What Is Two-Way Matching in Accounts Payable?
Understand a core accounts payable process designed to ensure financial accuracy and secure legitimate transactions within your business.
Accounts payable involves the management and settlement of financial obligations to suppliers for goods or services received on credit. Efficiently managing these obligations is important for maintaining healthy cash flow and strong relationships with suppliers. Without proper controls, businesses risk errors, duplicate payments, or fraudulent transactions.
The Core Concept of Two-Way Matching
Two-way matching in accounts payable verifies the legitimacy and accuracy of a vendor invoice before payment. Its purpose is to ensure what a company is billed for aligns with what was ordered. It serves as a control mechanism within a business’s financial operations.
It helps prevent overpayments, incorrect payments, and fraud by cross-referencing key details. The goal is to establish a clear link between the purchase intent and the invoice, safeguarding company assets.
Required Documents for Matching
The two documents central to two-way matching are the purchase order (PO) and the vendor invoice. A purchase order is an official document issued by a buyer to a seller, outlining the types, quantities, and agreed prices for products or services. It details what a company intends to purchase, including item descriptions, unit prices, total cost, and payment terms.
A vendor invoice is a formal document from a supplier requesting payment for goods or services rendered. This document details what was provided, including item descriptions, quantities, unit prices, any applicable taxes, and the total amount due. It also typically includes payment terms.
How Two-Way Matching Works
The two-way matching process begins when the accounts payable department receives a vendor invoice, which can arrive either electronically or in physical form. Upon receipt, the corresponding purchase order (PO) related to that invoice is retrieved from the company’s procurement system. This initial step sets the stage for comparing the two documents.
The core of the process involves a comparison of information between the vendor invoice and the purchase order. Accounts payable personnel meticulously check for alignment in critical fields such as item descriptions, quantities ordered versus quantities billed, and unit prices. The total amount on the invoice is also verified against the PO to ensure consistency with the agreed-upon terms.
If all details on the vendor invoice match the corresponding purchase order, the invoice is then approved for payment. This indicates that the goods or services billed are precisely what was ordered, allowing the payment process to proceed. The approval typically triggers the scheduling of payment according to the agreed-upon terms, ensuring timely settlement with the vendor.
However, if discrepancies are identified during the comparison, the invoice is flagged for further investigation. Common discrepancies might include differences in quantity, price, or terms between the invoice and the PO. In such cases, the accounts payable team must work to resolve these mismatches, which often involves communicating with the vendor to clarify or correct the invoice.
Resolution steps can range from accepting a minor price difference if within an acceptable tolerance, to requesting a full credit and a corrected invoice from the vendor. The purchasing department may also be consulted to verify the original order details. Once any discrepancies are resolved and the invoice aligns with the purchase order, the payment can then be approved and processed, ensuring accuracy and preventing overpayments.