What Is a 3 Way Match in Accounting?
Learn about the core accounting control that verifies transactions, ensures accuracy, and prevents payment discrepancies for robust financial management.
A 3-way match in accounting is an important control process used in accounts payable to ensure accuracy and prevent financial discrepancies. It involves comparing specific details across three distinct documents before a vendor invoice is approved for payment. This verification process helps businesses confirm they are paying only for goods or services legitimately ordered and actually received. This practice helps reduce the risk of erroneous payments, duplicate billing, or fraudulent transactions, safeguarding financial resources.
Understanding the 3-Way Match
The 3-way match is an internal control designed to verify invoice legitimacy and ensure financial integrity. Its objective is to confirm that what a company ordered, received, and is billed for are in agreement.
The method helps prevent issues such as paying for undelivered goods, incorrect payments, or unauthorized purchases. It also helps identify discrepancies between ordered, delivered, and invoiced goods or services, allowing the accounts payable team to determine whether to make a full or partial payment, or withhold payment until an issue is resolved. This systematic comparison improves payment accuracy and helps control spending.
The Core Documents
The 3-way match relies on three specific documents, each serving a distinct purpose in the procurement and payment cycle. These documents collectively provide the necessary information to verify a transaction’s accuracy.
The Purchase Order (PO) is a formal document created by the buyer and sent to the supplier to authorize a purchase. It details the specific goods or services requested, including their types, quantities, and the agreed-upon prices. Each PO is assigned a unique number for tracking.
The Receiving Report is generated when the goods or services are physically received by the buyer. It confirms what was delivered, specifying the items received, their quantities, and often their condition and the date of receipt.
The Vendor Invoice is the bill sent by the supplier to the buyer requesting payment for the goods or services provided. This invoice lists the items billed, their quantities, unit prices, and the total amount due. It should also include payment terms, such as the due date and any applicable discounts, and typically references the corresponding purchase order number.
Executing the 3-Way Match Process
The execution of the 3-way match involves a systematic comparison of data points across the Purchase Order, Receiving Report, and Vendor Invoice. The accounts payable department typically performs this verification. The goal is to ensure that the details on all three documents align before payment is authorized.
The first step compares the vendor invoice to the purchase order. Key data points checked include the vendor’s name, the purchase order number, item descriptions, quantities ordered, and agreed-upon unit prices. This initial match confirms the company is billed for what it intended to purchase at the correct price. Any discrepancies, such as a different quantity or price than on the PO, are flagged for review.
Next, the invoice and purchase order are compared against the receiving report. This step verifies that the goods or services listed on the invoice and PO were actually received by the company in the correct quantities. If, for example, 100 units were ordered and billed, but only 95 were received, this mismatch would be identified.
When all three documents—the purchase order, receiving report, and vendor invoice—match within acceptable tolerance levels, the invoice is approved for payment. This means quantities, prices, and terms across all three documents are consistent. If discrepancies are found, such as quantity mismatches, price differences, or quality issues, the invoice is put on hold. These discrepancies require investigation and resolution, which might involve contacting the vendor for a corrected invoice or credit memo, or adjusting the payment amount.
The 3-way match process can be performed manually, with accounts payable clerks physically comparing documents, or automated using accounting software or enterprise resource planning (ERP) systems. Automated systems can scan and compare documents quickly, flagging discrepancies for human intervention and reducing manual errors. This automation enhances efficiency, especially for businesses with high transaction volumes, and helps maintain accurate audit trails.