Meanwhile, the 4-way match adds another layer for inspection and verification purposes. Still, the three-way match process is an effective business practice for suppliers and buyers. By acquiring, requiring, and matching the three documents, businesses can ensure a foolproof and secure payment process. And three-way matching doesn’t only benefit your business—because of the expedited invoice approval process, it also maintains a positive buyer-supplier relationship. Having complete and accurate documents will help your auditor check data and complete an audit quickly.
How the 3 Way Matching Process Works
It includes the item description, quantity, price, delivery date, and additional charges. It is also essential to ensure that the invoice is authorized correctly and that the terms and conditions are accurate. In this article, we will discuss the purpose of three-way matching, its advantages, and how it can improve your what is a 3 way match in accounting accounts payable process. The smooth running and long-term survival of a company depend to a large extent on the regularity and conformity of its accounting processes. And among the various accounting operations that cannot be ignored is the reconciliation of invoice and delivery note. Several points are generally selected for checking (quantity, price, product description, etc.), in order to be compared at the level of the purchase order, the delivery note and the invoice.
What is a 3 Way Match in Accounts Payable & Why Should You Use It
Without it, your business would have lost money, or you and the supplier would have wasted time trying to unravel the overpayment when it was discovered. 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.
What is three-way matching?
This is the official document released by the buyer at the time he is contracting himself to pay the seller, who is supplying him with some products or services at agreed prices. Deskera ERP is a complete solution that allows you to manage suppliers, track supply chain activity in real time, and streamline a range of other company functions. 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.
The reality is that a lot can go wrong, so it’s essential to have a process to check that your business is never losing money to inaccurate or fraudulent invoices. With the three-way matching process, you won’t overpay because of these issues. Upon virtual accountant delivery, the receiving team checks the quantity and quality of the goods and issues a receipt note.
Risks of delayed payments.
Small businesses experience billing fraud almost twice as often as larger companies. The companies ended up paying millions of dollars for fake invoices. A 3-way match in accounts payable is a method used to verify that the details on three critical documents match before processing a payment.
This keeps everything compliant and helps companies ensure they’ve successfully delivered everything that a customer ordered. The chances of missing a fraudulent invoice or payment are really low with a 3 way match process in place. For over-taxed AP departments, it’s often the amount of time spent doing tedious work when they could be doing something that adds more value to the company. For service-related purchases where a receiving report might not be essential, a 2-way unearned revenue match is preferred over a 3-way match. For companies that only need basic AP automation and invoice matching, NetSuite may not be the most cost-effective solution in the long run. Once configured, NetSuite automates invoice validation based on these rules, helping businesses to improve AP efficiency and establish financial controls.
In a 3-way match, an invoice is compared with the purchase order and receiving report and is only processed when the details are correct, or discrepancies are within a set threshold. A 2-way match is done by comparing the details of an invoice with its corresponding purchase order. 3-way match in accounts payable helps ensure the validity of invoices and safeguards you against invoice fraud.
- Once verified, the invoice is released and any pending payments are accepted.
- This matching type is usually used for the most complex transactions, such as international purchases.
- Deskera ERP is a complete solution that allows you to manage suppliers, track supply chain activity in real time, and streamline a range of other company functions.
- The system flags malicious behavior so you can jump in before it’s too late.
Difference Between 3-Way, 2-Way, and 4-Way Matching
For example, in 2019, a Honda employee defrauded the company out of $750,000 by creating multiple purchase orders. Honda could’ve prevented this with an AI-powered AP system and saved $750,000. It doesn’t account for other errors, like misplaced paperwork or misinterpreted agreement terms. Faster payments can also potentially lead to improved credit terms, priority in orders, and early payment discounts. 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. Scope down three-way matching in the system only for large and non-recurring invoices to be more efficient.