What is 3-way matching? Definition and how to automate with control

Struggling to keep up with the flood of invoices each month? Accounts Payable (AP) teams face this challenge daily, and verifying each invoice is important. With organizations losing an average of 5% of annual revenue to fraud, implementing effective verification processes not only helps catch fraud and errors but also enhances efficiency, particularly when automated.

In this Rillion guide, we’ll cover everything you need to know about 3-way matching and how it can simplify your accounts payable workflow.

What is a 3-way match?

Three-way matching is an accounts payable (AP) process that verifies the accuracy of payments by comparing three critical documents: the purchase order (PO), the supplier’s invoice, and the order receipts.

Imagine you ordered 100 office chairs for $50 each. With three-way matching, you’ll check that the purchase order, order receipt, and invoice align on quantity and price before approving payment. If there’s a discrepancy, you’ll address it first to avoid overpayments.

With an effective three-way matching system, your AP team can:

• Eliminate Overpayments and Errors: Ensure payments are made only for items received at the agreed-upon price.
• Guard Against Fraud: Spot discrepancies to help prevent fraudulent charges.
• Save Time: Automate the verification process to minimize manual checks and streamline tasks.
• Enhance Cash Flow Control: Manage expenses better by maintaining accurate records and preventing unexpected costs.
• Boost Workflow Efficiency: Speed up invoice processing, reduce delays, and improve reliability.

3-way matching vs. 2-way matching

Both 3-way and 2-way matching are essential processes for accounts payable (AP) teams to verify invoices, but they differ in detail and accuracy.

2-way matching

This method compares two documents: the purchase order (PO) and the invoice. It checks that the items, quantities, and prices on the invoice align with those on the PO.

• When to use: 2-way matching is ideal for small or low-risk purchases that don’t require extensive verification. It allows AP teams to quickly approve payments for simple orders.
• Example: For office supplies like paper and pens, the AP team can verify that the invoice matches the PO in terms of quantities and prices. If they match, payment can be approved without needing to confirm receipt of the items.

3-way matching

This method involves comparing three documents: the purchase order (PO), the invoice, and the order receipt (or packing slip). This additional step ensures that the goods or services were actually received, providing an extra layer of accuracy.

• When to use: 3-way matching is best for larger or more critical purchases where accuracy is vital. It helps prevent errors, overpayments, and fraud by confirming receipt of the order.
• Example: For instance, Björn Axén, a hair care and beauty company, utilizes Rillion’s 3-way matching system to automate the comparison of purchase orders, invoices, and receipts. This approach has significantly reduced errors, saved time, and ensured that they only pay for what was ordered and received.

Ultimately, 3-way matching is ideal for organizations seeking accuracy and control, while 2-way matching suits those prioritizing speed, though it may involve greater risk in financial management. Choosing the right method depends on your organization’s needs and risk tolerance.

How to do 3-may matching

Here’s a step-by-step guide to performing 3-way matching in accounts payable:

Step 1: Receive the purchase order (PO)

Start with the Purchase Order, which outlines the items ordered, quantities, and agreed prices. This document is created when a purchase request is approved, setting the initial benchmark for matching.

Step 2: Receive and record goods or services

When items arrive, create a receipt (receiving report), or packing slip, confirming the quantity and condition of each item. This report ensures that what was ordered has indeed been delivered in the specified amounts.

Step 3: Receive the invoice

The supplier sends an invoice listing the items, prices, and quantities they expect payment for. This invoice needs to match the PO and the receiving report in key details.

Step 4: Compare all three documents

Carefully match the PO, receiving report, and invoice to verify that:

• Quantities are consistent across all documents.
• Prices align with the agreed terms in the PO.
• Any additional charges are accurate and justifiable.

If these checks, then there is a three-way match, and you can move to the next step.

Step 5: Approve or investigate

If all three documents align, approve the invoice for payment. If there are discrepancies (e.g., incorrect quantities or pricing errors), investigate the issue with the supplier or relevant internal team before processing. By following these steps, your AP team ensures that payments are accurate and prevent overpayments, fraud, or costly mistakes.

How to automate 3-way matching

Manual 3-way matching is time-consuming, error-prone, and lowers team morale, as it involves tedious line-by-line document checks and risks duplicate payments.

Automated three-way matching, on the other hand, ensures invoices run straight through the accounts payable process without any manual intervention.

Looking to automate your invoice/PO matching process? Follow the steps below:

• Digitize invoice capture: Use OCR (Optical Character Recognition) technology for automated invoice scanning and capturing from paper or electronic documents.
  
• Integrate with ERP and purchasing systems: Automated 3-way matching systems should connect with your ERP to pull purchase orders, track receiving reports, and compare details in real time.
• Establish matching rules: Set business rules and acceptable variances to handle minor discrepancies.
• Automate exception handling: When a discrepancy is detected, the system should forward the issue to the appropriate approver or team immediately. This minimizes delays and speeds up resolution. ​
• Monitor the process: Track invoice status, matches, and flagged exceptions in real time. This helps maintain a clear audit trail and provides instant insights into the AP process​.

How Rillion helps with three-way matching

Rillion’s 3-way PO Matching module within our AP Automation suite streamlines accounts payable by:

• Automatically matching hundreds of internal or external purchase orders, invoices, and receipts containing hundreds of lines of data within minutes of receiving them.
• Flagging discrepancies in unmatched invoices and routing them to the appropriate person for resolution, including all the necessary information required for reconciliation.
• Providing a complete time-stamped audit trail, including messages and actions taken at each point.
• Automatically sending matched invoices to your ERP or accounting systems, including NetSuite, Microsoft Dynamics 365 Finance and Operations, Sage Intacct, etc., for immediate action.

Automating 3-way matching with Rillion

The 3-way matching process is crucial for ensuring payment accuracy and legitimacy in accounts payable. However, manual matching often faces issues like data entry errors, missing documents, and delayed approvals, which can lower efficiency.

Automating 3-way matching with Rillion overcomes these challenges by streamlining workflows, resolving discrepancies, and integrating smoothly with your systems, allowing AP teams to focus on more valuable tasks.

Choose Rillion for fast, reliable 3-way matching. Book a demo today to get started.