3 Way Match For Accounts Payable: Definition And How It Works In 2023

Orders and payments are essential daily activities in every business that significantly impact other operations. With a large volume of purchases and payments, companies must carefully review all the data to avoid anomalies that may cost them a lot of money and affect the ultimate income.

As a result, a 3-way match for accounts payable is implemented and becomes a top internal control procedure in accounting. This article will cover all aspects of 3-way matching, including its definition and working process.

What Is A Three-Way Match?

The 3-way match for accounts payable refers to comparing the invoice to the related PO and delivery receipt. This procedure ensures that all relevant information matches, such as the quoted order amount and the number of items ordered. A business can use this process to determine whether an invoice is legitimate to proceed with payment.

Besides, a three-way match can assist businesses in identifying fraudulent or unauthorized transactions, which can cost a company a significant amount of its yearly revenue. 

In accounting, a 3-way matching lowers the risk and helps establish whether the invoice should be paid in whole or part by prohibiting reimbursement of illicit purchases.

2-Way Match And 3-Way Match: 6 Key Differences

If you work in accounting, you should be familiar with both terms: 2-way and 3-way matching. They are essential to the accounting department’s order and receipt processes. However, they are used for different purposes. 

Two-way match uses invoices and POs to compare. Meanwhile, a three-way match includes a third step: confirmation that the ordered item was delivered by checking the order receipt or packaging slip.

Here you will find 6 primary differences between the two types:

5 Benefits Of 3-Way Match Procurement In Business

A 3-way matching in accounts payable can bring many advantages to a business. Here we can list five main benefits:

Save Time

By streamlining the invoice validation procedure, the 3 way matching can help the accounting team save much time. Potential payment discrepancies are instantly noted so the team may look into the situation and make the necessary corrections. Besides, you also can ensure on-time payment to suppliers via timely validation and verification.

Increase Profits

The 3-way match protects your company against unnecessary costs and unauthorized financial activities, which boosts your bottom line over time. 

In addition, this process also enhances the transparency of procurement and accounts payable operations. As a result, you can save costs and increase your profit. 

Eliminate Fraud

The three-way match procedure improves internal control and eliminates purchasing and accounts payable fraud. Payments are only made for the products or services received when purchase order matching and matching payments to invoices are accurate. 

The 3-way matching technique avoids invoice discrepancy and ensures proper payments when procurement and invoice clearing choices are based on it.

Improve Supplier-Buyer Relationship

When a supplier routinely provides accurate invoices, a trusted relationship develops over time, which enables a company to pay the supplier more quickly. Improved pricing and credit terms may also come from a strong supplier connection.

Make Auditing Easier

Auditing and bookkeeping can become simple by a three-way match. Compiling documents gets more straightforward if they are complete and free of errors. The supplied data is more precise for auditors to verify.

For the audit process to succeed, it is essential to track internal and external cash flow precisely. A 3 way matching in accounts payable procedure offers a transparent audit trail for confirming the validity of financial transactions in a company.

How Does Three-Way Matching Work?

The 3-way match procurement involves comparing 3 key documents:

• Purchase Order (PO): When a company wants to purchase goods or services, they create a purchase order including details such as the quantity, description, price, and other relevant terms. The PO serves as a contractual agreement between the buyer and the supplier.
• Goods Receipt: When buyers receive orders, they generate a good receipt. It reports the actual receipt of the goods, for example, the quantity received, any errors or damages, and the receipt date.
• Supplier’s Invoice: The supplier sends an invoice to the buyer for the goods or services provided. The invoice contains the payment amount, terms, and other relevant information.

Below are all the process steps:

1. The customer sends a purchasing order to the supplier.
2. The supplier’s accounts payable (AP) division produces an invoice based on the PO.
3. Following the PO, the supplier issues an invoice to the buyer.
4. The buyer checks the invoice’s content to see whether it matches the PO or not.
5. The buyer accepts a receiving report from the supplier as evidence of payment and order fulfillment,
6. If all the information in the three documents match, the buyer accepts the invoice and releases payment.

Frequently Asked Questions

What Are Accounts Payable?

Accounts payable (AP) refers to amounts owed to suppliers or vendors for products or services received. You will find the entire accounts payable at a particular moment on the company’s balance statement under the current liabilities section.

Many people still misunderstand accounts payable with notes payable. Make sure to understand the differences between them. Notes payable are usually a long-term debt, including principal amount and interest.

What Is 3 Way And 4 Way Matching In Accounts Payable?

The 3-way match involves comparing the purchase order, receiving the report, and the supplier’s invoice to ensure accuracy before payment. 

Four-way matching adds the step of comparing an inspection report for quality control. Both methods prevent errors and verify that goods and invoices align before processing payment.

What Is The 3-Way Matching Principle In Accounts Payable In SAP?

In SAP (Systems, Applications, and Products), the three-way matching principle in accounts payable refers to a process that ensures the invoices’ accuracy and validity before making payments.

Who Should Do 3-Way Matching?

The 3-way match involves multiple departments within an organization. The procurement department creates purchase orders, the receiving department verifies goods or services received, and the accounts payable department compares invoices with purchase orders and receives reports. Collaboration between these departments ensures accuracy and helps prevent errors in payment processing.

In short, the 3 way match for accounts payable remains crucial in 2023. Companies can minimize risks by comparing the purchase order, receiving the report, and the supplier’s invoice, preventing overpayment and promoting financial control. 

Hiring outsourced accounting services can be a fantastic solution if you cannot assign your own team. They can assist you in executing the matching and managing your accounts payable in the most professional way.