In accounts payable, accuracy is everything. From preventing overpayments to catching fraudulent invoices, the pressure is always on to ensure every payment is legitimate. With the sheer volume of invoices passing through your department each month, keeping track can take a lot of work. Here, three-way matching steps in as a trusted process, ensuring that you are paying for what you ordered and received.
Three-way matching compares the purchase order, the vendor’s invoice, and the goods receipt note to confirm everything aligns before you approve payment. If there are any discrepancies, payment is paused until they are resolved. This simple process reduces errors and helps protect your business from financial losses due to fraud or incorrect billing.
In the following sections, we will explore how three-way matching works, its importance, and how automating this process can save time and money and prevent costly errors.
What is 3-Way Matching in Accounts Payable?
Three-way matching ensures that invoices, purchase orders, and goods receipt notes all align before payments are approved. It eliminates guesswork and helps verify that you are only paying for what you received.
Three-way matching compares three key documents the purchase order (PO), goods receipt note, and vendor’s invoice detailing what you are being billed for
The goal is simple: make sure all three documents match before releasing any payment. It may sound simple, but this extra layer of protection can save your business from costly mistakes down the line.
How Does 3-Way Matching Work?
The three-way matching process is a fundamental practice in accounts payable to manage invoices and prevent errors or fraud. Here’s how the 3-way matching procedure works systematically:
- Placing an Order: The buyer places an order with a supplier, and a corresponding purchase order (PO) is generated and sent to the supplier. This document specifies the goods or services required, the agreed price, and the quantity.
- Supplier Creates an Invoice: After fulfilling the order, the supplier’s accounts receivable department issues an invoice based on the PO. The invoice includes all details such as the items, quantity, price, and the total amount due.
- Invoice Sent to Buyer: The supplier sends the invoice to the buyer, stating the terms agreed upon in the PO. This invoice serves as a request for payment.
- Invoice Verification: The accounts payable (AP) department of the buyer reviews the invoice to confirm it matches the purchase order. They check:
- Quantity: Does the invoice match the PO in terms of quantity?
- Price: Is the line item price on the invoice consistent with that of the PO?
- Mathematical accuracy: Are all totals and calculations correct?
- Goods Receipt Confirmation: The buyer also verifies that the goods or services were received by checking the goods receipt note (GRN) or receiving report, which confirms delivery details like quantity, condition, and date of receipt.
- Approval or Discrepancy Resolution: If all details in the PO, invoice, and goods receipt match, the invoice is approved, and payment is processed. However, if discrepancies are found, the AP department will contact the supplier to resolve the issue before releasing payment.
By following this process, businesses ensure they only pay for goods or services that are correctly delivered and invoiced, preventing overpayment, fraud, and other costly errors.
Components of a Three-Way Match
The three key documents are the foundation of the entire process. If any one of them does not match the others, you can avoid paying. It is all about ensuring accuracy and avoiding unnecessary financial risks.
1. Vendor’s Invoice
This document is sent by the vendor after the goods or services are delivered and includes important details such as the description of the goods or services, the quantity, the unit price, and the total amount due.
What you are looking for here is simple: does the invoice reflect exactly what you agreed upon in the purchase order? If there are any discrepancies, such as an inflated price or extra charges, the invoice should only be paid once the issue is resolved.
2. Purchase Order (PO)
The purchase order is your original request to the vendor. It outlines the items or services you need, the agreed quantities, and the price. It is essentially the contract between you and the vendor, and it is the first piece of the puzzle in three-way matching.
When comparing the invoice with the PO, you are checking for consistency in pricing and quantities. This is where you can catch overbilling or other discrepancies before payment is made.
3. Goods Receipt Note (GRN)
The goods receipt note confirms that what you ordered has been delivered. Your team creates it when they receive the items and check them against the purchase order. This document confirms that the correct quantity was delivered and the goods are in the condition you expected.
This is the final piece of the match. If the goods receipt does not match the purchase order or the invoice, something has gone wrong. It could be an issue with damaged goods, missing items, or delivery errors. Whatever the issue, it is your job to resolve it before processing the payment.
Without this level of detail, your accounts payable process would be open to errors, overpayments, or, worse, fraud.
Importance of Three-Way Matching
Three-way matching is like the grease that keeps AP running smoothly. If you are responsible for ensuring accurate payments, it helps you avoid costly errors and keeps your vendor relationships intact. Here is why three-way matching matters.
