Errors in invoice processing can cost businesses time, money, and even vendor relationships. One proven method to safeguard your company against mistakes is 3-Way Matching. This simple yet powerful process ensures that every invoice you pay is accurate, helping you avoid overpayments, missed deliveries, and disputes with vendors.
What is 3-Way Matching?
3-Way Matching is a verification process used in accounts payable to confirm that a payment request is valid. Before any invoice is approved for payment, it is cross-checked against two other documents:
Purchase Order (PO): The document you issue to a vendor, detailing the items or services requested, quantities, and agreed prices.
Receiving Report (Goods Receipt): A confirmation that the ordered goods or services were received as expected.
Vendor Invoice: The bill sent by the vendor requesting payment.
When these three documents match, the invoice can be safely approved. If there are discrepancies, they must be resolved first.
Why is 3-Way Matching Important?
Prevents Overpayments and Fraud
By ensuring that you only pay for goods and services that were actually received, 3-Way Matching minimizes the risk of paying for items not delivered or services not rendered.Reduces Costly Errors
Discrepancies such as incorrect pricing, duplicate invoices, or quantity mismatches are caught early, saving time and money.Strengthens Vendor Relationships
Vendors appreciate accuracy and prompt payment. 3-Way Matching reduces the back-and-forth caused by payment disputes, building trust with your partners.Improves Internal Controls
This process adds an extra layer of accountability, helping you maintain transparency and control over your company’s finances.
How Does 3-Way Matching Work in Practice?
Example:
You issue a PO for 100 chairs at $50 each (Total: $5,000).
The vendor delivers 95 chairs and sends an invoice for $5,000.
The receiving report confirms only 95 chairs were received.
Without 3-Way Matching, you might unknowingly pay for 5 chairs you never received. But with this process, the discrepancy is identified and corrected before payment is made.
Best Practices for Effective 3-Way Matching
Automate Where Possible: Use accounting software or property management systems to flag discrepancies automatically.
Train Your Team: Ensure everyone involved understands the process and the importance of accurate documentation.
Communicate with Vendors: Share expectations about matching documents so vendors provide clear and accurate invoices.
Resolve Discrepancies Quickly: Don’t delay; reach out to vendors as soon as an issue is identified.
Final Thoughts
3-Way Matching might seem like a small step, but it’s a crucial part of a strong accounts payable process. By confirming that invoices, purchase orders, and receiving reports align, you reduce errors, prevent overpayments, and maintain healthier vendor relationships. This proactive approach not only saves money but also builds confidence and trust with your partners.