matching; however, the degree to which the matching process is used varies for each version.

The simplest approval procedure is two-way matching, which verifies that the vendor’s invoice number and other details match those on the purchase order (PO) number.

The receiving report or receipt of goods is an additional technique of verification added by the Accounts Payable 3-Way Match.

Four-way matching is the most intricate, time-consuming, and labor-intensive invoice-matching method. The receiving report and the packing slip or order receipt are compared to the supplier’s invoice and the purchase order.

What is 3-way Matching in Accounts Payable?

3-way matching in Accounts Payable

What if you found that up to 2% of your company’s payments have duplicates, the erroneous amount charged, or other errors? Industry survey results show that many businesses experience this.

Every invoice that a company pays must be verified for accuracy and authenticity by the Accounts Payable (AP) department. 3-Way Matching In Accounts Payable is useful in this situation. This type of reconciliation is used by businesses to look for fraudulent invoices, theft, technical difficulties, or human error. They can then stop fraudulent payments.

It’s a perfectly reasonable approach in theory, but in fact, the method for putting this cost-saving mechanism in place frequently has obvious problems. Manually checking payments might be more expensive for many businesses than simply paying the odd incorrect invoice.

It’s critical to complete 3-Way Matching Accounts Payable as quickly as possible because its primary goals are to improve payment accuracy and prevent erratic spending. So, What Is 3-Way Matching In Accounts Payable?

3-Way Match Accounts Payable is an internal control procedure used in accounts payable to guarantee that the line item information on invoices, purchase orders, and receiving reports is consistent.

This validation procedure aims to confirm that each invoice accurately reflects the items and quantities ordered as stated on the purchase order. Following that, it ensures that these correspond to the items that were delivered to the receiving department and listed on the related receiving report.

This AP procedure ensures that every time the supplied item matches the initial order.

Components and how 3-way Matching in Accounts Payable works?

Typically, 3-way matching is conducted before paying the supplier after delivery. 3-Way Match In Accounts Payable concentrates on examining pertinent records that demonstrate the following:

  • The goods or services for which the invoice is being produced were requested by the business.
  • The items or services the invoice is for were delivered to the firm.

It is simple to tell whether an invoice is valid or fraudulent by checking whether a business requested and also received the goods/services it claims payment for.

3-Way Matching In Accounts Payable

3-Way Matching Accounts Payable involves cross-verifying related documents to authenticate an invoice before paying it out. Accounts Payable 3-Way Match involves placing three documents side-by-side to confirm that an invoice represents goods supplied or services rendered to a business. These documents include:

The supplier’s invoice

The supplier explicitly states the offered goods or services, the amount supplied (or the time period, if applicable), the unit price of each provided good, and any other pertinent information in the invoice. The invoice from the supplier is essentially a demand for payment of money owed to the supplier.

The purchase order

Every time a person or department needs something for their work, they send a request outlining what they need, how much they need, and why. This is given to the purchasing department, which develops it into a purchase order for the supplier that specifies the good or service they require, the quantity and quality they want, and the price they are willing to pay.

Goods Receipts Note

According to the receiving order, a receiving officer has accepted the items provided by the supplier, which also notes the quantity, the delivery situation, and any other relevant details. Once the receiving department has finished its due diligence and recording, this document is sent to the accounts department.

The Accounts Payable staff can cross-check using these three documents to ascertain whether a supplier’s invoice is valid before disbursing funds. This assists in preventing fraud from unauthorized and fabricated invoices.

Although the actual 3-Way Match Accounts Payable procedure is rather easy to understand and clear, it can be time-consuming and tedious for accounts payable teams at businesses that deal with a lot of invoices. The three crucial steps in 3-way matching are as follows:

  1. Verifying purchase order data, including names, addresses, amount of purchase, and general ledger codes, if required.
  2. Confirming delivery information, including whether the description of the goods or services laid out in the purchase order matches those received.
  3. Verifying invoice data, including whether payments have been authorized by all necessary approvers.

Benefits of 3-way Matching for your business

Today, the finance function has more responsibilities than ever. Especially when it comes to effective invoice matching. To prevent fraud, 3-Way Matching In Accounts Payable enables firms to trace the origin of invoices and verify their validity. Here is an explanation of how 3-way matching can help your company.

3-Way Matching In Accounts Payable

Eliminate fraud

Accounts Payable employees can quickly verify whether an invoice accurately represents the goods and services that have been provided to the business when placed side by side with a purchase order and a receiving report. By doing this, it is simple to avoid becoming a victim of counterfeit bills or even real invoices with slightly altered numbers. Automating your procurement process is a fantastic approach to getting rid of fraud. Here is a reference to learn more.

