What Is the 3-Way Match Process in Accounts Payable?
Learn how the 3-Way Match in Accounts Payable fortifies financial integrity, ensuring precise payments and preventing discrepancies.
The 3-way match process is a control within accounts payable, designed to ensure accuracy and prevent financial discrepancies. This method involves comparing three distinct documents before authorizing payment to a vendor. It verifies that a business only pays for goods or services legitimately ordered and received. Reconciling information across these documents establishes a verification system for expenditures.
Key Documents in 3-Way Match
The 3-way match relies on three documents that originate at different stages of the procurement cycle.
A purchase order (PO) is an internal document created by the buyer and sent to a seller, detailing the types, quantities, and agreed-upon prices for products or services. It acts as a formal agreement once accepted by the vendor. The PO authorizes an expenditure before the order is placed.
Following delivery, the vendor issues an invoice, an external request for payment. This document includes the invoice date, a unique invoice number, contact information for both parties, and a detailed description of the goods or services provided. It lists quantities, individual costs, and the total amount due. The invoice also specifies payment terms, such as the due date.
The third document is the receiving report, sometimes called a goods receipt note (GRN). This internal record confirms that ordered items or services have been received. Created by the receiving department, this report details the quantity and condition of the goods upon arrival. It verifies that the items received match the purchase order specifications.
The 3-Way Matching Process
The 3-way matching process systematically compares data within these three documents to validate a vendor’s invoice. Accounts payable teams cross-check information across the purchase order, vendor invoice, and receiving report. Data points matched include item descriptions, quantities, and agreed-upon prices. This comparison ensures consistency between what was ordered, what was received, and what is being billed.
When all information across the three documents aligns, the invoice is approved for payment. This alignment signifies that the business has received precisely what was ordered at the pre-agreed price. The approval then triggers the payment process.
Discrepancies can arise if there are differences in quantities, prices, or descriptions between documents. For example, if an invoice bills for 100 units but the receiving report confirms only 80 units were delivered, a discrepancy is flagged. Payment is typically put on hold, and an investigation is initiated to resolve the variance. Resolution might involve communicating with the supplier to correct the invoice or with internal departments to clarify receiving details.
This process can be executed manually, involving physical comparison of documents, or through automated systems. Automated solutions reduce human error and accelerate matching by flagging inconsistencies for review. They streamline data entry and matching, allowing for faster payment approvals and an efficient accounts payable workflow.
Purpose of 3-Way Matching
Implementing a 3-way matching process serves several purposes for a business’s financial health. It enhances payment accuracy by verifying that payments are made only for goods or services ordered and received. This prevents costly errors such as overpayments or paying for items never delivered.
The process also aids fraud prevention by introducing multiple checkpoints for transactions. This control mitigates the risk of erroneous or fraudulent payments, protecting the organization from financial losses. Businesses have reported losses to payment fraud, highlighting the importance of such internal controls.
3-way matching contributes to cost control by ensuring funds are disbursed only for validated expenditures. It helps avoid overspending and provides a clearer picture of financial commitments. This enables better budget management and helps maintain cash flow by preventing unauthorized or unnecessary payments.
Finally, 3-way matching creates a comprehensive audit trail for all procurement and payment activities. This detailed record of transactions, approvals, and resolutions of discrepancies aids financial audits and regulatory compliance. An audit trail ensures transparency and accountability within accounts payable.