Breadcrumb

What Is 3-Way Matching?

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedNov 20222 min read

Something as innocuous as a single typo can delay your invoice payments while the matter’s investigated. Automated 3-way matching safeguards your accounts payable department against fraudulent invoices, errors, and overpayments. So, what is 3-way matching, and why is it so important? Here’s a closer look.

What is 3-way matching?

The invoice approval process typically involves taking documents from a business and vendor, comparing the details to ensure they match. When your accounts payable department compares a purchase order, receipt, and invoice to ensure the details agree with one another, this is called a 3-way match. Ideally, the items and total amount paid will be the same on all three documents. If there are any discrepancies, a hold should be placed on the payment until it’s investigated.

How does 3-way matching work?

Let’s break down the 3-way matching process in greater detail. When a transaction takes place, three documents are created:

Invoice: Sent by the vendor to the buyer requesting payment for items or services sold
Receipt: Serves as the proof of payment and included along with delivered goods to show what’s included in the shipment
Purchase orders: Sent by the buyer to the vendor, serving as an official confirmation of the order

The invoice and purchase order will both show payment information, contact details, and a description of the goods and services. The order receipt will also include a list of goods provided as well as the payment method.

As you can see, there’s a lot of overlapping information on these three documents. The three-way matching process involves examining the paperwork to make sure key details are the same across all three, specifically price, payment, contact information, and services or goods provided. This should take place to verify the order and authorize payment.

Why is 3-way matching in accounts payable so important?

Here are just a few benefits of working 3-way matching into your accounts payable process.

It reduces the time wasted on fixing payment processing errors. By verifying details before payment is made, you can avoid chasing up on duplicate or excess payments after the fact.
It improves relationships between suppliers and vendors. Payment delays and errors lead to a breakdown in trust as well as frustration on both sides.
It prepares your financial documents for audit. Accurate record-keeping, including that of accounts payable, helps your auditing team keep on top of any discrepancies as they occur. You’ll catch problems earlier in the accounting process, fixing them before they make their way to official financial statements.

What is the difference between a 2-way and 3-way match?

While 3-way matching is increasingly common, many businesses still only use 2-way matching. A 2-way match process involves comparing the purchase order and invoice, without taking the order receipt into account. It cuts down the time spent on matching by simply looking at the quantity and amount for each of the two documents.

The benefits of automating 3-way matching in accounts payable

It’s clear that there are advantages to using 3-way matching, but at the same time it can be a time-consuming process when conducted manually. As your business processes a high volume of invoices, you’ll need a dedicated team to spend hours poring over each document. This leaves the potential for errors to be made – and if you find any discrepancies, you’ll spend even more time tracking down every old receipt to find out what went wrong.

Automated 3-way matching saves a great deal of time and money, making it the preferred option for many. This comes as a standard feature of most accounting software, which automates the invoicing process to automatically match purchase orders, invoices, and receipts as they’re issued. Errors or mismatches are flagged immediately so there’s no delay in payment.

You can further reduce payment delays by using GoCardless, which integrates with over 350 partners including top accounting and invoicing software like Xero and QuickBooks. This ensures a seamless workflow free from bottlenecks, delays, and high processing costs associated with manual 3-way matching.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.