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Why Automated 3-Way Matching is Key to Accounts Payable Success

3-Way Matching
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Accounts Payable (AP) is an essential function in any organization that deals with vendor payments. It involves managing invoices, payments, and keeping track of expenses. One of the critical steps in the AP process is verifying the invoice details against purchase orders (PO) and receiving reports (RR). This process is called 3-way matching, and it ensures that the payment is made only for the items received and invoiced.

What is the difference between 2- way, 3 -way and 4 -way matching

Three way matching in AP invoice processing is a cross referencing of invoice with purchase order and purchase receipt to ensure there is no discrepancy and the order was delivered as per the agreed terns.

By incorporating e-invoicing software into this process, organizations can streamline and automate the matching process, enhancing efficiency and reducing the risk of errors. This systematic approach not only prevents potential fraudulent or unauthorized transactions but also results in substantial cost savings, preserving valuable financial resources.

2-way vs. 3-way vs 4 -way matching

In Two-way matching, organization matches the invoices only against purchase orders whereas in Three-way the invoices are matched against Purchase order and purchase receipt. In the Four-way matching, the invoice is matched against Purchase order, purchase receipt and as well as product acceptance.

Document Purpose 2- way 3- way 4 – way
Purchase Order Confirms the purchase was authorized  Yes Yes Yes
Purchase Receipt Confirms the good was received No Yes Yes
Invoice Amount owed against good delivered Yes Yes Yes
Product acceptance Product delivered is as per the PO No No Yes

The 3-way matching process involves comparing three essential documents:

  1. Purchase Order (PO): A document issued by the buyer to the vendor, specifying the items to be purchased and the price agreed upon.
  2. Receiving Report (RR): A document that shows the receipt of goods or services by the buyer from the vendor.
  3. Invoice: A document that requests payment for goods or services provided by the vendor.

The matching process involves comparing the invoice details with the PO and RR to ensure that the correct items were received, and the price charged is accurate.

Benefits of 3-way matching-

There are numerous benefits of three- way matching. Some noteworthy ones are-

  • Eliminate Fraud– The Three–way matching serves as check and balances to make sure invoices are in line with what was agreed upon. By comparing Invoice with Purchase Order and purchase Receipt, the organization can eliminate fraudulent invoices.
  • Strengthening supplier relationship– The Three- way invoice matching begins the cycle for payment to the suppliers. By sending consistent accurate invoices, trust is developed, and the enterprise is also able to pay the suppliers faster.
  • Increase Profit- Catching Fraudulent invoices saves precious dollars resulting in increased profits. With three-way matching there are no chances of over payment or fraudulent claims.
  • Audit ready- Three-way matching ensures a proper trail helping organizations be always prepared for internal or external audits.

What is the problem with manual 3-way matching?

Manual 3-way matching can be time-consuming and error-prone. The process involves manually checking each invoice against the PO and RR, which can be challenging, especially when dealing with a high volume of invoices. Additionally, manual 3-way matching is susceptible to human errors, such as incorrect data entry, misinterpretation of information, and missed matches.

Manual 3-way matching can also be costly. The time and resources required to manually match invoices can significantly impact the AP process’s efficiency and productivity. Furthermore, manual matching can result in delayed payments, which can affect vendor relationships and lead to lost discounts and increased costs.

What is automated 3-way matching?

Automated 3-way matching is a process that uses software to match invoices, POs, and RRs automatically. This process involves integrating the organization’s ERP system with an automated Accounts Payable Automation Software, which can extract data from the three documents and match them against each other.

The automated 3-way matching process begins with the system capturing the invoice details, such as vendor name, invoice number, and amount. The system then matches the invoice details against the PO and RR data, which are already stored in the ERP system. The software can identify any discrepancies and highlight them for review.

If the automated 3-way matching process identifies a match, the invoice can be processed for payment automatically. If there is a discrepancy, the system can route the invoice to the appropriate person for review and approval.

What are the benefits of automated 3-way matching?

Automated 3-way matching offers several benefits to organizations. First, it eliminates the need for manual matching, which can significantly reduce the time and resources required for the AP process. Automation can also reduce the risk of errors, improving the accuracy of the matching process.

Automated 3-way matching can also improve the AP process’s efficiency and productivity. By automating the matching process, the organization can process invoices more quickly, reducing the time it takes to pay vendors. Faster payments can improve vendor relationships and help the organization take advantage of discounts offered for early payment.

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Another benefit of automated 3-way matching is improved visibility into the AP process. The software can provide real-time data on the status of invoices, highlighting any issues that require attention. This visibility can help organizations identify bottlenecks and make process improvements, further streamlining the AP process.

Drive straight-through processing (STP) with automated 3-way matching

Automated 3-way matching can also help organizations increase their straight-through processing (STP) rates. STP refers to the percentage of invoices that can be processed without any manual intervention. The higher the STP rate, the more efficient the AP process.

Automated 3-way matching can increase STP rates by reducing the number of invoices that require manual intervention. When an invoice matches the PO and RR data, it can be processed automatically without any manual intervention. This can significantly increase the STP rate and reduce the time and resources required for the AP process.

Additionally, automated 3-way matching can help organizations achieve regulatory compliance. The software can enforce business rules and ensure that invoices are processed according to the organization’s policies and procedures. This can reduce the risk of errors and ensure that the AP process complies with regulatory requirements.

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In conclusion, three-way invoice matching is a critical process in the AP function that ensures that payments are made only for the items received and invoiced. Manual 3-way matching can be time-consuming, error-prone, and costly. Automated 3-way matching can eliminate these issues by automating the matching process, improving efficiency, accuracy, and visibility. Automated 3-way matching through invoice matching software can also increase STP rates and help organizations achieve regulatory compliance. By adopting automated 3-way matching, organizations can streamline their AP process, reduce costs, and improve vendor relationships. If you’re interested in seeing how automated 3-way matching can help your organization, request a demo today.

Related Read:

  1. Navigating the Complexities of Accounts Payable Compliance
  2. Measuring Your Accounts Payable Effectively: Operational Metrics
  3. Effectively Managing Vendor Relationships with AP Automation
  4. How does AI led AP automation help in Straight Through Processing (STP)
  5. Setting Up Internal Controls in Accounts Payable Processes
  6. 5 Key Benefits of Enhancing Your Business with an e-Invoice Generation Tool
  7. White Paper – Accounts Payable Cheat Sheet for Detecting and Preventing Supplier Frauds
  8. White Paper – Accounts Payable Cheat Sheet for Detecting and Preventing Supplier Frauds
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Swagata Kumar having over 13 years of experience as a seasoned Product Marketing leader, developing and implementing effective Go to Market strategies for high growth B2B SaaS Products and Technology solutions. She bring with an unique and strong blend of experience across Product Marketing, Go to Market, Customer Marketing, Business Strategy, Sales Enablement and Business Development in B2B SaaS. Throughout her rewarding career, she have closely collaborated with sales leaders in diverse markets, enabling me to design and implement impactful campaigns that have significantly contributed to business revenue growth and market share expansion. As a result, She have developed an in-depth understanding of revenue-driven marketing strategies for B2B SaaS products in the US and EMEA regions. She expertise encompasses Product Marketing, Product Positioning and Messaging, GTM Strategy, Cross Functional Leadership, New Product Launches, Sales Enablement, Product Evangelization, Customer Marketing, Market and Industry Research, Competitive Benchmarking, Content Marketing,
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