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In the world of accounts payable (AP), one of the most challenging jobs is managing the onslaught of supplier invoices that arrive each month. One technique AP teams use to make sure invoices are legitimate is called three-way matching. In addition to picking up on criminal activities, three-way matching can benefit an organization in other ways, especially when the process is automated. Even huge, established companies like Google and Facebook can fall victim to invoice fraud. Comparing the invoice against the PO in the 3-way match process allows AP to more confidently identify and avoid fraudulent invoices.
NetSuite Invoice Management simplifies the three-way matching process, and thereby improves a business’s cash flow, by automating the matching of POs, item receipts and vendor invoices. Once a purchase order, order receipt and supplier invoice are entered, the software can quickly determine whether the details align. When they don’t, the system will notify AP, which can then investigate the discrepancies.
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And when you find discrepancies, you can act on them as needed, such as by reaching out to the supplier to correct the price. An automated routing system ensures that each document has gone through all of the proper channels before the matching process begins. When errors or exceptions do occur, they are automatically flagged and re-routed https://www.bookstime.com/ to the teams or individuals who can fix the error. If other problems arise, an automated solution offers immediate visibility into the process, allowing your team to quickly pinpoint the cause of the problem. All of these improvements make 3-way matching an essential piece of your invoicing process and your AP automation system as a whole.
What is 3 way matching with example?
What is three-way matching in accounts payable? Three-way matching is an accounting process that compares what was ordered (the purchase order), what was delivered (receipt) and the supplier's invoice to verify that an invoice is legitimate and ready to be paid.
Although physical records may be traditional and accessible, there are far more disadvantages to them compared to automated solutions.
What documents are examined for three-way matching?
The three-way match process is especially important to small businesses, as they are twice1 as likely as large businesses to receive a fraudulent invoice (Figure 2). Because of its limited sources of data, the three-way match doesn’t integrate with business three way match accounting systems to verify key fob swipes, messages sent, or software licenses. This data is important for creating a profile of contractor and service provider activity levels so you can make sure you’re actually receiving the work you’re paying for.
Under a 2-way matching system, the quantity and amount issued on the invoice are verified against the quantity and amount on the corresponding PO notice. A 3 way match system incorporates checking an order receipt for the amount issues as well. To ensure that every order is complete, 3 way matching invoices highlights discrepancies or inconsistencies between any of the critical documents listed above.
It’s a complex process
When the auditors come knocking, one of the first things they’ll look at are your purchase orders, shipping orders and invoices to check that everything is in order. Having your documents straight nullifies the need for an investigation into the business practices of the organization, allowing you to run the company without any other interruptions. In some cases, an order is completed over multiple deliveries done on different dates. For orders having multiple delivery dates, it is not possible to match the goods received against the invoice. The automated matching system needs to be configured such that goods received are rechecked on an ongoing basis until the entire order is complete.
Automating 3-way matching makes your accounts payable team significantly more efficient while ensuring you don’t overpay your suppliers. According to a report, best-in-call AP teams are twice as likely to automate invoices, which results in higher efficiency workflows and fewer exceptions. However, finding the right accounts payable automation system can seem daunting. MHC NorthStar offers best-in-class technology to manage your AP processes and make all documents—especially those necessary for three-way matching—easy to access.
Way Matching in AP
Today, an increasing number of business owners and departments in charge of finances are using three way match processing to mitigate risk and reign in company spending. To counter the threat of overpaying for goods and services or paying a counterfeit invoice, you should seriously consider using automated 3 way match in accounts payable. Before processing vendor payments, AP teams go over these 3 documents to verify that the product/service received by the company matches the details of what was initially ordered. A 3 way match is an internal control process that cross-references a supplier’s invoice against its corresponding purchase order (PO) and good received note (GRN). The co-working unicorn WeWork faced significant challenges in streamlining ordering and payments across their 800 global office locations.
Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces. When documents are not organized properly, retrieval for reference becomes a headache. Manual processing causes delays and backlogs due to misplaced or missing information. Process bottlenecks result in delayed payments to suppliers, which in turn tarnishes the reputation of the company and weakens supplier relationships. Using the three-way match as a procedure to post procurement transactions enables the team to maintain a verified record of suppliers. It provides clear insights into supplies from vendors and money paid to suppliers.
The matching process can be mapped through a detailed 3-way match flow chart, which is the basis for effective automation. For any business that regularly engages in large numbers of purchase transactions, an effective accounts payable department is not optional—it’s a minimum requirement. Invoice fraud is a serious issue that affects businesses of all sizes.
- With delayed payments come additional costs including late fees and penalties.
- After all, 3-way matching can be done by hand using paper documents, although the rate of error is higher for businesses that rely on manual processes.
- In the world of accounts payable (AP), one of the most challenging jobs is managing the onslaught of supplier invoices that arrive each month.
- Still, businesses can take several steps to make this process more efficient.
- Plus, the additional step can add valuable person-hours to the process.
- A Three-way match is the process of matching the purchase order (PO), invoice, and goods receipt (GRN) note to validate the supplier’s invoice before payment is made.