What Is 3 Way Match in Accounts Payable?
Discover the fundamental accounts payable control that validates invoices against orders and receipts for accurate, secure payments.
The 3-way match in accounts payable is a foundational internal control process. It ensures that payments are accurate and legitimate before funds are disbursed. This method involves comparing three distinct documents: the purchase order, the vendor’s invoice, and the receiving report. By cross-referencing these documents, organizations can confirm that they pay only for goods or services that were properly ordered and received. This verification helps prevent financial errors, overpayments, and potential fraudulent activities within the payment workflow. It is a crucial step in maintaining financial integrity and control over expenditures.
The Core Documents
The three documents provide a comprehensive trail of a transaction from initiation to receipt.
The Purchase Order (PO) is the initial document created by the buyer to formally request goods or services from a seller. A PO specifies details such as the types of items, quantities, agreed-upon prices, and payment terms.
The Invoice is the bill issued by the seller to the buyer after goods or services have been provided. This document details what the buyer owes, including an itemized list of products or services, quantities, prices, and the total amount due.
The Receiving Report, also known as a Goods Receipt Note (GRN), is documentation prepared by the buyer’s internal team. This report confirms that the ordered goods or services have been received. It verifies the quantity and condition of the items delivered.
How the Matching Process Works
The 3-way matching process systematically compares specific data points across the purchase order, invoice, and receiving report to validate a payment request. This thorough comparison ensures accuracy before an invoice is approved.
Key information is checked across all three documents. This includes verifying the vendor name, item descriptions, and the quantity of goods ordered against the quantity received and the quantity invoiced. The unit price stated on the purchase order must also align with the unit price on the invoice, along with the total amount.
When a discrepancy arises, such as a difference in quantity or price, the invoice is put on hold. Common discrepancies include quantity variances where the amount received differs from what was ordered or invoiced, or price differences where the invoice price does not match the PO. Resolving these issues involves communication with the vendor or internal departments to investigate and clarify the discrepancy. This might lead to an adjustment of the invoice or a return of goods.
Only after all three documents align, or any discrepancies are resolved, is the invoice approved for payment. This ensures that the organization pays only for goods or services that were legitimately ordered, correctly received, and accurately billed. Minimizing errors and unauthorized payments is a key outcome.
Advantages of the 3-Way Match
Implementing the 3-way match process offers several advantages for an organization’s financial operations. It acts as a control mechanism, strengthening financial health.
This process is a deterrent against fraud. By requiring multiple documents to align, it becomes more difficult for fraudulent invoices or duplicate payment requests to go undetected. Organizations can lose a substantial portion of their annual revenue to fraud, making this a crucial safeguard.
Accuracy in payments is enhanced, ensuring that funds are disbursed only for goods or services that were ordered and received at the correct price. This prevents overpayments and ensures that financial records reflect actual transactions.
Cost control benefits arise from this accuracy. By verifying quantities and prices, the 3-way match helps avoid paying for items not received or at inflated prices. This contributes to better management of expenses and cash flow.
The process also creates a clear audit trail. This documentation supports internal and external audits, demonstrating financial controls and compliance with financial regulations. This transparency fosters confidence in financial reporting.