3 Way Match: Automate AP Matching Process

3 Way Match: Automate AP Matching Process

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3 way matching accounting

The delivery receipt or a goods receipt note is a receiving report. It indicates payment details and which goods the shipment includes. Performing three-way matching can help the business spot fraudulent invoices. By rooting out unauthorized transactions, businesses avoid losing parts of their annual revenue. Relying on human involvement to match invoices, POs, and receipts can raise the risk of data entry errors, misinterpretation, and accidental oversights. That in turn can make overpayments, missed payments, and discrepancies that take time to fix.

  • We will take a look at the accounting record when each document is prepared.
  • While the benefits of 3 way match are evident, implementing this process can present challenges for organizations.
  • As a result, you could lose early payment discounts or incur late fees due to missed invoices.
  • The three documents that must have matched totals include purchase orders, order receipts/packing slips, and invoices.
  • Discrepancies between what was received and what is being billed for cause delays because someone must take the time to investigate the items in question.
  • The importance of 3 way match in accounting cannot be overstated.

The General Ledger account codes are entered with the line items on the invoice so that the organization can manage budgets and see where money is being spent. Prices need to be verified against the original purchase order’s negotiated prices and quantities billed for must be confirmed against quantities actually received. The invoices need to be routed to the relevant parties for approvals. Whatever the process is for receiving goods, it’s imperative that when a package is received, the contents are checked against what’s printed on the packing slip. The packing slip indicates what the vendor believes they’ve placed into the package and shipped. Any discrepancies must be addressed right away to avoid a billing issue when the invoice arrives in Accounts Payable.

Components of a 3 Way Match

Once all approvals are received and discrepancies are resolved, the invoice is cleared for payment, as long as the relevant paperwork finds its way back to Accounts Payable. Potential delays can be caused by the approval process and by invoice discrepancies. Discrepancies between what was received and what is being billed for cause delays because someone must take the time to investigate the items in question. For these reasons, businesses should strive to automate three-way matching. It can also enable their employees to focus on higher-value projects. Yet, few steps can compare to the right automation solution for three-way matching.

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Initially, it may appear complicated but it’s definitely advantageous in the long run to ensure error-free data. Keeping in mind its pros and cons will help you make an informed decision about whether it’s right for your business. The chances of missing a fraudulent invoice or payment are really low with a 3 way match process in place. Helping organizations spend smarter and more efficiently by automating purchasing and invoice processing. Evolving business practices, such as the rise of e-commerce and the expansion of global supply chains, have a significant influence on the 3 way match process. As businesses adapt to these changes, the 3 way match must also evolve to accommodate new transactional models and ensure the same level of accuracy and control.

What Are the Disadvantages of 3-Way Matching? Why Is Manual 3-Way Matching Bad?

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. After verifying the goods receipt, the accounting department moves on to the next step of the 3 way match process – comparing the supplier invoice with the purchase order and goods receipt. They ensure that the prices mentioned in the invoice are in line with the agreed-upon rates and that any additional charges, such as taxes or shipping fees, are accurately reflected. Simply put, a 3 way match is a process that matches the details of a purchase order, the receipt of goods or services, and the supplier invoice. It ensures that all three documents contain consistent and accurate information, thus eliminating discrepancies and mitigating risks.

The goal of 3-way matching is to highlight any discrepancies in three important documents in the purchasing process. The purchase order serves as a formal request from the buyer to the supplier, outlining the details of the products or services to be purchased. The goods receipt, on the other hand, confirms the physical receipt of the ordered items and verifies their quantity and condition. Lastly, the supplier invoice provides the financial details, such as the price, terms, and payment due date.

How Does Three-Way Matching Work?

After this process completes, you can verify the information on the invoice for accuracy. While the purchasing department creates and issues POs, the receiving department creates the reports regarding what physically arrives at the warehouse. Without systems sharing data appropriately, departments may silo their efforts with poor communication that hinders operations.

3 way matching accounting

This process helps prevent overpayments, underpayments, duplicate payments, and other financial discrepancies. Along with matching the PO, receiving reports and invoices, you must match an inspection report. Inspectors consider the quality and quantity of goods received and may reject damaged, incorrect or faulty items.

A three-way match process adds another step in verifying the delivery of the purchased products. Three-way matching is an accounts payable (AP) invoice approval process. It is crucial to determine whether the received supplier invoice is valid and correct. A variation arises when the line items, quantities, extended amounts, or total due on a vendor invoice don’t match the purchase order or receipt of goods or services. Handling variations or exceptions manually can be extremely tricky and hard to document.

The buyer’s AP department will scrutinize these details and flag any discrepancies. Where discrepancies do occur, stakeholders are sought out for approval and, where necessary, updated or corrected documentation is requested from the supplier. The automated system for the Receiving Department may be slightly more labor intensive. The Receivers will still need to verify the contents of packages against what’s printed on the packing slip. They will now, however, have to go into the automated system, pull up the PO number and manually confirm on the screen that what was ordered on the PO is what was actually received. When everything is accurate, the line items on the screen become available for payment when AP enters the invoice against the PO.

This process helps maintain financial accuracy, prevents fraud, and strengthens the overall control environment. The three-way match takes the information considered in 3 way matching accounting a two-way match and adds the receiving report. With this type of processing, your team must exchange more information with the vendor to make an informed decision.

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