Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate. A business can form a strong bond with partners who always send accurate vendor invoices. As top budgeting software 2021 a result, it will pay them faster, which often leads to better pricing and credit terms.
Without 3-way matching and other smart checks, companies might end up paying their vendors in full for goods half received. A 2-way match is done to ensure that the details of an invoice correspond to the details on the purchase order sent to the vendor. A 3-way match occurs when an invoice is matched with the details of both the purchase order and the receiving report.
Benefits of Automating the Three-way Matching Process
Additionally, ensuring that details are correct means that the accounts team doesn’t risk overpaying or making payments twice. Therefore, the company can be better off financially and improve profitability. If all the details in the three documents match, the invoice is approved, and payment is released. The buyer acknowledges a receiving report issued by the supplier as proof of payment and order completion.
Manually doing the matches exposes you to mistakes and misinterpretations. Additionally, the documents could be misplaced, lost, or damaged due to poor handling or storage issues. When you require goods or services, you send a request to a supplier. It doesn’t account for other errors, like misplaced paperwork or misinterpreted agreement terms.
To help you stay on top of your A/P processes, check out our accounts payable workflow guide, which summarizes the AP process in three major steps. In high-growth businesses, every operation (both front and back-office) is inexplicably tied to investment versus reward. To survive this uncharted road ahead, the modern finance team has to future-proof their organization with technology. Manual processing for an invoice costs an average of $12-$30 per item, which can increase by five to six digits per month. Considering alternative methods, like automated processing, can save a large portion of the budget allotted for manual handling.
Drawback #2: You’re exposed to human error
The process only requires two documents, the invoice and purchase order. Meanwhile, the 4-way match adds another layer for inspection and verification purposes. If the three essential documents (PO, invoice, and receiving report) coincide with the actual delivery, then it’s a three-way match. If everything matches, the supplier’s invoice will be approved for payment. A 3-way match also helps decide if an invoice should be paid partly or in full.
Three-Way Matching Improves Business Relationships
A goods receipt note is a document that confirms the acquisition of goods or services. It should include your receiver’s signature, the name of the vendor, date and time of delivery, products delivered, and quantity of each product. The goods receipt note should be provided to the department ordering goods or services and the finance department.
- With a three-way match, you can confirm that the business’ established purchase approval process was followed.
- As the name of this accounts payable process suggests, there are three components of a three-way match.
- It is crucial to determine whether the received supplier invoice is valid and correct.
- Three-way matching creates a built-in check to the vendor payment process, ensuring a positive supplier-buyer relationship.
- Automated 3 way matching software operate on preset rules/workflows based on tolerance levels and approvals.
How Does Three-way Matching Work
Automated 3 way matching software operate on preset rules/workflows based on tolerance levels and approvals. They quickly flag errors and potential cases of fraud so that AP teams can take immediate action. For example, if the vendor invoices the wrong product, trades payable will need to request a corrected invoice to complete the match. Waiting to receive a corrected invoice from the vendor will delay invoice approval, payment and reduce overall productivity. Every business that uses three-way matching should establish strict rules for their verification and payment processes. By sticking to a uniform policy, the business will get the most out of three-way matching.
The 3 way match helps to ensure that the goods sent by the vendor are the same as those that were ordered and the quantity that is being paid for has actually been received. If the information from the document coincides with the actual delivery, there is a three-way match. If that’s the case, the accounts payable staff can continue to a secure payment process, knowing it’s paying for a legitimate invoice. After receiving the order and the digital files, the printer completes the job in the agreed time frame. Then, the printer issues an invoice for $2,000 requesting payment.
Tipalti also cycles around the full payment procedure and collates the matching documents for an incredibly concise and streamlined process. Switching to an electronic payable software solution, like Tipalti, will eradicate the disadvantages of manual matching processes. Nothing, if it doesn’t have documents to back up the transaction. Invoice matching is a payable process utilized by the payable team. It ensures there are no discrepancies between a purchase order (PO), an invoice, and other required documents.
Of course, invoices often have minor errors because of rounding off or other legitimate reasons. As long as the invoice errors are within an acceptable tolerance level, you can approve them. Most AP automation software or invoice automation software, like Nanonets, can help organizations switch from manual 3 way matching to a completely touchless automated workflow. AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows. A manual matching process requires all documents to be collected, stored and maintained for future reference. Over time, documents could get damaged, lost, stolen or go missing.
Some AP automation vendors provide a 3-way matching module within their tool. This lets you digitize the accounts payable process, speeding up invoice processing times and reducing errors. With accounts payable automation in place, employees can merely scan the invoice or upload the invoice into the tool. The invoice fields are then automatically extracted using optical character recognition technology.
Upon receipt of goods by the customer, a receiving report is generated stating the quantity and quality of goods received by the customer. For these reasons, businesses should strive to automate three-way matching. It can also enable unclaimed money and how to find it their employees to focus on higher-value projects.
All the documents are cross-checked and inspected before finally accepting the goods or services. A three-way match can also make auditing and bookkeeping easier. If documents are complete and error-free, compiling them becomes less of a hassle.
Nothing can take the wind out of your sails like manually matching printed POs with invoices and packing slips. Investigating every invoice can be daunting, and unless systems are highly organized, it can take hours to track down the correct documents. Once all three documents are verified and matched without any discrepancies, the A/P department will then proceed to make the payment. If there were any discrepancies (e.g., incorrect quantities or damaged items) found, then payment will be withheld until the issue is resolved.