What Is a 3 Way Match in Accounts Payable?
Learn how a key financial control in accounts payable validates invoices, ensuring accurate payments and preventing discrepancies.
Accounts payable processes are fundamental to any organization’s financial health, ensuring that outgoing payments are accurate and properly authorized. Maintaining strict controls over these transactions helps prevent financial losses and safeguards company assets. A specific procedure exists to enhance payment accuracy and mitigate risks by confirming the legitimacy of financial obligations before funds are disbursed.
Understanding the 3-Way Match
The 3-way match is a standard internal control within accounts payable, designed to verify the legitimacy of an invoice before payment is issued. Its primary objective is to confirm that an organization pays only for goods or services that were properly ordered, accurately received, and correctly billed. This process serves as a robust defense against potential errors, unauthorized payments, and fraudulent activities. It ensures that every payment aligns precisely with the terms agreed upon and the goods or services actually delivered.
By comparing multiple sources of information, the 3-way match significantly reduces the risk of overpayments or payments for items never received. This verification step is a foundational component of strong financial management, providing assurance that financial outflows are justified. It also contributes to maintaining accurate financial records and supports audit trails, promoting overall financial integrity.
The Essential Documents
The 3-way match relies on the comparison of three distinct documents. The first is the Purchase Order (PO), a formal document created by the buyer to authorize a purchase from a vendor. It typically details the items or services requested, their quantities, agreed-upon prices, and any specific terms and conditions.
The second document is the Receiving Report, sometimes called a Goods Receipt or packing slip, generated by the receiving department upon the physical arrival of goods or completion of services. This report confirms what was actually received, including the type and quantity of items, the date of receipt, and often their condition.
Finally, the Vendor Invoice is the bill issued by the seller to the buyer, requesting payment for the goods or services provided. This document specifies the items billed, their quantities, unit prices, the total amount due, and payment terms.
The Matching Process
The 3-way matching process involves accounts payable personnel systematically comparing the Purchase Order, Receiving Report, and Vendor Invoice. This comparison ensures that the information across all three documents is consistent before an invoice is approved for payment.
Personnel confirm that the quantity of items ordered on the Purchase Order matches the quantity received on the Receiving Report and the quantity billed on the Vendor Invoice. The prices listed on the Vendor Invoice are checked against the prices agreed upon in the Purchase Order, including unit prices and any extended totals.
Other details such as payment terms, vendor information, and item descriptions are cross-referenced to ensure complete alignment. If all corresponding elements—quantities, prices, and terms—match within acceptable tolerances, the invoice is considered validated. This validation then allows the payment process to proceed.
Handling Discrepancies
When a discrepancy is identified during the 3-way match, the payment process is put on hold. Common discrepancies include situations where the quantity received is less than ordered, the price on the invoice differs from the purchase order, or incorrect items were delivered. These variances signal a need for further investigation to ensure accuracy.
Resolving these issues involves communication with the relevant departments, such as purchasing to clarify order details or the receiving department to verify delivery records. The vendor may also need to be contacted to issue a corrected invoice or provide clarification. Payment is delayed until the discrepancy is fully resolved, preventing overpayments or payments for unfulfilled orders.