three way match accounting

How does an AP team know that it’s time to start the three-way invoice matching process? Usually, it is the receipt of the supplier’s or the service vendor’s invoice that triggers the matching process, either through manual workflows or automated three-way matching software. An AP team will need to retrieve the purchase order and receiving report and cross-check the quantities, price and other information across all three documents. A 2-way match in accounts payable simply matches the PO to the PO invoice alone. This process does not refer to the packing slip or receipt typically sent with purchases. The purpose of 2-way matching is to verify the organization received the correct items or services at the contracted price.

The entries on the two documents are then cross-matched against each other. Once all of these steps are completed, it is confirmed that the order according to the invoice has been fulfilled, and the business requesting those goods has in fact received them. This is the easiest way to determine the validity of an invoice and ensure only authorized payments are being made. Prevent fraud – 3-way matching helps prevent, or reduce the risk of, fraud by preventing payment for purchases that were not authorized or that did not comply with vendor terms. The visual form builder enables the accounts payable team to set up the 3-way match workflow easily without the need for coding.

It helps eliminate fraud

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. Most companies use a manual matching processes to record financial transactions. Manual processing includes obtaining physical documents in the form of journals or ledgers. Thus, the «three-way match» concept refers to matching three documents – the invoice, the purchase order, and the receiving report – to ensure that a payment should be made. The procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness.

AP only releases matched invoices for payment authorization and works on resolutions for any deviations. As the business grows, these processes develop quickly in scope and complexity—suddenly, the old ways of doing things might not be as effective as they were before. Understanding the manual invoice-matching procedures that your teams must execute and how they work is essential to identifying the best way to approach your company’s challenges. Three-way matching creates a built-in check to the vendor payment process, ensuring a positive supplier-buyer relationship. An effective accounts payable process ensures accurate, secure, streamlined payment processing. A goods receipt note is a document that confirms the acquisition of goods or services.

The Positive Impact of Audits with AP Automation

International transactions are particularly susceptible to tax miscalculations because a vendor in another country might incorrectly calculate tax according to the wrong regulations. However, three-way matching is considered the golden standard, as it offers security three way match accounting by comparing essential order information while keeping things simple and quick. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy.

three way match accounting

Any discrepancy in the information results in the invoice being withheld until the mismatch is resolved or rectified. 2-way, 3-way, and 4-way invoice matching processes require 3 documents, the invoice, the purchase order, and the receipt of the goods. With Kofax AP Automation solutions, you can not only fully automate the invoice capture process but also create custom validation rules and make matches smoothly up to a four-way match.

Way Matching: What It Is, Its Benefits, & the Bottom Line

Most companies will require purchase order approvals as a key control activity in the accounts payable cycle. With a three-way match, you can confirm that the business’ established purchase approval process was followed. When an invoice, PO, and receipt are all compared, it’s much easier to double check your work. It also increases visibility, because it is more clear where company money is being spent.

What is 3 way matching with example?

What is three-way matching in accounts payable? Three-way matching is an accounting process that compares what was ordered (the purchase order), what was delivered (receipt) and the supplier's invoice to verify that an invoice is legitimate and ready to be paid.

As a result, automation saves time, money, and human resources while helping the organization avoid late payments and invoice fraud. Automating the invoice matching process helps save time, resources, and money. Digitizing the matching process ensures accurate and consistent data verification and matching.

Additionally, tax issues arise with any other cost discrepancies, since tax is determined based on the price of goods. On the other hand, four-way matching is a stricter option that includes additional confirmation by someone who was physically there to witness the delivery (or the rendering of a service). The verification can be physical – for example, looking through each item to confirm satisfactory condition; or verbal – stating that the training has been finished successfully. Not only is this inefficient, but it’s also highly susceptible to human error. AP departments must check all three against each other to ensure legitimacy and consistency.

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