What Is a 3 Way Match and Why Is It Important?
Master the 3 Way Match: a vital financial control for ensuring payment accuracy, preventing fraud, and optimizing accounts payable processes.
A 3-way match is a foundational control in accounts payable and procurement processes, serving as a critical verification step before any payment is disbursed. This method systematically compares information from three distinct documents to confirm that a company only pays for goods or services that were legitimately ordered and received. It functions as a robust internal control, establishing a system of checks and balances designed to ensure the accuracy and legitimacy of financial transactions. By validating key details, the 3-way match helps prevent financial inaccuracies and unauthorized expenditures.
Key Documents in the 3-Way Match
The 3-way match relies on three documents, each playing a distinct role in the procurement and payment cycle. The first is the Purchase Order (PO), generated by the buying organization to formally request goods or services from a supplier. This document details the items, quantities, agreed-upon prices, and terms, serving as the initial authorization for a purchase. It also includes a unique PO number for tracking the transaction.
The second document is the Invoice, which is a formal request for payment issued by the supplier after the goods have been delivered or services rendered. This document typically lists the amount owed, an invoice number, and payment terms, referencing the original purchase order.
Finally, the Receiving Report, sometimes called a goods receipt or delivery receipt, is created by the buying company’s receiving department upon the arrival of goods or completion of services. This report confirms what was actually received, including specific quantities, dates of receipt, and often the condition of the items.
The Matching Process
The 3-way match involves a comparison of the data contained within these three documents. Accounts payable personnel gather the purchase order, the supplier invoice, and the receiving report for a specific transaction. They then cross-reference key details such as the item descriptions, quantities, and prices across all three documents. For instance, the quantity ordered on the purchase order must align with the quantity received on the receiving report, and both quantities must match the quantity billed on the invoice.
In addition to quantities, the agreed-upon unit prices from the purchase order are compared against the prices listed on the invoice. Any discrepancies in pricing or terms are flagged for investigation. The objective is to ensure that the company is only charged for items that were explicitly ordered and subsequently received. If all elements align, the invoice is approved for payment.
If inconsistencies arise, such as an incorrect quantity received or a price variance, the invoice is put on hold. This triggers a reconciliation process, requiring communication with relevant departments or the supplier to resolve the mismatch. Resolution might involve obtaining a corrected invoice, adjusting inventory records, or clarifying shipping details before payment can be authorized.
Why the 3-Way Match is Important
Implementing a 3-way match process offers benefits, enhancing financial accuracy and safeguarding company assets. It reduces the risk of paying incorrect amounts, making duplicate payments, or paying for goods or services never ordered or received. This verification deters invoice fraud, which costs businesses substantial revenue.
The process also plays a role in maintaining an audit trail, which is important for financial transparency and regulatory compliance. By creating a clear, documented history for each transaction, organizations can demonstrate adherence to financial policies during audits. This approach to payment verification contributes to financial integrity and control.
The 3-way match improves relationships with suppliers by promoting accurate and timely payments. When discrepancies are identified and resolved proactively, it fosters trust and reduces payment disputes, leading to better pricing or more favorable terms. This process ensures financial resources are managed effectively, preventing unnecessary costs and strengthening the company’s financial health.