What is Three Way Matching and Why is it Important for Your AP Team?

One of the best ways for personnel in accounts payable to verify a payment is with a three-way matching system. This system involves matching an invoice received from a creditor or supplier with both the information on your company’s purchase order and the customer’s goods receipt. This verification involves other participants in the supply chain and is a vital task considering it’s the last stage in the procurement cycle. In short, it’s the final gatekeeper that determines whether the transaction is accurate and complete, making it vital to a company’s operations. We’ve outlined a few more reasons why it’s important to your accounts payable team.

It Reinforces Every Supply Chain Link

This cross-checking procedure is important because it covers every major stage of procurement in the workflow, from ordering merchandise to ensuring the delivery of goods has taken place. It also ensures that the right quantities of the requested products are present, accounted for and in excellent condition. If the prices, quantities and products match on on all three orders, it signifies that the whole sequence of events in the supply chain are completed and that your processes are efficient and accurate.

It Helps Isolate Trouble Spots

The process emphasizes accuracy and accountability since more than one department is involved. If certain inaccuracies are commonplace, any flagged documents can be checked to see which department is most responsible for them. If erratic entries are coming from a procurement agent, for example, you can investigate the cause. It might be that a faulty computer system or a huge workload is preventing your employee from doing good work. In other words, three-way matching can help troubleshoot a bottleneck in the workflow.

It Prevents Loss Due to Fraud and Carelessness

Three-way matching ensures that every section of all three documents is examined. For instance, if it turns out that a unit price on the purchase order is different than on the invoice and shipping order, you can rectify this. Other discrepancies could relate to whether or not the amount of goods delivered to shipping and receiving is the same as what was on the documents. You’ll also be able to see if purchase orders have manager approval; if not, it could be that an employee has ordered an item for personal use on the company dime. Finding these inconsistencies will help you ensure accountability and accuracy in all purchases.

It Prevents Duplication

Sometimes a company incurs extra costs simply because an ordered item has been paid for more than once. Three-way matching eliminates that possibility by checking the order numbers and dates on all the documents and ensuring that all three forms for each order are accounted for. If a shipping order is missing, you shouldn’t pay for those goods until they arrive. The method not only ensures the workflow cycle is operating in the proper sequence, it saves you money by guaranteeing the company doesn’t pay for items it hasn’t received.

It Makes for Painless Audits

When the auditors come knocking, one of the first things they’ll look at are your purchase orders, shipping orders and invoices to check that everything is in order. Having your documents straight nullifies the need for an investigation into the business practices of the organization, allowing you to run the company without any other interruptions.

It’s Labor-Intensive (But Doesn’t Have to Be)

One major drawback to three-way matching is the time and manpower involved in compiling the information and going over each form. Sometimes, this can delay payments to the point where you have to pay extra for not meeting the terms and conditions of the transaction. If the accounting system is fully automated, all those forms can be retrieved and examined within seconds. Automating your processes also helps to consolidate your accounts payable systems with all other financial operations, so that transactions involving other departments can be just as accessible. And with safeguards built into the system, the chance of inaccuracies is significantly reduced.

Three-way matching is considered to be one of the best accounting systems because it ensures accuracy, enforces ethical business practices and verifies that all stages of a workflow are working the way they should. Although some organizations that rely on manual processes struggle with the time involved in the procedure, those with automated and consolidated accounting systems will find three-way matching a synch.

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