What is three-way matching?

Three-way matching is a verification technique used by the accounts payable department. When this group receives an invoice from a supplier, it matches the information on the invoice to a copy of the related purchase order that has been forwarded to it by the purchasing department. The purchase order states the quantity and price at which the company agrees to buy the goods or services stated on the supplier's invoice. In addition, the accounts payable staff compares the invoice to receiving documentation forwarded to it by the receiving department, to ensure that the goods have been received, that they are in the correct quantity, and that they are in good condition. Thus, the "three-way match" concept refers to matching three documents - the invoice, the purchase order, and the receiving report - to ensure that a payment should be made.

If this three-way match reveals that the supplier invoice is in good order, then the accounts payable staff processes the invoice for payment. If not, the staff contacts the supplier regarding any issues it found, which may result in the issuance of a revised invoice.

The three-way match concept does have problems. It is very labor intensive, and it can be difficult to accumulate the required information, which can result in delayed payments while the accounts payable staff searches for missing information. You can make three-way matching more efficient by:

• Excluding small-dollar and recurring invoices from the matching requirement
• Allowing the accounts payable staff to approve invoices if the prices and units listed in the supplier invoice are within a few percent of the amounts designated in the purchase order

There are also automated three-way matching solutions available that require the use of fully integrated enterprise resources planning systems, but even these solutions will kick out some transactions for which the automated solution fails, requiring manual investigation.

Related Topics

Automated payables matching 
Invoices with no invoice number 
Spend management 
The invoice approval process 
The payment factory