Three-way matching is an essential process for businesses handling large volumes of purchases and invoices. By automating and streamlining this process, businesses can reduce errors, improve control and save time.
But what exactly is three-way matching and how does it work? In this article, you'll learn more about invoice matching and all its benefits.
What is three-way matching?
Three-way matching, also known as three-way reconciliation, is a method of verifying that an invoice matches both the purchase order and the shipping information before it is approved for payment. This means that three documents - the purchase order, the delivery and the invoice - must be matched against each other. The aim is to ensure that the company only pays for goods or services that have been ordered and received in the correct quantity and price.
How does three-way matching work?
Three-way matching can be broken down into the following steps:
- Purchase order: The company creates a purchase order (PO) specifying what to buy, the quantity and the price.
- Receipt of goods: when the goods or services are delivered, a receipt is created that verifies what was actually received and in what quantity.
- Invoice: The supplier sends an invoice listing what was delivered and the cost of those goods or services.
- Matching: The system matches the purchase order, the delivery and the invoice. If all three documents match, the invoice is approved for payment. If there are discrepancies, the invoice is flagged for review.
Advantages of three-way matching
Implementing three-way matching offers several benefits to businesses:
- Reduced errors: Automatically matching documents reduces the risk of human error.
- Increased efficiency: Automation frees up time for employees to focus on more strategic tasks.
- Better control and transparency: Provides better control over purchasing and payment processes, reducing the risk of fraud and double payments.
- Cost savings: By detecting and correcting errors early, companies can avoid unnecessary costs.
Invoice matching and its importance
Invoice matching is a broader concept that includes different methods to ensure that the invoice matches the related documents, such as purchase orders and delivery documents. Three-way matching is a specific type of invoice matching where three documents are matched against each other. For companies that want to optimize their invoice management, a combination of different invoice matching methods can be beneficial.
Example of application
Imagine a company that regularly buys office supplies. They use a three-way matching system where each purchase order is matched against deliveries and invoices. One day, the system detects a discrepancy: the invoice shows a higher amount than indicated in the purchase order. The system flags this for review, and it turns out that the supplier has mistakenly invoiced for an extra item. This is detected and corrected before payment is made, saving the company money and time.
Optimize your invoice management
Three-way matching is an indispensable process for businesses that want to streamline their invoice management and ensure they only pay for what they have actually ordered and received. By automating this process, businesses can reduce errors, increase efficiency and improve control over their purchases and payments. If your company is not yet using three-way matching, it may be time to consider implementing this method to improve your business processes.
Want to know more about how three-way matching and invoice matching can help your business? Contact Conrab today for a consultation and discover how we can help you optimize your invoice management.