Now is the time when many businesses are tightening their belts. That is why a lot of companies are turning to three-way accounts payable matching to save time and money.
What Is Three-Way Matching
Unless you work in accounting, you may not be familiar with what three-way matching is. It is the process where accounts payable (AP) matches the information on a purchase order (PO), a goods received note (GRN), and an invoice.
The PO contains information about the order to the vendor outlining the specifics of a purchase. The GRN confirms that the delivery was received. The invoice is a request for payment from the vendor for goods and services provided.
Why Use A Three-Way Match
Three-way matching is critical because it verifies the data on the PO, GRN, and invoice. This careful review provides an opportunity to verify the information for accuracy, thereby helping you to spot any potential overcharges or errors. In addition, it ensures that all goods and services have been received before payment is made.
3 Way Match Benefits
Red Flag Issues
When you are working with a vendor and multiple departments in your organization, there are a lot of opportunities for errors. Performing a careful review with AP of these three documents improves accuracy. However, if a problem is spotted, there is ample time to remedy a solution.
Isolate Vendor Issues
It is easy for a delivery truck to pull up and drop off a shipment. 3 way matching allows you to verify that the correct items were delivered, in the right quantities, and in the proper condition. Once the invoice is received from the vendor, 3 way matching will allow you to immediately see if you have been billed for the correct items at the right prices.
Prevent Loss and Fraud
This process allows you to check that payments are not going out for unauthorized purchases, enabling you to know exactly what your business is paying for and ensuring that all purchases have been verified.
How a Three-Way Matching Process Works
In a three-way matching process, accounts payable reviews the PO, GRN, and invoice. This presents the opportunity to identify and remedy any potential discrepancies. All three of these documents must be verified before the AP department approves payment.
The Differences Between Two-Way, Three-Way, and Four-Way Matching
Two-Way Matching: Verifies that the purchase order and invoice information match.
Three-Way Matching: Verifies that purchase orders, order receipts/packing slips, and invoices match.
Four-Way Matching: Verifies that purchase orders, order receipts/packing slips, and invoices match, plus it ensures that the documents match within the quantity tolerances you have defined.
The Disadvantages Of The Manual 3-Way Matching Process
Time-consuming: It is very detailed work to verify each piece of information manually. Looking at each document line by line to compare the relevant details is slow work. It is also a very inefficient process.
Errors: When you rely on AP personnel to spot discrepancies, it is easy for them to miss details as it is impossible to avoid human error.
Costly: When you rely on staff to handle three-way matching manually, it can consume a lot of time that could be better spent on more productive tasks, thereby incurring additional costs. These costs can range from five to six figures depending on invoice volumes and the amount of effort required for verification.
Paper Trail: Dependency on hard copy documents leaves room for human error and for key documents being misplaced, or worse still, inadvertently destroyed.
Automating Three-Way Matching In Accounts Payable
Now is the right time to automate the accounts payable department in your business. Three-way matching is considered one of the best AP systems as it not only saves time, but it also improves vendor relations, as well as speed and accuracy. Learn more about Ash Conversions’ AP solutions at Accounts Payable Automation Solutions.
If you’d like to schedule an AP Automation demonstration, simply click the button below.