Keep a verified record of supplies and their related expenses

With the use of 3-Way Matching In Accounts Payable, it is simple to see the supplies suppliers have provided to a company and the payments they have been paid for those items. This is helpful for both tracking payments made to a certain supplier and for litigation, should that arise.

Increase profits

3-Way Matching In Accounts Payable shields your company against pointless costs, which boosts your bottom line over time. Making a profit is usually simpler when you aren’t losing money to false claims.

Maintain adequate records for audit purposes

Anytime you are subject to an audit, a solid audit trail that monitors the flow of money into and out of a corporation is essential. 3-Way Matching In Accounts Payable generates a substantial paper trail that is helpful for confirming how much has been spent on legitimate company costs, whether it comes from the government, investors, or other vested parties.

Manual vs. Automated 3-way Matching in Accounts Payable: Get your matching process efficient

Manual vs. Automated 3-way Matching in Accounts Payable

The real cost of a manual 3-Way Matching In Accounts Payable process

3-Way Match In Accounts Payable is a technique that businesses use to cut down on errors, deter fraud, and save money. Even while trying to avoid overpaying, firms might frequently incur substantially greater processing expenses when using a manual procedure.

Here are some conclusions from a recent study on AP and invoice processing by Accounts Payable employees:

  • The average invoice costs $9.25 to process manually
  • More than 20% of invoices have exceptions, costing time and money to correct
  • Four in 10 (38%) of businesses surveyed reported business fraud within the previous 12 months

Manual invoice matching can result in processing expenses that are hundreds or even millions of dollars more while attempting to prevent overpayment.

How 3-Way Matching In Accounts Payable automation can help

Businesses that transitioned to a fully automated system from a manual procurement process with paper invoices have had some incredible results. The advantages and effectiveness of automating the 3-Way Matching Accounts Payable process have been more than shown.

Here are some statistics from companies who switched from manual to automated 3-Way Matching Accounts Payable:

  • Savings of 90% on accounts payable costs
  • Accounts receivable expenses were reduced by nearly half
  • Instances of invoice errors were reduced by 37%
  • Lower invoice processing costs by 29% on average
  • Businesses with 10k+ monthly invoices saved $300k

Get your matching process efficient

Eliminating fraud and ensuring that all incoming invoices are thoroughly reviewed before payments are made are the two main goals of 3-Way Matching In Accounts Payable. While it is the optimal course of action, an organization’s Accounts Payable staff may run into difficulties that prevent them from performing at their best and ensuring that all suppliers are paid on time.

Here are three crucial suggestions you may use to streamline your 3-Way Matching In Accounts Payable procedure and expedite accounts payable processing without compromising security or transparency.

Just use Three-Way Match Accounts Payable for large, one-time bills

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. There is no room for fraud with recurring payments because they can be validated at setup. The attempt by fraudsters to defraud an organization of small-dollar microtransactions is similarly nonsensical.

Set up lenient settlement guidelines

If your 3-Way Matching In Accounts Payable procedure isn’t fully automated, it’s possible that some of the numbers entered into one document may not match those in other papers exactly. Additionally, if you demand that every time, your statistics must match, supplier payments and invoice settlements may be delayed.

A quick and reliable fix?

If there is a minor margin of error in the figures between the received invoice, purchase orders, and receiving the report, permit Accounts Payable staff to make payments for invoices. In this method, your Accounts Payable team may go forward when your documents (invoice, purchase order, and receiving report) contain matching facts with just a small variance in the figures instead of escalating all the way up through the organization.

It can be laborious to manage 3-Way Matching In Accounts Payable manually; use an automated solution instead

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 benefit from an automatic 3-Way Matching solution by:

  • Store purchase orders once they’re created,
  • Collect receiving reports from your team, and
  • Automatically vet all these alongside invoices once they’re received.

When you combine all of these factors, you get a more intelligent 3-Way Matching Accounts Payable solution that completely eliminates mistakes in a less amount of time and at a lower cost.

Integrated AP automation is an innovative and efficient solution for companies that want to minimize workload and maximize employee productivity. 3-Way Matching In Accounts Payable is the automation solution for all the AP woes that companies face with manual matching. Invoices are immediately sent and received digitally, making payment almost effortless. And the processing genius doesn’t end there. 3-Way Match Accounts Payable also cycles around the full payment procedure and collates the matching documents for an incredibly concise and streamlined process.

Understanding what your company needs and how you can improve, especially with invoice processing, can be a good starting point for gaining long-term traction. 3-Way Matching In Accounts Payable is a vital element for a sustainable and centralized global business solution, one payment at a time.

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