In accounting, one of the most common types of invoice matching is called the 3-way match. Three-way match is the process of comparing the purchase order, invoice , and goods receipt to make sure they match, prior to approving the invoice.
An Example of a 3-Way Match
They verify that the quantity and details match those specified on the invoice — in this case, that the order is for 1,500 circuit boards at a rate of $3 each, totaling $4,500 altogether. Next, they check the PO and invoice against the order receipt (or receiving report).
To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice.
Who is responsible for a 3-way match? The buyer is responsible for verifying the purchase using a 3-way match before payment is released to the supplier. This ensures that each step aligns with the last from when the buyer creates the purchase order to when the payment schedule is finalized.
A three-way reconciliation report contains the adjusted bank balance, the book balance, and the client trust ledger balance and shows that all three balances match.
The Step-by-Step Three-Way Reconciliation Process
A 'three-way' is a combination of cash flow, profit and loss, and balance sheet forecasts all integrated into one spreadsheet. Banks and all other providers of finance are increasingly requiring these from businesses before granting them finance.
What is a Three-Way Match? Before agreeing to pay an invoice from a supplier, the purchase order, goods receipt note, and invoice from the supplier are compared. This standard practice is known as a "three-way match."
Common Problems In The Three Way Matching Process
A GRN is used for internal record-keeping and helps in verifying the accuracy of invoices before making payments. By comparing the GRN with the invoice, you can ensure that you are only paying for the items that were delivered. This helps in avoiding overpayments and maintaining financial transparency.
A purchase order typically triggers the 3-way match process. Upon receipt of goods or services and subsequent submission of an invoice, all three documents—purchase order, receiving report, and invoice—are compared to verify accuracy before payment is authorized.
Why Is Three-Way Matching in AP So Challenging?
To verify an invoice, you'll need vendor information, invoice details (include a description of goods or services, cost, payment terms, due date, and PO reference) along with banking details and delivery details.
Here's a step-by-step guide for setting up an AP process.
Three-way match is the process of comparing the purchase order, invoice , and goods receipt to make sure they match, prior to approving the invoice. This ensures that the customer's order, the supplier's delivery, and the goods receipt note (GRN) all reflect the same information.
Personal, real, and nominal accounts are the three types of accounts in accounting. In the first case, personal accounts deal with persons and entities primarily; real accounts show property and liabilities of a business; and lastly, nominal accounts record events about income, expenses, gains, and losses.
Let's explore three key types of invoices, each tailored to specific scenarios and purposes, and discover when and why to use them:
3-way matching best practices
Three-way matching in action
Let's say your business orders ten boxes of printing paper. You send the purchase order (PO) to the supplier. Then, the supplier delivers ten boxes of paper accompanied by the goods receipt note. But when you receive the invoice, you notice that the supplier billed you for eleven boxes.
Which department performs the 3-way match? As a best practice, the accounts payable department is responsible for handling the three-way match process. In some businesses, purchasing and accounts payable are under one roof.
Three-way matching is a vital accounts payable control that ensures consistency between what was ordered, received, and invoiced. This process safeguards against fraud and errors, helping businesses avoid paying unauthorized, duplicate, or incorrect invoices.
3-way matching allows businesses to maintain an accurate audit trail. They are able to maintain a verifiable record of all supplies, invoices, and goods received, so they can easily understand their relationship with a particular supplier. This also protects organizations in case of litigation.
A three-way forecast, also known as the 3 financial statements is a financial model combining three key reports into one consolidated forecast. It links your Profit & Loss (income statement), balance sheet and cashflow projections together so you can forecast your future cash position and financial health.
CSR is a business approach or strategy while TBL is a framework. CSR practices are meant for sustainable development whereas TBL is a measuring device of a concern's performance in respect to economic, social and environmental dimensions.
Using 3-way matching in accounts payable can highlight anything between these documents that are inconsistent. In terms of software, AvidXchange can track invoices, POs, and bill payments. Since you can track all three using AvidXchange, the software can help you automate 3-way matching.