What Is Three Way Matching in Accounts Payable?

Accounts Payable (AP) manages outgoing payments to vendors and suppliers. Ensuring these payments are accurate and legitimate is a core responsibility. Three-way matching serves as a fundamental control mechanism within the AP process, designed to prevent financial errors and fraud.

The Core Concept

Three-way matching involves comparing information from three distinct documents to verify a vendor invoice before payment is issued. Its primary purpose is to ensure that a company only pays for goods and services that were legitimately ordered and subsequently received. This process acts as a robust internal control, significantly reducing the risk of errors, duplicate payments, and fraudulent financial activities within the accounts payable workflow.

The Three Essential Documents

The three-way matching process relies on the accurate and consistent information contained within three specific documents generated during a typical purchasing cycle. Each document plays a distinct role, providing unique data points that are later compared for verification.

Purchase Order (PO)

The Purchase Order (PO) is created by the buying company and sent to the supplier as the initial authorization for a purchase. It formally details the items or services requested, their quantities, the agreed-upon prices, and specific terms, including the vendor’s information and a unique PO number. The PO serves as the internal record of what the company intended to buy.

Goods Receipt (GR)

The Goods Receipt (GR), often referred to as a Receiving Report or packing slip, is generated when the ordered goods or services are physically received by the buying company. This document confirms the delivery, noting the actual quantities received, the date of receipt, and often the condition of the items. It serves as objective evidence that the company has taken possession of the items or that services have been rendered.

Vendor Invoice

The Vendor Invoice is the request for payment issued by the supplier to the buying company. This document typically includes details such as the invoice number, the supplier’s billing information, the items or services provided, their quantities, and the prices charged, culminating in the total amount due. The invoice is the trigger for the payment process and undergoes verification against the PO and GR.

Performing the Match

The core of three-way matching involves systematically comparing specific data points across the Purchase Order, Goods Receipt, and Vendor Invoice. The primary comparison focuses on ensuring that the quantity of items or services ordered on the PO matches the quantity received on the GR and the quantity billed on the invoice. Simultaneously, the unit price for each item on the PO is compared against the unit price listed on the vendor invoice.

If all the critical details—such as item descriptions, quantities, and prices—align perfectly across all three documents, the invoice is considered validated and approved for payment. If any discrepancies are identified, such as a mismatch in quantity or price, the invoice is typically placed on hold. This triggers an investigation by the accounts payable team, which may involve contacting the vendor or the internal purchasing or receiving departments to resolve the inconsistency before any payment is made.