What Is 2-Way Matching and How Does It Work?

Two-way matching is a fundamental control within the accounts payable process, used by businesses to verify the accuracy of financial transactions. It acts as a safeguard against potential errors and discrepancies that could lead to financial losses. This method helps ensure payments align with company policies and regulatory standards, contributing to overall financial integrity.

Understanding 2-Way Matching

Two-way matching involves comparing two essential components to confirm a transaction’s validity. It verifies that the billed amount on an invoice aligns with agreed-upon terms and conditions, focusing on quantities and prices. This process prevents unauthorized or incorrect payments and helps ensure invoices are not fraudulent or duplicate.

The Core Components of 2-Way Matching

The two specific documents compared in 2-way matching are the Purchase Order (PO) and the Vendor Invoice.

A Purchase Order is a formal document created by a buyer to initiate a transaction with a supplier. It outlines the specific goods or services required, their quantities, prices, and other relevant terms. POs typically include:
Contact information for both parties
A unique PO number
Item descriptions, quantities, and prices
Subtotals, taxes, and payment due dates

The Vendor Invoice is a formal document issued by a supplier to a buyer, detailing the products or services provided, their quantities, prices, and agreed-upon payment terms. It serves as a request for payment and is a crucial part of the accounts payable process. Invoices commonly include:
A unique invoice number and date
Vendor and purchasing company contact details
Description of goods or services, quantity, unit price, and total cost
Payment terms and the associated purchase order number

The Purpose and Value of 2-Way Matching

Businesses implement 2-way matching to enhance financial control and accuracy. This process acts as a check against unauthorized payments, strengthening internal controls within the accounts payable department. By comparing the purchase order and the invoice, companies can prevent common errors such as overpayments, underpayments, or duplicate payments. This verification helps ensure that only authorized purchases are paid for, leading to more accurate financial records.

Two-way matching also serves as a defense against fraudulent invoices by confirming that the invoice matches the original purchase order. This level of scrutiny can significantly reduce the risk of financial discrepancies and potential fraud. Furthermore, it contributes to improved operational efficiency by streamlining the invoice verification process, reducing manual effort, and saving time and resources.

The 2-Way Matching Process

The 2-way matching process begins when the accounts payable department receives an invoice from a supplier. The corresponding purchase order is then retrieved. The process involves a detailed comparison between the invoice and the purchase order, checking for alignment in vendor information, item descriptions, quantities, prices, and terms. This includes verifying the quantity of items or services and their unit prices.

If all details match within predefined acceptable ranges, known as tolerance values, the invoice is approved for payment. If discrepancies are found, the invoice is flagged and placed on hold, preventing immediate payment. The accounts payable team then investigates the mismatch to resolve the issues. Once resolved, the invoice proceeds to the payment queue. This process can be performed manually or through automated software, which uses optical character recognition (OCR) to extract data and automatically compare details, flagging any mismatches for human review.

When 2-Way Matching is Sufficient

Two-way matching is considered an adequate and effective control for certain types of transactions, particularly those involving lower financial risk or predictable purchases. It is often used when goods or services are received directly, and no separate receiving report is needed for verification. For instance, it is well-suited for recurring services with consistent costs, such as office supplies or utilities, where the purchase order can list all associated costs for a specified period.

This method is also appropriate for low-value purchases, as they pose less financial risk to the organization. Companies dealing with trusted vendors or invoices that do not have many line items often find 2-way matching sufficient. While it provides a basic level of control, for more complex scenarios, particularly those involving inventory or higher-value transactions, additional matching points like a receiving report might be necessary to ensure comprehensive verification.