Three-way Matching
Definition:
Three-way matching is an accounts payable process that compares three key documents – the purchase order, the goods receipt or service confirmation, and the supplier invoice – to ensure that they match before approving payment. This process helps to verify that the goods or services ordered were actually received, that the quantities and prices are accurate, and that the invoice corresponds to the agreed-upon terms.
Example:
When Acme Corporation receives an invoice from a supplier for a shipment of raw materials, the accounts payable team initiates the three-way matching process. They compare the details on the invoice, such as the item descriptions, quantities, and prices, against the original purchase order and the goods receipt confirmation from the warehouse. If all three documents match, the invoice is approved for payment. If there are any discrepancies, such as a difference in quantity or price, the accounts payable team investigates and resolves the issue with the supplier and internal stakeholders before processing the payment.
Why is Three-way Matching important to Procurement teams?
Three-way matching is a critical control mechanism for procurement and accounts payable teams to ensure the accuracy and integrity of the purchasing process. By verifying that the goods or services received match what was ordered and that the supplier's invoice is correct, three-way matching helps to prevent errors, fraud, and overpayments. It also helps to ensure compliance with procurement policies and budgets, as any deviations from the approved purchase order will be flagged during the matching process. Three-way matching is particularly important for organizations with high volumes of transactions or complex supply chains, as it provides a systematic way to validate and process invoices efficiently. However, procurement teams must work closely with suppliers and internal stakeholders to ensure that all necessary documents are available and accurate to support a smooth three-way matching process.