3-Way Match Accounts Payable Automation and Simplification

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. But since manual matching processes can potentially lead to significant mistakes, many businesses opt for two-way matching instead. Thankfully, three-way matching can be done without the manual work through automation. And three-way matching doesn’t only benefit your business—because of the expedited invoice approval process, it also maintains a positive buyer-supplier relationship.

• Traditionally, an accountant in the accounts receivable department would have to gather all the relevant paper documents in a transaction in order to satisfy their matching procedures.
• This process enables your AP department to detect different kinds of payment errors, including fraudulent invoices, duplicate invoices, and even minor errors in supplier invoices.
• Every organization strives to maintain a meticulous record of its financial transactions while safeguarding itself against errors and fraud.
• This means that the clerk must go to the file cabinet and pull both forms that they previously filed when Purchasing and Receiving routed them to AP.
• Misplaced paper documents, incorrect information, and human oversight further increase the cost of manual invoice matching.

According to an ACFE report, companies lose up to 5% of their annual revenue on fraudulent or unauthorized spends. That’s why finance teams are increasingly adopting a 3 way match of vendor invoices as an essential step of their accounts payable process. The 3-way match process entails cross-verifying relevant documents for accuracy in purchase orders, goods receipt notes, and invoice numbers. In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or supplier. The purpose of the three-way match is to avoid paying an incorrect and perhaps fraudulent invoice.

benefits of accounts payable automation.

The result is faster bill creation, fewer errors, and speedier payments. To further streamline three-way matching, invoice processing can have set rules for exceptions so you can bill for more than the received quantity or dollar amount. The process typically begins with the creation of a purchase order that contains the relevant details cash basis accounting definition of a purchase request, such as quantities and price. The PO is sent to the vendor or supplier so that they can create an invoice which is sent back to the purchaser, and begin fulfilling the order. Traditionally, the PO serves as a promise to purchase goods that are then sourced or manufactured by the supplier based on that PO.

If your company’s balance sheet is not portraying an accurate picture, you’re shooting in the dark. Learn more in our articles on A/P software features to look for and how to automate accounts payable. Confident that everything checks out, Harry authorizes payment and initiates a wire transfer to Put a Lid On It Manufacturing’s bank account. For example, you don’t typically receive a separate delivery notice for commonly recurring charges, such as a software subscription or utility payment.

This in turn can lead to stronger supplier relations, potentially resulting in favorable terms, discounts, or priority access to goods and services. By 3 way matching supporting documents, companies can detect duplicate, erroneous, or fraudulent payments to vendors. Three way matching is best performed as an automated financial workflow powered by AP automation solutions such as Nanonets. No matter which level of matching your business will implement, robust AP automation software and invoice processing tools will make your teams more efficient and accurate.

They have more than proven the value and efficacy of automating the three-way matching process. Two-way matching is the most basic approval process, where the vendor’s invoice number and details are checked against the purchase order (PO) number to ensure that these documents match. Tracking cash flow accurately both inside and outside the business is indispensable for the audit process. The 3-way match process in accounts payable provides a clear audit trail for verifying the legitimacy of financial transactions in a business. The PO number is given to the vendor or supplier when the order is placed.

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Manage Your Payments With Full Control & Visibility

Once the PO, GRN, and invoice are gathered, the information they contain is verified. The information on the number of goods, unit price, discounts/rebates, delivery date, etc. are matched across all three documents. Storage and retrieval of documents in manually managed invoice processing is a challenge. Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces.

If the quantity updates to reflect the correct amount, the invoice will automatically validate, requiring no further action on your part—a major time-saver. After this process completes, you can verify the information on the invoice for accuracy. Without double-checking that everything is in order, your business could over- or underpay or miss a payment deadline. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. Of course, even when you regain these funds, these errors can wreak havoc on your A/P efforts. While this scaled-down matching process might not flag issues as efficiently, it still helps avoid the common problems previously discussed and can capture increased value for your business.

How the three-way matching process works

A variation arises when the line items, quantities, extended amounts, or total due on a vendor invoice don’t match the purchase order or receipt of goods or services. Handling variations or exceptions manually can be extremely tricky and hard to document. Automate invoice data capture, build workflows and streamline the 3 way match process in seconds.

What Is 3-Way Matching in Accounts Payable?

These automated systems are so expensive that they are not a viable solution for smaller businesses. Since manual processes are run by people, the chances of misplacing or damaging documents, data oversight, and misinterpretation are very high. Documents can also get misplaced, perhaps being attached to something erroneously or even thrown away or misfiled. Three-way matching helps protect business from unnecessary expenses which, in the long run, adds to your bottom line. It’s always easier turning a profit when you’re not losing money to fraudulent claims.

With these three documents at hand, the accounts payable office can verify whether a supplier’s invoice is valid and legitimate before issuing a payment. This three-tier process prevents fraud from falsified and unwarranted invoices. Automating the 3-way match in the accounts payable process brings transparency and consistency to the accounts payable process. The supplier invoice is the document that triggers the matching process.

Improved vendor relationships.

Improved pricing and credit terms may also come from a strong supplier connection. 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. 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. Additionally, informing your suppliers of discrepancies enables them to deliver the correct goods and services in the future, saving both your time and money.

And once everything has been found, your A/P team will still need to meticulously compare the relevant details across several documents, whose layouts will vary with each new supplier. While labor intensive, the typical 3-way matching process is relatively straightforward. And that same year, one Lithuanian fraudster pled guilty to using invoice fraud to bilk Google and Facebook together for a combined total of over $100 million.

The 3-Way Match Process in Kofax AP Automation Solutions

To counter the threat of overpaying for goods and services or paying a counterfeit invoice, you should seriously consider using automated 3 way match in accounts payable. 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. With a three-way match, you can confirm that the business’ established purchase approval process was followed.