And if you insist your figures must be identical every single time, this might hold up supplier payments and invoice settlements. With these three documents in hand, the accounts payable personnel can crosscheck to determine whether a supplier’s invoice is legitimate, before making payment. An automated 3-way matching solution virtually eliminates human touch points such as manual data entry, paper receipts, and physical signatures for approval. According to an ACFE report, companies lose up to 5% of their annual revenue on fraudulent or unauthorized spends. That’s why finance teams are increasingly adopting a 3 way match of vendor invoices as an essential step of their accounts payable process.

• If the hospital has a five percent tolerance, then they might accept 2,850 masks or 3,150 masks.
• Automating the 3-way matching in accounts payable relieves the team from labor-intensive verification and matching tasks and improves the accountability and accuracy of matching.
• According to an ACFE report, companies lose up to 5% of their annual revenue on fraudulent or unauthorized spends.

Many businesses find this to be a good fit for their current processes, especially those that need to pay for services and don’t use a goods receipt note to record these services. The primary purpose of 3-way matching is to prevent any incorrect and fraudulent invoice or payment from happening in a company. The 3-way match helps organizations avoid AP issues by resolving any possible mismatches on bills and orders before payments are processed. In accounting, one of the most common types of invoice matching is called the 3-way match.

Control costs

The specific products, quantities, and prices of each item on the invoice and purchase order are called line items. Line items may also include additional information, such as comments or charges. The buyer places an order with the supplier by sending a purchase order. Ask questions about what the vendor is charging you for if the invoice needs to be clarified.

• Using Order.co’s platform, they streamlined their procurement workflow, increased their vendor compliance to 100%, and saved a total of $68,000 in the first year.
• Let us understand the 3-way matching process with the following example.
• By documenting and cross-referencing each step of the procurement process, companies can create a reliable audit trail.

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. When a company has a high volume of purchases at certain moments, the manual three-way matching process can become overwhelming. This can put extra pressure on the accounts payable team, forcing them to work overtime, thus increasing costs. The process becomes even more challenging when discrepancies arise, leading to potential payment delays, and dissatisfaction among both suppliers and buyers.

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Expanding business operations brings several organizational changes that alter the company’s landscape. These changes can affect the way finance, HR, procurement, and other business functions operate. The last thing that business owners would want when their business grows is fraud or inaccuracies in business transactions. Put all that together and you get a smarter three-way matching solution that eliminates error 100 percent at a fraction of the time and at even lesser cost.

This not only supports internal control but also facilitates compliance with regulatory requirements and external audits. The most basic definition of 3-way matching is a comparison of data across three documents to make sure that all of the relevant information matches. This is generally done to make sure that payments are issued correctly and on time. The accounts payable department can automate the three-way matching process with an accounts payable system or perform the process manually. Manual three-way matching is a very time-consuming process and becomes even more strenuous as your company grows. Documents may be incomplete or misplaced, AP clerks might make mistakes when comparing details, and the volume of documentation to sort, verify, and file can be too much for the department to handle.

Benefits of Automating the Matching Process

Then, they check the goods receipt note to ensure that the delivery matches the request. In a 3-way matching system, the accounts payable team verifies that the information on the purchase order, invoice, and goods receipt note (GRN in case of goods, SRN in case of services) are the same. The Association of Certified Fraud Examiners (ACFE) estimates that companies lose 5% of their revenue every year due to fraud. It is no secret that 3-way matching can help prevent overpayments by matching invoice quantity with that ordered and received.

At that point the company should already have the PO and proof that an order was received. By verifying that the purchase order, order receipt, and supplier’s invoice match, you know that an invoice is valid and correct before paying it. It benefits your business by ensuring that the supplier invoice matches your ordered goods or services. The 3-way matching process is critical for keeping business finances healthy. Not only do businesses need a consistent supply of goods/services to keep the business running, but also need mechanisms to protect against overpayment and financial fraud.

What is the difference between a 2-way and 3-way match?

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. 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 saas accounting with flare at sleetercon the 3-Way Matching Accounts Payable process have been more than shown. 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.

What Are the Drawbacks of a Manual Matching Process?

By streamlining this process and automating other steps throughout your accounts payable process, you get the most out of your AP team. Judiciously matching invoices with their purchase orders and receiving reports generates a strong paper trail for all cash flow out of your company. A reliable accounts payable audit trail ensures you have not been subjected to any internal fraud and are not losing money without your knowledge. It also ensures your accounting practices are compliant with the industry standards and aids in better external audits.

Establish Purchase Order Procedures

The terms of the contract may influence such things as payment deadlines, methods, and other crucial details. The following is your complete guide to designing an accounting flowchart to improve every step of your accounts payable (AP) process. 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. 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. Delivery receipt or goods receipt note contains data confirming that the goods or services have been received and accepted by the buyer.