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    Accounting Standards Library
    Friday
    May102013

    What is three-way matching?

    Three-way matching is a payment verification technique used by the accounts payable department. When this group receives an invoice from a supplier, it matches the following information:

    • 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. 
    • The supplier invoice to receiving documentation forwarded to the accounting department 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. The procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness.

    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 or perhaps a credit by the supplier.

    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. Delays can annoy suppliers, and also prevent a company from taking early payment discounts. 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 of discrepancies.

    Related Topics

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

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