3-Way Matching Process In Accounts Payable

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3 way matching accounting

Fraudulent activities and overpayments can have a detrimental impact on a company’s finances. The 3 way match serves as a powerful tool in mitigating such risks. By validating each component of the transaction through this process, businesses can identify any discrepancies or irregularities that may indicate fraudulent activities. Additionally, it helps prevent overpayments by ensuring that the quantities and prices on the supplier invoice align with the purchase order and goods receipt. When an accounts payable team identifies a fraudulent invoice, they stop the company from wasting money on a phony supplier.

  • 3 way matching helps approve AP invoice payments faster and also help the procurement management team flag any inconsistencies, errors or potential fraud.
  • AP teams end up spending lots of man-hours manually hunting for every invoice, PO and receipt!
  • In a two-way match, the purchase order and the invoice are compared.
  • Interdepartmentally shared databases and advanced implementation of controls make it more important than ever to safeguard against errors in payments and accounting reports.
  • A 3 way match is an internal control process that cross-references a supplier’s invoice against its corresponding purchase order (PO) and good received note (GRN).

Find out how DocuPhase can help you increase the audibility of your accounts payable processes by requesting a free demo. It’s a good idea for the person doing the receiving to make notations directly onto the packing slip, of missing or damaged items. The packing slip should be marked with the date the items were received and by whom. It then gets routed to the Accounts Payable department where the form gets filed, awaiting a match to the incoming invoice.

Streamlining the Procurement Process

Before the overpayment for the missing box of paper is made, the match process flags the discrepancy and the appropriate communication is conducted between vendor and stakeholders. Although three-way matching has major drawbacks, its benefits can really help your AP. By using this system, your business can avoid fraudulent invoices and incorrect payments.

Amazon-Business-Launches-3-Way-Match-for-Mobile-App – Amazon Press Release

Amazon-Business-Launches-3-Way-Match-for-Mobile-App.

Posted: Thu, 02 Mar 2023 08:00:00 GMT [source]

The procedure is used to ensure that only authorized purchases are reimbursed, thereby preventing losses due to fraud and carelessness. Most AP automation software, like Nanonets, can help organizations switch from manual 3 way matching to a completely touchless automated workflow. AP teams across enterprises use Nanonets to build end-to-end automated accounts payable workflows. All invoice payments involve some sort of verification or control.

Reduces Manual Errors and Incorrect Payments

It will also check if the supplier requests full or partial payment. This is especially important if the business received only a part of the order. Unfortunately, this high 3 way matching accounting volume of purchases offers plenty of opportunities for billing fraud. To mitigate the invoice fraud risk, many business owners and finance departments use 3-way matching.

Process improvement and efficiency leads to better time management and overall cost savings for an organization. Successful businesses find and implement ways to save time and money in order to further their growth and development. Every business that uses three-way matching should establish strict rules for their verification and payment processes. By sticking to a uniform policy, the business will get the most out of three-way matching. Also, suppliers and vendors might lose trust if the purchase orders and order receipts are often inaccurate. The number of items delivered should match the quantity on the purchase order.

Three-Way Matching Improves Business Relationships

A company prepares a purchase order when they agree on purchasing price and quantity with the supplier. Three-way matching consists of several steps when these documents are produced. We will take a look at the accounting record when each document is prepared. If your business does international transactions and the value of a currency keeps fluctuating, such errors can happen if not handled carefully. As your operations increase in complexity, scope and scale, intelligent AP automation is the key to the future of your AP department.

A business can form a strong bond with partners who always send accurate vendor invoices. As a result, it will pay them faster, which often leads to better pricing and credit terms. As the name of this accounts payable process suggests, there are three components of a three-way match.

Purchase Order (PO) – After a supplier has been finalized an official document is issued by a company to a supplier to buy specific goods or services. It usually contains the date, quantity, pricing, shipping terms, T&C etc. Successful implementation of 3 way match relies on effective change management and collaboration between different departments. Providing adequate training to employees, setting up clear guidelines, and leveraging technology can significantly simplify the implementation process. Let’s dive deeper into the components and process of the 3 way match to understand its significance in accounting and financial management.

3 way matching accounting

If this three-way match reveals that the supplier invoice is in good order, then the accounts payable staff processes the invoice for payment. If not, the staff contacts the supplier regarding any issues it found, which may result in the issuance of a revised invoice or perhaps a credit memo by the supplier. Three-way matching adds an additional step by adding the goods receipt. This ensures that prices and quantities match and that everything was received as specified in the PO, preventing overpayments and improving accuracy. Finance department is the one that requires to perform three-way matching before making payment to the suppliers.

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