One effective way to improve payment processes and supplier relationships is to adapt the three-way matching process to your supply chain. That’s because the order receipts and vendor invoices are two standard documents needed for audits. Requiring wave reviews these two documents before the completion of a transaction contributes to a straightforward tax process. In the world of accounts payable (AP), one of the most challenging jobs is managing the onslaught of supplier invoices that arrive.

  • Three-way matching has the added benefit of simplifying bookkeeping and audits.
  • At that point the company should already have the PO and proof that an order was received.
  • And by regularly maintaining your records, you’ll be better prepared to detect and deal with fraud.
  • A 3-way match in accounts payable (AP) highlights the discrepancies or inconsistencies between any of the above-mentioned documents.
  • 3-Way Matching In Accounts Payable shields your company against pointless costs, which boosts your bottom line over time.

Before we go into the working of the 3-way matching process, let us first understand the procure to pay (p2p) process. The first step in the p2p process is placing the order with the supplier. The purchase order (PO) is the document containing complete information on the goods/services required along with pricing information. Order receipts are proof of payment that is included with delivered goods. They contain information on the goods included in the shipment and the payment method.

Benefits of Three-Way Matching in Accounts Payable

A lot of the time, errors in invoices are noticed after the payment has been made. This can be rectified by creating a credit note in the name of the vendor to be adjusted against the next payment. This negatively impacts cash flow of your company and requires constant follow-ups with your vendor to accept settlement by a credit note. With 3-way matching, mistakes can be captured and adjusted before the payment is made, reducing this hassle. A month later, Harry receives an invoice from Put a Lid On It Manufacturing for $3,187.50 to be paid in the next 30 days.

  • You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.
  • If you’re keeping good records and subsequently paying invoices correctly and on time, it helps build loyalty between parties.
  • With delayed payments come additional costs including late fees and penalties.
  • 3 way matching helps approve AP invoice payments faster and also help the procurement management team flag any inconsistencies, errors or potential fraud.
  • A 3 way match is an internal control process that cross-references a supplier’s invoice against its corresponding purchase order (PO) and good received note (GRN).

Show that you value your relationship with them, and they’ll see you as a reputable partner. The team that physically receives, records, and distributes the goods your organization receives is responsible for important details that are essential to a successful invoice matching process. After the vendor sends the invoice and your accounts payable department approves and pays it, the vendor will then send a receipt. Internal and external auditors may examine purchase orders, order receipts, and invoices during an acquisition and payment cycle audit. The auditor needs to follow the purchase process from requisition to payment to verify accuracy, completeness, cut-off, occurrence, and classification.

Establish Purchase Order Procedures

3 way matching of invoices helps highlight errors or inconsistencies in any of the 3 important documents mentioned above. Issues could include wrong payment details, incorrect prices, wrong or damaged products etc. Before processing vendor payments, AP teams go over these 3 documents to verify that the product/service received by the company matches the details of what was initially ordered.

What is 3-Way Matching in Accounts Payable?

The goal here is to ensure that financial details (order quantity, order amount, total amount, PO number etc.) match across all 3 documents. 3 way matching helps approve AP invoice payments faster and also help the procurement management team flag any inconsistencies, errors or potential fraud. Before processing vendor payments, your accounts payable (AP) team reviews the purchase order to ensure it matches the goods or services listed on the invoice.

Discover Our AP Automation Solutions

This approach does not compare the receiving documentation to the supplier invoice, so there is a risk that the company will pay an invoice for an incorrectly-billed quantity. Its main advantage is somewhat faster processing speed than a three-way match, since the payables staff does not have to cross-reference any receiving reports. Let us understand the 3-way matching process with the following example. A vendor invoice for 5000 INR for 1000 integrated circuit boards is received by the buyer. The first step is to cross-check whether the PO was approved before fulfilling the invoice.

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A good supplier relationship may also result in better pricing and credit terms. Having complete and accurate documents will help your auditor check data and complete an audit quickly. A timely audit helps your business avoid costs you would have incurred if the auditor had needed extra time going through your documents. Automating the matching process can help save time, money, resources, and energy. Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. If the company is still stuck in traditional payment workflows, a large number of transactions involving clients and suppliers will be challenging.

way matching in accounts payable

An accounts payable process flow chart provides an easy way to visualize processes. It can also serve as a tool to help you discuss the best ways to accomplish your goals. The invoice from the supplier is essentially a demand for payment of money owed to the supplier. It is simple to tell whether an invoice is valid or fraudulent by checking whether a business requested and also received the goods/services it claims payment for. What if you found that up to 2% of your company’s payments have duplicates, the erroneous amount charged, or other errors? It records the quantity, delivery conditions, and any other relevant details of the products/services.