- Verifies Orders: Confirms that what was ordered, delivered, and billed all match. This prevents overpayments or paying for missing items.
- Increases Control and Visibility: Ensures each payment is backed by solid documentation. It reduces errors and adds transparency to transactions.
- Prevents Fraud: It helps catch duplicate invoices or billing for undelivered goods, stopping unnecessary payments before they happen.
- Prevents Mistakes: It identifies pricing or quantity errors early, saving you from chasing refunds or handling disputes later.
By using three-way matching, you keep your payment process tight and secure.
Business Benefits of 3-Way Matching
Three-way matching is more than a simple check to make sure everything adds up. It brings several long-term benefits that positively impact your business. If you want to strengthen vendor relationships, protect your company’s bottom line, and be audit-ready at all times, this process is a game changer.
Here are the key benefits that make three-way matching essential:
- Improved Vendor Relationships
Timely and accurate payments keep your suppliers happy. When you use three-way matching, you reduce the chances of payment disputes. Vendors appreciate that you are paying them exactly what was agreed upon, without delays caused by errors or overpayments. This builds trust, and trust leads to better terms in future transactions.
- Boosted Profit
Every dollar saved contributes to your bottom line. By catching errors or fraudulent invoices before they slip through, three-way matching prevents overpayments. Whether it is an accidental duplicate invoice or an intentional overcharge, three-way matching protects your company from financial losses that can quickly add up.
- Audit Preparation
Audits are part of business life. When that time comes, three-way matching makes it easy to provide clear, consistent documentation. You will have all the information you need—purchase orders, goods receipt notes, and invoices—at your fingertips. This level of organization ensures you can show that all transactions are accurate and above board.
- Cost Control
Without three-way matching, financial leakage can happen without you even realizing it. Whether it is a vendor overcharging or a payment going through for undelivered goods, these minor oversights can cost your business. With three-way matching in place, you have a system that ensures every cent is accounted for.
Drawbacks of Manual Matching
While three-way matching is a critical part of your accounts payable process, doing it manually can quickly become overwhelming. When handling a high volume of invoices, using spreadsheets and paper records to cross-check documents creates more problems than it solves. Here is why manual matching may be holding you back:
- Time-Consuming
Manually cross-referencing purchase orders, goods receipt notes, and invoices is a slow and tedious process. Each document must be reviewed carefully, which takes hours or even days when dealing with large numbers of transactions. This time could be better spent on higher-value tasks.
- Prone to Human Error
Even with the best team, manual processes can lead to mistakes. It is easy to misplace a document or misread a figure. One small error can result in an incorrect payment, leading to overcharges or missing items that go unnoticed.
- Potential Late Payments
Delays in manually matching documents can cause late payments. Missing payment deadlines affects your relationship with suppliers and leads to penalties or missed early-payment discounts, which could have saved your business money.
- Scalability Issues
As your business grows, so does the volume of invoices. Relying on manual processes can slow down your accounts payable department, creating bottlenecks that impact your cash flow. What worked when your company was smaller may not work when you scale up.
Manual matching has served its purpose in the past, but it may be time to rethink how you handle it. Automating the process can solve these issues, giving your team the time and tools to focus on what truly matters.
Automating the 3-Way Matching Process
If manual matching feels like a constant uphill battle, automation can change everything. With automation, you remove the risks of human error and streamline the entire payment process. Let us look at how automating three-way matching can benefit your business.
1. Speed Up the Payment Process
When you automate three-way matching, the process that used to take hours now takes minutes. The system instantly cross-checks the invoice, purchase order, and goods receipt note, flagging any discrepancies for your review. You get to approve payments faster, which can help you maintain strong relationships with your vendors by paying them on time.
2. Reduce Errors
Automation removes the risks that come with manual data entry and document comparisons. Instead of relying on staff to sift through mountains of paperwork, automated systems do the heavy lifting for you. This reduces the likelihood of overpayments, missed items, or incorrect quantities slipping through the cracks.
3. Centralized Record Keeping
Automating your three-way matching process means all your documents are stored and organized digitally. You can access purchase orders, invoices, and goods receipt notes in one place. This makes audits smoother and ensures that you always have a clear trail of documentation when questions arise.
