Three-way match is not new or revolutionary in accounts payable, but make no mistake, it is crucial to the process. Automated three-way matching increases accuracy, helps protect against fraudulent invoices and overpayments, and streamlines procurement and AP efficiency.
Q. What is Three-Way Match in Accounts Payable?
A. When AP can match invoices to purchase orders and goods receipts, the invoice approval process goes a lot faster, and finance teams gain greater control and visibility over what they are spending. With the perfect blend of accuracy and efficiency, three-way matching is simpler than four-way matching and reduces errors that two-way matching risks missing.
The three-way match process for accounts payable includes three documents at each step:
- Purchase Orders: Confirms the order has been sent to and received by the vendor. POs authorize the purchase and include a PO number, contact details, total amount due and more. Good POs also serve as a great cash forecasting tool; they enable the organization to know how much cash is expected to go out and when.
- Goods Receipts or Confirmation: Exactly what you think it is. A proof that the goods or services have been delivered in accordance with the PO.
- Vendor Invoice: The final document in the process. The vendor sends an invoice to the purchasing organization to complete the process.
If all three match, the invoice is approved, finance receives the okay to pay, and all parties are happy. However, if one of the three is different, AP teams are automatically alerted to a potential problem so they can remedy the situation.
Q. What is the Purpose of Three-Way Matching in AP?
A. Organizations need to maintain financial control. Simply put: three-way match helps ensure you only pay for what you buy and receive. Automated three-way matching mitigates the risk of overpayments, duplicate payments, and fraudulent payments.
Don’t take on more risk than you need to. Integrating three-way matching into your digital accounts payable processes reduces risk, costs and headaches. The automated workflows save you time and money and increase productivity.
Q. When is Three-Way Match Used in the Procurement or AP Process?
A. Typically, three-way matching is triggered at the end of the accounts payable process. However, the separate documents come at different points in the process.
POs initiate the purchase process. Goods receipts are the confirmation that the goods have been received. Vendor invoices are issued as the final document. Once aligned with the other two documents, vendor invoices function as the approval to pay the vendor in exchange for the goods.
Q. What’s the Difference Between Two-Way, Three-Way and Four-Way Matching?
A. Two-way matching matches the vendor invoice and purchase order. This can be useful for organizations involved in low-risk purchases or ones that have a great relationship and trust in their vendors. Unfortunately, it can often leave companies susceptible to fraud and inaccuracies during the invoicing process.
Organizations that want to gain more control with higher volumes of spend and multiple suppliers should use three- or four-way matching. Four-way matching includes the previous three documents – purchase orders, goods receipts and vendor invoices – and adds a quality and inspection report of the goods upon delivery.
Three-way match is the perfect blend of accuracy and efficiency. For those familiar with the tale of Goldilocks, three-way match is the mama bear of accounts payable matching. Four-way matching is appropriate when the quality and quantity of your purchases can vary from order to order and supplier to supplier.
Q. Why is a Three-Way Match Beneficial to Procurement and AP?
A. There are significant benefits to adding three-way matching to your accounts payable process. A few reasons include:
- Financial Control: Three-way matching increases control by adding checks and balances.
- Risk Mitigation: Three-way matching helps reduce financial risk. It ensures you are not spending any more or any less than you should.
- Improved reporting. Three-way matching ensures data is structured and accurate, which makes follow on financial initiatives – like budgeting and reporting – easier and more accurate.
- Speed, efficiency and productivity. Automating the vendor invoice management process saves substantial time by showing you if and where there are issues, and in many cases, automatically triggering a resolution, exception or red flag.
Q. Can you Give me an Example of Three-Way Matching in Action?
A. You run purchasing operations for a higher education institution. As part of a new building, you are looking to buy 50 whiteboards at $100 each, 30 new TVs at $400 each and 50 new projectors at $150 each.
The first step would be to find a vendor for each of these items (spoiler alert: Vroozi catalog can simplify this for you).
Once you identify a supplier, you would begin the process of purchasing the items. The purchase order would come first. Submit this to the vendor and in return they will provide you with the amount due. In this case the amount due would be $24,500.
After the PO has been issued, the vendor will get to work on delivery of the whiteboards, TVs and projectors. Upon delivery you will receive a goods receipt. Match the quantity of goods and amount due on the goods receipt and purchase order. You should have 130 total pieces totaling $24,500.
Finally, the vendor will send you an invoice. This is the most important step as it leads to approval of the payment. Match the 130 items and $24,500 once again to the previous two documents. If something does not match up, put the vendor invoice on hold and identify where it does not match.
You might be thinking that this all sounds pretty tedious. Well, you’d be right… if you were managing this manually. Thankfully, today’s digital procure-to-pay and invoice-to-pay technologies automate, streamline and simplify the entire process. The result: you can seamlessly track, control and confirm what you are buying electronically. The automation reduces your cost per invoice, increases spend control and shortens cycle times.
Q. What is n-way matching?
A. In today’s digital world, document exchange – and more importantly data exchange – is cheap, fast and easy. The exchange of data and documents among all parties tied to the transaction can provide status and visibility to more agile processes.
N-way matching builds on the core 3-way match to make sure all documents and expectations in the transaction match – purchase orders, contracts, PO confirmations, change orders, shipping notifications/ASNs, goods receipts and confirmations, returns, invoices and credit notes.
Sound like a lot of work and matching? With modern procure-to-pay solutions you can have the control and visibility you want with digital speed, accuracy, and scale.
Q. How Can I Automate Three-Way Matching?
A. With Vroozi, of course!
Automation makes everybody’s lives easier. Vroozi’s technology automates electronic invoice capture, management, and three-way matching and offers seamless accounts payable integration. The solution saves time, money and headaches, while protecting your bottom line.