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The accounts payable process comes with a series of built-in checks to help businesses streamline the bill-paying process. One tactic used by many is 3-way matching, designed to mitigate risk by highlighting fraudulent or inaccurate invoices. Keep reading to learn how the accounts payable 3-way match process works, along with its benefits.
3-way match in accounts payable explained
The term 3-way matching in accounts payable refers to the practice of cross-referencing three key documents:
Transaction details should remain consistent across these three documents. This ensures that the amount paid to the vendor matches the goods or services provided. If there are any errors or discrepancies, you’ll spot them by noting if one document contains different information in comparison to the others.
Alternatives to 3-way matching
While 3-way matching in accounts payable is one form of verification, businesses also often use 2-way or 4-way matching instead. These work in a similar fashion:
Two-way matching involves verification using the invoice and purchase order. It’s less time-consuming than a 3-way match but leaves out the details contained on the receipt. Without this verification, 2-way matching leaves room for the possibility of underpaying or overpaying for the goods received.
Four-way matching takes the invoice, purchase order, and receipt, adding a concept called tolerances into the verification process. Tolerances refer to the quantity or quality of accepted goods.
How the accounts payable 3-way match works
Sticking with the 3-way match process, here’s a quick example of how it works. Imagine that an ice cream shop has ordered 1,000 boxes of waffle cones at a price of $1 each.
Step 1: Purchase of goods or services
The company has placed its order, costing a total of $1,000. The waffle cone vendor provides a purchase order confirming the quantity (1,000) and total cost ($1,000).
Step 2: Invoice is issued
The ice cream company confirms the purchase order, and the vendor issues an invoice for the goods. This breaks down the sale into quantity ordered (1,000) along with cost per unit ($1) and total cost ($1,000 plus any applicable sales tax).
Step 3: Payment and receipt
The ice cream company’s accounts payable department approves the invoice once it has been submitted. The vendor sends a receipt in return, including the payment amount, payment method, and any other payment-related details.
Step 4: 3-way matching takes place
Now that the accounts payable department has the invoice, purchase order, and receipt in hand, they can use 3-way matching to ensure all details are correct. The number of units, cost per unit, and total cost should be the same across all three documents. What happens if there are inconsistencies between the purchase order and invoice? The accounts payable department will need to get in touch with the vendor for a correction. They can also sort out discrepancies with 3-way match accounting entries.
The benefits of 3-way matching in accounts payable
Due to its thorough nature, 3-way matching is a useful component of the accounts payable process. Here are a few of its key benefits:
Saves your business time and money
Safeguards against fraudulent invoices
Creates better relationship with suppliers
Ensures more accurate financial records
Streamlines the audit process
How to make 3-way matching more efficient
Although it offers numerous benefits, going through the full accounts payable 3-way match process can be quite time-consuming when done manually. You’ll need to track down all documents and carefully pore over them looking for discrepancies. This can even cause delayed payment to suppliers while you go through the matching process.
An easy way to speed up your 3-way matching in accounts payable is by automating the full process. With automated accounts payable software, you’ll eliminate human error, ensure timely payments, and maintain better relationships with your suppliers and vendors.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.