Automate 3-Way Matching in Accounts Payable: From Tedious to Effortless

Manual 3-way matching in accounts payable can be tedious and time-consuming. When invoices are ‘line item heavy’, requiring the procurement team to match ten pages of items line by line, it can significantly lower team morale. For medium to large enterprises, automated three-way matching for accounts payable is the obvious ‘best practice’ move.

In this post, we will define the 3-way matching process, discuss the problems of manual 3-way matching, and explain why you should automate 3-way matching in accounts payable.

What is the 3-Way Matching in Accounts Payable?

The 3-way matching process is a key step in accounts payable to ensure the accuracy and legitimacy of a company’s financial transactions. It involves comparing three documents before approving a payment:

• Purchase Order (PO): This document details what the company ordered, including quantities, prices, and terms.
• Goods/Service Received Note (GRN/SRN): This confirms that the ordered items were received, noting the quantities and conditions.
• Invoice: This is the bill from the supplier requesting payment for the delivered goods or services.

In the 3-way matching process, these three documents are checked against each other to ensure they align. The quantities on the invoice must match the quantities received, and the prices must match those agreed upon in the purchase order. This helps prevent overpayments, duplicate payments, and fraud, ensuring that the company only pays for what it receives and at the agreed-upon price.

When done manually, this process can be time-consuming and error-prone, especially with large volumes of transactions. Automating 3-way matching in accounts payable can greatly improve efficiency and accuracy, freeing up time for more strategic tasks and reducing the risk of financial discrepancies.

How Manual 3-Way Matching in Accounts Payable Done?

Manual 3-way matching in accounts payable involves comparing three key documents: the purchase order (PO), the receipt of goods, and the invoice. Here’s how you do it step by step:

1. Gather Documents: First, the accounts payable team collects the purchase order, goods receipt, and invoice for a particular transaction.

2. Compare Details: The team then reviews these documents line by line to ensure the quantities, prices, and item descriptions match across all three.

3. Verify Quantities: They check that the quantities listed on the invoice match the quantities received, as noted on the goods receipt.

4. Check Prices: Next, they confirm that the prices on the invoice match the prices agreed upon in the purchase order.

5. Match Totals: Finally, they ensure the total amount due on the invoice aligns with the amounts on the purchase order and goods receipt.

The team must investigate and resolve any discrepancies before approving the invoice for payment. The 3-way matching in the accounts payable process can be time-consuming and prone to errors, especially with large or complex transactions.

What are the Challenges of the Manual Three-Way Matching Process?

Manual 3-way matching in accounts payable can be fraught with issues, including:

1. Collaboration

Three-way matching in accounts payable involves collaboration between the purchasing department, warehouse, finance department, and supplier. This multi-departmental involvement makes collaboration difficult and time-consuming. Any discrepancies discovered by one department should be instantly flagged in all systems, adding to the complexity.

2. Human Error

With multiple departments involved, the chances of human error increase for 3-way matching in accounts payable. We need to avoide false positives to minimize operational disruptions. For example, if the warehouse mistakenly matches an GRN with a different PO number, it can lead to unnecessary inquiries and wasted time for other teams.

3. Delays

The multi-faceted collaboration required in the three-way matching process can lead to delays in invoice approval and payment processing. This can negatively affect the vendor’s cash flow, strain supplier relationships, and eliminate early payment discounts.

4. Inefficiency

In large companies, the accounts payable department processes hundreds to thousands of vendor invoices monthly, requiring an equivalent number of three-way matches. This manual process consumes employees’ time that could be spent on more value-adding tasks, such as improving payment processes.

5. Scalability

As a business grows, the volume of transactions can overwhelm a manual system, making it difficult to maintain accuracy and efficiency. The process requires significant staff time and effort, diverting resources from more strategic tasks. Slow processing can lead to late payments, straining supplier relationships and potentially incurring late fees.

Why Automate 3-Way Matching in Accounts Payable?

Automated 3-way matching in accounts payable is an internal control process that compares item details line by line to ensure totals match between purchase orders, receipts, and invoices. With automation, software handles this task, reducing the need for manual work.

This process is crucial for protecting your business’s accounts payable. Automated systems verify and correct mistakes before payments are made, helping to catch potential flaws in invoices and preventing the hassle of paying fraudulent or inaccurate invoices.

There are many benefits to automated 3-way invoice matching. It can save your business money by ensuring data consistency across purchase orders, receipts, and invoices, which lowers the risk of fraud. Additionally, reducing mistakes in your accounts payable process strengthens vendor relationships, showing that you value their partnership. Lastly, an automated 3-way matching system is invaluable during audits. 

By implementing automated 3-way matching in accounts payable, your business can improve efficiency, accuracy, and financial control.

Benefits of Automated 3-Way Matching in Accounts Payable

Automating the three-way matching process in accounts payable offers several advantages, similar to automating other financial tasks:

• Reduces the risk of errors that can occur during manual data entry and matching.
• Flag potentially fraudulent invoices, helping to prevent financial losses.
• Ensures that invoices are not paid multiple times for the same goods or services.
• Timely payments improve vendor satisfaction and can lead to better terms and discounts.
• Companies can take advantage of discounts offered for early payment, improving cash flow.
• Digital records make it easier to prepare for audits, with all documents accessible in one place.
• Speeds up the matching process, allowing for faster invoice processing and payment approvals.
• Automated systems can handle a larger volume of transactions, making them suitable for growing businesses.
• Ensures that invoices are matched accurately, reducing the risk of overpayment or underpayment.

Streamline 3-Way Matching with Peakflo

Manual 3-way matching can be a time-consuming and error-prone process. Peakflo 3-Way Matching solution offers a platform to streamline this crucial aspect of your accounts payable workflow. By leveraging OCR technology and AI-powered smart matching, Peakflo automates the matching of purchase orders, receipt notes, and invoices. This not only saves time but also reduces the risk of errors and discrepancies. 

Purchase Order and Receipt Note Matching

Peakflo’s automated 3-way matching solution seamlessly matches purchase orders to receipt notes, streamlining the inventory process. Once deliveries are checked and validated, the system matches them to the corresponding purchase orders. This PO to RN line item matching is done automatically, comparing prices and quantities between the receipt note and purchase order. 

Any discrepancies or mismatches are flagged, allowing for quick resolution. This automated matching process not only improves efficiency but also reduces the risk of errors and ensures that orders are accurately fulfilled.

Purchase Order and Invoice Matching

Peakflo’s automated three-way matching solution seamlessly matches purchase orders and invoices, leveraging OCR technology to extract data from invoices. Using AI-powered smart matching, invoices are matched down to the line item level, assessing each product or service received. This intelligent process compares line item prices, names, and quantities to identify matches efficiently.

By automating this process, Peakflo significantly reduces the time required for manual three-way matching. Any discrepancies are promptly highlighted and flagged within the system, allowing for quick resolution and ensuring accuracy in financial transactions.

With Peakflo, your team can focus on more strategic tasks, while the system efficiently handles the matching process. Say goodbye to manual data entry and tedious matching processes—let Peakflo revolutionize your accounts payable operations.