What Is 3-Way Matching in Accounts Payable?

3 way matching

We know, as entrepreneurs and businesspeople, that an organization is an ecosystem of processes. And whether within human resources, the marketing team, or sales, these processes (when streamlined and working) are the very elements that ensure the business ecosystem maintains harmony, internally. 

There’s one corporate organism within an enterprise’s ecosystem, though, that perhaps relies more heavily on processes that are more focused, carefully managed, and systematic – the accounts payable department. It’s easy to see why – this is the money-out function. The department that approves payments for bills outstanding. 

Accounts payable, up until quite recently, has been a largely manual process, miring the work in tedium and inefficiencies, and opening a business’s record-keeping up to costly human error. The rise of artificial intelligence (AI), though, has been monumental in making accounts payable faster, more accurate, and infinitely more secure. 

It stands to reason, then, that heavy vetting in this area of the business is a crucial element. A 3-way matching process has been in practice in this regard for quite some time. But there’s innovation here – a way to make that 3-way matching faster, more streamlined. And that’s in its automation. But what is 3-way matching in accounts payable? Let’s unpack the process here.  

What is 3-way matching?

Simply put, 3-way matching process is checking that three specific pieces of documentation in an invoice paying process, correspond. These pieces of documentation are the three steps to an order or request of goods or services by a business to a supplier. This is how it’s broken down:

  • A purchase order (PO) is sent for goods or services
  • A goods receipt note from the buyer to the supplier is sent
  • The supplier’s invoice is received

When these three documents are in circulation, and the details of the order or purchase correspond, then the buying business can release payment. And that, essentially, is a 3-way matching process.

How does 3-way matching in accounts payable work?

3-way matching is a process put in place to ensure that the correct invoice is being paid. The three documents that are matched are the purchase order, the goods receipt, and the invoice. All three documents must match in order for the payment to be processed. 

Here’s a quick breakdown of the process:

  1. An order is placed with a supplier of a specific service or product. A purchase order (PO) is sent to a said supplier, detailing the order.
  2. The buyer receives an invoice from the supplier, for the PO.
  3. The invoice is checked to ensure the details match the PO – this is done via an approval process.
  4. The buyer then confirms all details correspond by sending a proof of payment, and order completion.
  5. If the PO, invoice, and proof of payment all match, the accounts payable department will release the payment.

How can three-way matching improve your business?

So, it may seem like many steps in a simple checklist. But, as with all tasks associated with the money-out side of an organization, establishing elements in the list that are procedural and locked in, will always safeguard the bottom line of a business.

A matching process, when done right, will benefit a business in the following ways:

  • Keeps track of expenses – A 3-way matching helps track payments, so every stakeholder has a sight of money being paid, at all times. 
  • Mitigates fraud – The risk of fraudulent payments and bogus invoices is a much bigger problem than many business owners realize. A 3-way matching process provides a business’s accounting professionals with a detailed overview of invoices, allowing them to ensure the goods or services billed for, were actually ordered.
  • Protects profits – 3-way matching is a vetting process that confirms invoices submitted to the business, are indeed genuine. By verifying these invoices, fraudulent paperwork can be identified before payment is cleared, ensuring all instances of money owed are, in fact, correct. This effectively eliminates instances of unnecessary expenses.

What are the disadvantages of using manual 3-way matching

The 3-way matching process can be time-consuming, but it is essential for ensuring accuracy in accounts payable. When setting up 3-way matching, it is important to have a system in place that can track and match all three documents. This can be done manually, but there are some disadvantages to using a 3-way matching system that isn’t automated. They include:

  • Cost – Manual 3-way matching in accounts payable costs more, because you’re assigning costlier resources to the task. Automating the process frees your professionals up to concentrate on more strategic, directly beneficial endeavours.
  • Time – Manual 3-way invoice matching takes time, because the very nature of it, is data capture. So, two to three accounting professionals will need a few days to manually compare documents. What’s more, every stakeholder involved with the order will need to sign the relevant paperwork in the process, and tracking down these signatories could take time.
  • Payment delays – Time delays mean payment delays, and payment delays are a very effective corrosive element in a buyer and supplier relationship. Additionally, a business that’s known as a late payer, could struggle with its general reputation in the trade.   
  • Human error – Manual 3-way matching in accounts payable, is tedious work involving reams of documentation. It’s very simple for a mix-up to happen in the process, and this could mean incorrect data capture, or the misplacement of documentation because of a confusing, outdated filing system. 

With accounting automation software, this process is entirely automated, eliminating the need for human interaction (apart from perhaps a cursory glance to ensure form fields are correct), and thus speeding up the process, while significantly reducing costly human error, or spurious invoice payments.

What are the advantages of using automated 3-way matching

The automated 3-way matching process can help to prevent fraud and errors in accounts payable. By matching all three documents independently of human input, it ensures that the correct invoice is being paid for the correct purchase. This can help to avoid overpayment or underpayment of invoices. 

Enhancing the 3-way invoice matching

Many business owners, when considering an organized 3-way matching process, inevitably envision time wasted in the accounts department, as accounting professionals sift through reams of paperwork to ensure the accuracy of each invoice. This was true – not anymore, though. There’s a way to enhance the task, and it effectively halves time and increases accuracy ten-fold. How? Through automation. Smart artificial intelligence (AI) can verify invoices in a 3-way matching process that takes minutes instead of days, and without the need for human interception – reducing error.

DOKKA’s smart AI does just that for your business. And what’s more, it’s a software add-on that plugs in seamlessly with your existing enterprise resource planning software, to simply make your accounting processes better.

How automated three-way matching can benefit your business

When it comes to matching invoices, there are a few key things you can do to make the process easy and headache-free. With the right tips and tools, you can perfect the invoice matching process and make it a breeze.

Here are a few top tips to keep in mind:

  • Make sure you have the right software: Having the right software is crucial for matching invoices quickly and easily. Look for software that offers features like automated matching and error checking.
  • Keep your data organized: This may seem like a no-brainer, but it’s important to keep your data organized when matching invoices. Having everything in one place will make the process much simpler.
  • Double-check for mistakes: Always double-check your work for mistakes. This will help you avoid any headaches down the road.

Following these tips will help you match invoices like a pro. With the right tools and a little bit of practice, matching invoices can be a breeze.

Share this post:

Follow us