What Is a Three-Way Match in Accounting?

A three-way match is an accounting process, most often employed within the accounts payable department, designed to ensure the accuracy and legitimacy of payments to suppliers. This control mechanism involves comparing information across three distinct documents to verify that a company only pays for goods or services that were properly ordered and received. It serves as a safeguard, preventing financial discrepancies, potential fraud, and erroneous payments. The process strengthens robust internal controls in procurement and payment cycles.

The Three Key Documents

The “three ways” in a three-way match refer to three specific documents: the purchase order, the receiving report, and the vendor invoice. Each document plays a distinct role in the procurement lifecycle and contains information that must align for a successful match.

The purchase order (PO) is the initial document created by the buyer and sent to the supplier, indicating an intent to purchase goods or services. It specifies details such as the items or services required, quantities, agreed-upon prices, delivery terms, and payment conditions. This document serves as a contract once accepted by the supplier.

The receiving report, also known as a goods receipt note, is an internal document generated when ordered goods are received. This report confirms the delivery, detailing the actual items received, their quantities, and their condition upon arrival. It acts as proof that the goods specified in the purchase order have arrived.

The vendor invoice is the document sent by the supplier to the buyer, requesting payment for the goods or services provided. It includes an itemized list of items billed, unit prices, total amounts due, payment terms, and the invoice number. This document represents the supplier’s demand for payment, often referencing the original purchase order number.

How the Three-Way Match Works

The three-way match involves comparing data across the purchase order, receiving report, and vendor invoice. This comparison ensures that the company pays only for what was ordered and received. When the accounts payable department receives a vendor invoice, it initiates the matching procedure.

The first step involves cross-referencing the vendor invoice with the purchase order to verify that the items, quantities, and prices on the invoice align with the initial agreement. For example, the quantity billed on the invoice must not exceed the quantity ordered, and the unit price must be consistent with the pre-negotiated rate.

Next, the invoice and purchase order information are compared against the receiving report. This confirms that the goods or services listed were received in the quantities specified. If the receiving report indicates fewer items were delivered than ordered or billed, or if items were damaged, this discrepancy is flagged. When discrepancies are identified, the invoice is put on hold. This triggers an investigation, which may involve communicating with relevant departments or the supplier to resolve the issue before payment.

Purpose of the Three-Way Match

Implementing a three-way match serves several important financial control objectives within an organization. A primary purpose is fraud prevention, as it makes it more difficult for unauthorized or fictitious invoices to be paid. By requiring verification against multiple independent documents, the process acts as a robust internal control against fraudulent schemes.

The process also ensures payment accuracy, mitigating the risk of overpayments or duplicate payments. It confirms that the company pays only for the quantity and price of goods or services received, preventing financial losses due to billing errors. This verification helps maintain precise financial records and improves accounts payable operations.

The three-way match streamlines audit processes by providing a clear documented trail for every transaction. Documentation makes it easier for auditors to verify purchases and payments, contributing to regulatory compliance and financial transparency. This practice fosters improved relationships with suppliers by ensuring timely and accurate payments based on verified deliveries, reducing disputes and fostering trust.