Ascertaining whether a company ordered and accepted the goods/services and bills claims payment to efficiently decided whether an invoice is fair or dishonest. Keep reading to learn everything you need to understand about 3-way matching in a procurement landscape. This way, you can better streamline the creation how is sales tax calculated of a trial and allocate precise roles in the procure-to-pay process. Hence, it might not be wrong to say executing a 3-way matching system is effortless in any business. The primary difference between the two are in 2-way matching, there are two documents matched whereas in the 3-way matching, there are three documents matched with each other.
Portal
Effective 3-way matching is crucial for ensuring accuracy and preventing errors in invoice processing, but it’s not a one-size-fits-all solution. The complexities of modern businesses, especially those operating on a global scale or within specific industries, require a tailored approach. Customizing the 3-way matching process to align with your organization’s needs can help reduce errors, improve compliance, and prevent overpayments.
AP & FINANCE
The receiving report, also known as the goods receipt, is created by the receiving team or warehouse staff when the items physically arrive. It’s a formal document created by the buyer (usually the procurement or purchasing team) and sent to a supplier. It also includes a unique PO number that is used to track and reference the order throughout the process. Invoice matching affects the speed and accuracy of invoice approvals, influencing Days Payable Outstanding (DPO) and working capital. Faster approvals enable finance teams to strategically time payments, avoid late fees, and negotiate early payment discounts, improving liquidity.
Accelerate invoice approvals and payment cycles
There are many tools available on the market, from the simplest to the most sophisticated. Take the time to browse through the features and services on offer, and compare several software packages to find the one that really meets your needs. They also include the quantity (comparison between the quantity ordered, delivered and invoiced) or the number of hours in the case of a service. To scale effectively, implement automation that handles increasing volumes without proportional staffing increases.
- For instance, AI algorithms can be trained to recognize patterns and discrepancies in financial documents, flagging issues for review much faster than a human could.
- Starting the invoice-PO verification process as soon as you receive the invoice as opposed to waiting for all documentation to be processed, is a great way to ensure timely payments.
- Doing this allows for seamless compliance and a repository of electronic records of invoices, purchase orders, and receipts.
- From the drop-down list, select the source for the exchange rate that will be used for the purchase order voucher.
- This third document confirms that the company received the goods or services as ordered, both in quantity and quality, before any payment was approved.
- By quickly matching and paying on (or ahead of) time, buyers can also expect to negotiate better prices and credit terms with the suppliers.
Hybrid approach strategy
- A three-way invoice match helps you avoid falling prey to fraudsters claiming they provided goods or services.
- Utilizing AP automation software can ease the manual burden on your accountants and perform an accurate match with a good return on investment.
- A less stringent matching process might suffice for highly rated vendors, while new or lower-rated vendors could still undergo the complete 3-way matching process.
- If all documents align, payment proceeds smoothly, reflecting a successful application of three-way matching.
- The invoice details would be validated against the details mentioned in the PO before approving the invoice.
Fake invoices are often made well to resemble the real ones, which makes it difficult to distinguish them at first glance. Still, if there’s no related purchase order or receipt, it’s easy to recognize fraud. Three-way matching might require a little extra time to complete, but it protects the organization from possible troubles, helps keep books in order, and saves money. If any issues are found during the three-way match, payment isn’t issued and the involved parties play their role in rectifying the issue(s). After an invoice is validated during the three-way match processing, payment can be Opening Entry sent.
It could include hiring a specialist to manage the matching process or investing in an automated system capable of handling the complexity of two-way, three-way, and four-way matching. An automated digital-first approach ensures that all records are consistent and provide a single source of truth. When data is readily accessible at all times, businesses can access clear audit trails and pinpoint financial inconsistencies quickly.