4. Improved Scalability
As your business grows, so will the volume of invoices and payments. Manual processes may need to catch up, but automation can scale alongside your growth. Whether you are processing 100 invoices or 1,000, an automated system handles the workload with ease, ensuring everything is noticed.
5. Free Up Your Team for Higher-Value Tasks
Automation frees your accounts payable team from spending hours matching documents manually. This gives them more time to focus on strategic tasks that drive value for your business—like building stronger vendor relationships or identifying cost-saving opportunities.
With automation, the benefits of three-way matching only get better. The time savings, accuracy, and control you gain put you in a position to focus on growing your business rather than being bogged down by paperwork.
How Peakflo Simplifies the 3-Way Matching Process
Automating the three-way matching process is essential to making your accounts payable more efficient, and Peakflo takes it a step further. By integrating advanced features, Peakflo ensures that your team can move beyond manual checks and focus on higher-value work. Let us take a look at how Peakflo can transform the way you handle three-way matching.
- AI-Powered Invoice Capture
One of Peakflo’s standout features is its ability to scan and capture invoices using AI automatically. The system identifies the purchase order number on the bill and matches it with the corresponding PO in your system. If there are any mismatches—quantity, price, or an incorrect vendor—the system flags them instantly. This means fewer errors, faster processing, and no need for manual verification.
- AI-Powered 3-Way Matching
Traditional systems can flag simple errors like mismatched totals or missing invoices but struggle with more complex issues, such as when vendors use different item names or codes. These systems identify mismatches but require manual intervention to resolve them.
Peakflo’s AI-powered three-way matching goes beyond detection, using AI-powered OCR to recognize and resolve these discrepancies automatically. It contextually understands differences, such as varying product codes or descriptions, and compares unit costs and quantities to fix issues without manual intervention. This reduces error rates and frees up time for your team to focus on higher-value tasks.
- Centralized Communication for Mismatches
When mismatches do occur, Peakflo keeps everything organized. It allows you to tag relevant stakeholders in the system, leave comments, and track all communication related to the mismatch. This way, responses are quick, and there is always a clear audit trail for future reference.
- Tracking Three-Way Matching in One Place
Peakflo makes it easy for your finance and procurement teams to track the status of every three-way match. Everything is organized in one central location, from invoice balance, payments, duplicate invoices, and partial deliveries. With no scattered files or paperwork, you can stay on top of every payment.
- Seamless Integration with Accounting Software
One of the key advantages of Peakflo is its seamless integration with your existing accounting software. This means you do not need to worry about manually exporting or importing data. Everything from your three-way match records to your audit trail syncs automatically with your accounting system, making the entire process smoother.
In addition to these core features, Peakflo automates other parts of the procure-to-pay process. Here are a few additional ways Peakflo simplifies operations:
- Purchase Order Creation: After quote approval, Peakflo allows the effortless creation of purchase orders that are automatically matched to the quote. This cuts down manual work and ensures accuracy from the start.
- Automated Bill Approvals: With customizable approval levels based on invoice amounts, Peakflo automates the entire bill approval process, keeping an accurate audit trail of who approved what and when.
- Centralized Communication: Peakflo centralizes communication, so you can tag team members, leave notes, and ensure all stakeholders are informed at every step.
By automating critical tasks, reducing errors, and centralizing communication, Peakflo saves your business time and money. More importantly, it transforms the three-way matching process into something your team can easily manage without the risk of manual errors.
Now that you know how Peakflo can help, let us recap the importance of three-way matching and why automation is the future for businesses like yours.
Conclusion
Three-way matching is more than just an accounting practice—it is the backbone of your accounts payable process. It ensures that every payment your business makes is accurate, justified, and supported by the proper documentation. By matching the purchase order, the goods receipt note, and the vendor’s invoice, you protect your company from overpayments, fraud, and costly mistakes.
Relying on manual processes to handle this can slow down your team, create bottlenecks, and leave room for human error. That is why automating three-way matching is the logical next step. With automation, you save time, reduce errors, and ensure your team can focus on what matters most—growing the business, not managing paperwork.
Here is where Peakflo comes in. By automating critical parts of the three-way matching process and centralizing communication, Peakflo takes the burden off your team. From AI-powered invoice capture to seamless integration with your accounting software, Peakflo helps you keep everything on track while reducing the risk of errors and missed payments.Ready to see how Peakflo can transform your accounts payable process? Book a demo with Peakflo and take the first step toward a more streamlined, error-free payment process.
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