As you may already know, precision and accuracy are extremely important in AP invoice processing. To ensure your accounting is as accurate as possible, 3-way matching is a great tool to ensure that you know where your money is always going. This method of validating every order ensures that you aren’t wrongly billed and that you save money in the long run

Understanding the 3-Way Matching

At its core, the 3-way matching process aims to validate the congruence of three essential documents: the purchase order (PO), the receiving report (also known as the goods receipt), and the supplier's invoice.

Purchase Order (PO): The PO serves as the initial agreement between the buyer and the supplier. It outlines the items or services ordered, their quantities, agreed-upon prices, and other agreements made between the buyer and supplier.

Receiving Report (Goods Receipt): Once goods are physically received, a receipt is generated as proof that it was received. This report confirms the actual receipt of the goods, their condition, and any other observations about the product.

Supplier's Invoice: The supplier sends an invoice detailing the purchase, including the purchase order number, item descriptions, quantities, unit prices, and the total amount owed.

These documents collectively describe the process of creating and fulfilling the order from the first agreement to the fulfillment of the order.

Importance of 3-way matching:

The 3-way matching process is not merely a procedural step; it is a safeguard against a range of potential issues and challenges:

Accuracy and Integrity: By confirming that these three documents agree with each other, customers ensure they receive precisely what they requested and pay exactly what they should. This process safeguards against mistakes and discrepancies.

Fraud Prevention: As mentioned before, by detecting discrepancies in the accounts, you can ensure that no fraud occurs.

Dispute Resolution: If there are any issues regarding ordering and paying for goods, the 3 way matching process can help you find proof that the issues do exist, and thus helping you resolve any conflict that may come up.

Budget Control and Inventory Management: Matching purchase orders to inventory levels helps manage expenses and maintain proper stock levels, avoiding overspending and stockouts.

Workflow Optimization: Standardizing the method of validating invoices and deliveries improves the efficiency of the accounts payable workflow.

Challenges and Limitations

While the 3-way matching process is robust, it does face certain challenges:

Services vs. Goods: For services-focused purchases, the process may not accurately confirm that a service did occur. In these cases, the 3-way matching may not suffice.

Labor Intensity and Human Error: The process can be labor-intensive and prone to manual errors. If enough errors are made, the benefits of 3-way matching will be heavily outweighed by the costs.

Automating the 3-Way Matching Process

The new emergence of automation can solve some of the problems that are inherent to the 3-way matching process. By automating the process, you can improve your business in many ways:

Reduced Labor Costs: The labor intensity issue of manually matching the documents will no longer be an issue, leading to cost savings and increased efficiency.

Enhanced Accuracy: Automated processes eliminates some human error, ensuring that the matching is generally consistent and correct.

Cost-Benefit Optimization: Because automation solves the above two issues, the cost of implementing 3-way matching goes down by a lot, making it worth your time to implement the process.

At Invlify, we are working to automate the 3-way matching process for you! Click Here to join the waitlist and streamline your AP invoice processing.

When is it useful?

It can be easy to overlook the scenarios in which 3-way matching can prove to be useful when running your business. Here are some examples of scenarios in which 3-way matching can be essential:

Overpaying for Goods: Automated 3-way matching ensures that the billed amount corresponds precisely to the goods received, preventing overpayment.

Fraud Prevention: Automated systems quickly detect discrepancies, helping you avoid paying fraudulent invoices.

Quality Assurance: By comparing the purchase order with the received goods, the process can identify quality concerns and discrepancies, allowing you to hold suppliers accountable.

Budget Management: Automated 3 way matching assists in managing expenses by matching purchase orders to inventory levels, providing insight into your finances from a 3rd person perspective.

Conclusion

In the fast-paced world of modern business, precision, efficiency, and cost-effectiveness are essential. The 3-way matching process, bolstered by automation, is a formidable tool that ensures accurate payments, prevents fraud, and optimizes workflow. As organizations embrace automation, they enhance their accounts payable practices, minimize risks, and maximize the benefits of this indispensable process.