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When business owners expand their ventures and investments, changes in the company landscape start to become visible. Changes, such as hiring new staff or gaining new suppliers, can affect the business’ overall process in terms of financial gains and losses. If the company is still stuck in traditional payment processes, a large number of transactions involving clients and suppliers can be challenging to handle. One effective way to improve payment processes is to adapt the three-way matching process. Three-way match is the process of comparing the purchase order, invoice and goods receipt to make sure they match before approving the invoice for payment. If they match, the supplier’s invoice will be approved for payment. A 3-way match helps decide if an invoice should be paid partly or in full. The vendor invoice is a document stating the amount of the services or goods that the buyer owes the supplier. It is a document that shows the invoice number, supplier name and information, payment discounts, and payment schedule. The purchase order (PO) is a document listing the types, quantities, and prices of products and services agreed upon by the supplier and buyer. It is also called the order confirmation receipt. The specific products, quantities, and prices of each item ordered are called line items. Line items may also include additional information, such as comments or charges. A unique code generated in the PO is called PO number. It is used as a tracking or reference number that is uniform with the invoice. Meanwhile, the receiving report is a document stating that the buyer received the goods or services from the supplier. Once acknowledged, this document is also considered as payment confirmation. Why Should You Use a Three-Way Match?
Three-way matching may be labor-intensive and time-consuming because both the supplier and the buyer will allocate time and resources to accomplish the necessary paperwork. The process also requires both parties to check and send documents back and forth to each other. Still, the three-way match process is an effective business practice for both suppliers and buyers. By acquiring, requiring, and matching the three documents, businesses can ensure a fool-proof and secure payment process. The matching process makes auditing simple. The order receipts and vendor invoices are two standard documents needed for audits. Requiring these two documents before the completion of a transaction contributes to a straightforward process. What are the Benefits of a Three-Way Match?The three main benefits of the three-way matching process focus on eliminating any discrepancies in the purchasing process. Time and Money Saver Good Supplier-Buyer Relationship Auditing Made Easy Transform the way Bring scale and efficiency to your business with fully-automated, end-to-end payables. How Does a Three-Way Matching Process Work?The three-way matching process works systematically, and as follows: 1. The buyer places the order with the supplier. A corresponding PO is sent to the supplier based on the order placed. 2. An accounts payable (AP) department creates an invoice based on the PO. 3. The buyer receives an invoice from the supplier based on the PO. 5. The buyer acknowledges a receiving report issued by the supplier as proof of payment and order completion. 6. If all the details in the three documents match, the invoice is approved, and payment is released. How a Three-Way Match WorksTo get a more detailed explanation of how the process works, here is an example: An advertising agency needs 20 new laptops for their employees to use. Upon placing the orders, the PO is sent to the supplier. After ordering the items from the supplier, the agency’s purchasing department receives a $10,000 invoice or billing information. The invoice is based on the PO sent by the purchaser to the supplier. The agency’s accounting department then conducts an invoice approval process. During this process, the purchasing and accounting departments have to verify the items listed in the invoice if they match with the PO, including each line item and PO number. Upon delivery of the laptops to the agency, the receiving department checks the PO and invoice with the receiving report or goods receipt. This receipt serves as a proof of payment and delivery of the items. Another document that may be included in the delivery package is the packing slip. This document indicates the parcel’s details—contents, date of order and delivery, and delivery address. When a laptop is missing or is damaged during the delivery, the receiving department can refer to the packing slip for possible alterations. Ultimately, all documents must have the same information. If the three essential documents—PO, invoice, and receiving report—coincide with the actual delivery, then it is a three-way match. To enhance the three-way match processing, a payment service, like Tipalti, with end-to-end optimization, from order placement to payment release, is a must for a standardized procedure. The Difference Among 2-Way, 3-Way, and 4-Way MatchingBy default, a 2-way matching is what businesses usually have. The process only needs two documents, the invoice, and PO. Meanwhile, the 4-way match adds another layer in the process for inspection and verification purposes. The inspection process is done after the delivery. All the documents are cross-checked and inspected before finally accepting the goods or services. The 4-way match is the most time consuming but most meticulous among all the processes. It should be done only when strict compliance or verification is needed. Compared to the 2-way and 4-way match, the 3-way match process is the ideal choice of internal control. The primary purpose of 3-way matching is to prevent any incorrect and fraudulent invoice or payment from happening in a company. The 3-way match helps companies avoid problems related to AP by resolving any possible mismatches on bills and orders before payments are processed. What are the Drawbacks of Manual Matching Process?Most companies use manual matching processes to record financial transactions. Manual processing includes obtaining physical documents in forms of journals or ledgers. Although physical records may be traditional and always accessible, there are far more disadvantages to it compared to automated solutions. Costs More Time-consuming Late Payments Human Error Switching to an electronic payable software solution, like Tipalti, can eradicate the disadvantages of manual matching processes. Why Should You Automate Your Matching Process?Automating the matching process can help save time, money, resources, and energy. Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. AP automation, like what Tipalti offers, can reduce 80% of the accounting department’s workload without employing additional staff. Automated matching processes also reduce the time spent on a task. It generates and sends invoices automatically without errors—no more backlogs and delayed payments. Commonly Asked QuestionsWhat is a three way match in accounting?In accounting, a three-way match is the process of ensuring that a customer’s order, the supplier’s delivery, and the goods receipt note (GRN) all match and reflect the same information, deeming the invoice legitimate and ready for payment. In other words, the purchase order, goods receipt note (GRN) and invoice all need to match in order for invoice payment to be made. When should you use two way matching instead?Although three way matching is the go-to industry standard, two way matching can be the best choice for your business in certain circumstances. Two way matching is the simpler process of matching an invoice to a purchase order and can be best to use when:
Which documents do you need for three way matching?To perform three way matching, you need a purchase order, a goods receipt note (GRN) and an invoice. The Automation Solution for Matching ProcessAn integrated AP automation is an innovative and efficient solution for companies that want to minimize workload and maximize employees’ productivity. Tipalti is the automation solution for all the AP woes that companies with manual matching processes are experiencing. Invoices are sent and received through email or web portal, which makes processing payment almost effortless. Invoices can be sent in batches for a more organized business processing. Tipalti’s processing does not end there. It also cycles around the full payment procedure and collates the matching documents for a more streamlined process. Knowing what the company needs and how the company can improve, especially in the financial aspect, can be a starting point for an organization to grow and gain traction in the long run. AP innovations are vital elements for a sustainable and centralized global business solution, one payment at a time. When a trading partner agreement is in place the traditional three way match?When a trading partner agreement is in place, the traditional three way match may be eliminated. Authorization of purchases in a merchandising firm occurs in the inventory control department. A three way match involves a purchase order, a purchase requisition, and an invoice.
What is not true about a 3 way match quizlet?What is NOT true regarding the meaning of a 3-way match? It compares the inventory's physical count with accounting records and the value of the inventory.
Which document typically triggers the three way match?So, prior to the accounts payable department actually releasing any payment they must reconcile the supplier invoice and make sure it matches both the purchase order and the receiving document. From this, we can see that the document that triggers the three-way match is in fact the supplier invoice.
How many copies of the receiving report in a purchasing Sy are distributed?Two copies are forwarded to the purchasing department and one copy is filed numerically. orders are prepared, approved, and distributed: one copy each to the requesting, receiving, and accounts payable departments.
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