A 3-way matching in accounts payable (A/P) administration is the method of matching three paperwork—buy order (PO), receiving report (RR), and provider bill—to make sure that a purchase order is appropriate and legit earlier than making a cost. Companies use it to detect and forestall fraud, set off the seller cost course of, save money and time, preserve optimistic relationships with distributors, and hold data correct and audit-ready.
Merely put, the PO, RR, and provider bill ought to present the identical biller, provider, and gadgets.
Three-way Matching Elements
The three-way matching course of entails cross-verifying three paperwork to substantiate that every one related particulars associated to a purchase order align. Listed below are the three paperwork concerned within the course of:
Buy Order: This doc is shipped from the client to the vendor specifying what the client is buying. It contains particulars, just like the product description, the merchandise being ordered, the amount, and the value. Study extra about what a purchase order order is.
Receiving Report: That is accomplished by the one who receives the products for the client. It validates whether or not the gadgets obtained meet the required amount and high quality necessities.
Provider Bill: It is a cost request from the vendor to the client. It breaks down the services or products that have been bought, the agreed-upon worth, cost phrases, and a singular bill quantity for monitoring functions. For extra info, learn our article on what an bill is.
How Does Three-way Matching Work
3-way matching in A/P works like so:
Verifying PO info: This entails guaranteeing that every one the small print listed on the PO—together with the biller and provider, product names, quantity of buy, and basic ledger codes if wanted—match these on the bill and RR. The descriptions must be sufficiently detailed to confirm that they seek advice from the identical items or providers.
Checking supply info on the RR: The receiving or stock division verifies with the RR whether or not the provider and biller and the merchandise delivered, together with portions and circumstances, match these within the PO.
Reviewing provider bill information: This contains verifying whether or not the biller and provider and bill particulars—corresponding to portions, unit costs, and the overall quantity—match these within the PO.
Three-way Matching Instance
To point out how three-way matching works, let’s use a situation the place an organization must buy 50 chairs for its workers from a vendor referred to as All Workplace Options. Every chair prices $100, which implies the overall value is $5,000.
To higher perceive the method, we’ll present the sequence of phases, from procurement to cost.
Section 1: Buy of Items
Based mostly on our pattern, the corporate’s A/P division creates a PO to element the precise gadgets wanted. The PO contains:
Amount: 50 chairs
Worth: $100 per chair
Complete Value: $5,000
Vendor: All Workplace Options
Extra info: Anticipated supply date, supply deal with, basic ledger codes if required, and so forth.
The PO is then despatched to the seller, All Workplace Options, to substantiate the order particulars.
Section 2: Supply
All Workplace Options accepts the PO and delivers the 50 workplace chairs to the corporate, and the receiving division inspects the chairs and generates an RR that features:
Amount Obtained: 50 chairs
Situation: Good
Section 3: Provider Bill
All Workplace Options sends an bill to the corporate for the 50 chairs. The bill contains:
Amount: 50 chairs
Unit Worth: $100 per chair
Complete Quantity Due: $5,000
Bill Quantity: 12345
Cost Phrases: Web 30 days
Section 4: Three-way Matching
The A/P division performs three-way matching by evaluating the PO, the RR, and the provider’s bill. Based mostly on our instance, they verified that:
PO vs RR: They confirm that the 50 chairs ordered match the 50 chairs obtained—all of that are in good high quality and situation.
PO vs Bill: They affirm that the bill quantity ($5,000) matches the associated fee specified within the PO and that the value per unit aligns.
RR vs Bill: They examine that the amount billed (50 chairs) matches the amount obtained and documented within the RR.
Section 5: Cost
As soon as all three paperwork are verified and matched with none discrepancies, the A/P division will then proceed to make the cost. If there have been any discrepancies (e.g., incorrect portions or broken gadgets) discovered, then cost shall be withheld till the problem is resolved.
Why You Ought to Use Three-way Matching
Detects and prevents fraud: US firms are reportedly experiencing a median annual lack of $300,000 per enterprise to fraudulent invoices. To keep away from the chance of fraudulent exercise, three-way matching helps you establish discrepancies and take proactive actions to keep away from them. For example, if a provider points an bill for merchandise that you simply by no means truly obtained, will probably be simply decided in the course of the matching course of.
Triggers the cost course of: By efficiently matching the PO, RR, and provider bill, the A/P workforce verifies that the order is fulfilled accurately and that it’s now prepared for cost. If errors or discrepancies are flagged in the course of the matching course of, then the bill is placed on maintain and the cost is withheld.
Saves money and time: Three-way matching reduces the necessity for handbook corrections, saving you time on resolving cost points. Moreover, companies can get monetary savings by guaranteeing they solely pay for items and providers correctly obtained.
Improves vendor relationship: Whenever you persistently confirm orders, deliveries, and invoices to deal with points rapidly, it helps guarantee well timed funds and improves transparency and belief together with your distributors.
Helps you put together for an audit. Three-way matching helps you retain a well-documented file of your transactions, which is important for audits.
Advantages of Automating the Three-way Matching Course of
Guide three-way matching will be time-consuming and vulnerable to errors, so we suggest automating your three-way matching processes. Listed below are among the advantages of three-way matching automation:
Prevents danger of misplaced or lacking paperwork: Guide matching means it’s a must to manually accumulate, retailer, and preserve all paperwork wanted for future reference. These paperwork might get misplaced or stolen over time, which may have an effect on A/P monitoring.
Saves you time: As a substitute of spending hours manually evaluating particulars on three separate paperwork, it can save you time by utilizing specialised software program to automate the method.
Detects errors routinely: Automated three-way matching can effectively establish errors, corresponding to mismatched portions, incorrect costs, and missed deliveries.
Quickens the cost approval course of: Since paperwork are routinely cross-verified, the personnel concerned are notified instantly when an bill is appropriate and prepared for cost.
When to Use Three-way Matching
Three-way matching is especially useful in varied eventualities, corresponding to:
Buying costly gadgets or giant orders: Companies coping with high-value gadgets and huge orders might simply expertise discrepancies, and even worse, monetary loss. Three-way matching can assist mitigate these dangers by cross-referring the three important paperwork.
Coping with recurring purchases: When you’ve got common orders (e.g., month-to-month workplace provides), it’s essential to confirm that every supply matches the agreed phrases. By doing three-way matching, you’ll guarantee a purchase order isn’t invoiced twice by matching every bill to a singular receiving report.
Working with new suppliers: When coping with new or less-established suppliers, three-way matching can assist you identify whether or not they’re prepared or dependable sufficient to work with for future transactions.
2-way vs 3-way vs 4-way Matching
The desk under summarizes the important thing variations amongst 2-way, 3-way, and 4-way matching.
That can assist you keep on high of your A/P processes, take a look at our accounts payable workflow information, which summarizes the AP course of in three main steps.
Continuously Requested Questions (FAQs)
How does three-way matching work?
It really works by evaluating the small print on the PO, RR, and provider bill. Cost is accredited solely when all of those three paperwork match.
Why is three-way matching necessary?
It helps make sure that a enterprise solely pays for items or providers that have been truly ordered and obtained, which helps stop overpayments, fraud, and errors.
What paperwork are concerned in three-way matching?
It entails the PO, RR, and the provider bill.
Can I automate three-way matching?
Sure, and you are able to do it by utilizing specialised A/P software program like Invoice.com
Backside Line
The three-way matching in accounts payable is important for a lot of companies, particularly those who handle substantial procurement actions or high-volume transactions. It helps make sure that the small print on the PO, RR, and provider bill are constant—which signifies that the A/P workforce can proceed with paying the bill with confidence.
