Accounts payable uses multiple internal control processes to verify and approve invoices. One of the methods is three way matching. This process involves matching three key documents together: the purchase order (PO), the receiving report, and the supplier’s invoice. In this blog, we look into how it actually works so that we can understand its benefits for a business.
How Three Way Matching Works
1. Matching the Purchase Order and Receiving Report
The first step is to compare the purchase order with the receiving report. This ensures that the items received match what was ordered in terms of quantity and specifications. Any discrepancies, such as missing items or incorrect quantities, need to be addressed before moving forward.
2. Matching the Receiving Report and Invoice
Next, the receiving report is compared with the supplier’s invoice. This step verifies that the invoice accurately reflects the items received and the agreed-upon prices. Any differences in pricing or quantities are flagged for further review.
3. Final Verification and Approval
Once the PO, receiving report, and invoice are matched and discrepancies resolved, the invoice is approved for payment. This final step ensures that the business only pays for goods that were ordered and received as expected.
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Benefits of Three-Way Matching
1. Prevents Overpayment and Fraud
Three way matching firstly helps prevent overpayment and fraud. It ensures that invoices are only paid for goods that have been received and match the purchase order. This process acts as a safeguard against unauthorised purchases and incorrect billing.
2. Enhances Accuracy and Efficiency
By systematically comparing documents, three way matching also enhances the accuracy of financial records. It reduces the chances of errors and ensures that accounts payable processes are efficient and reliable.
3. Improves Supplier Relationships
Finally, consistent and accurate payment practices foster better relationships with suppliers. By using three way matching, businesses can ensure timely and correct payments, which can lead to improved terms and conditions with suppliers.
Conclusion
In conclusion, three way matching is a crucial process in accounts payable accounting that ensures financial accuracy, prevents fraud, and improves efficiency. By understanding and implementing this process, businesses can enhance their financial controls and maintain better supplier relationships. Investing in automation tools can further streamline the process and manage high transaction volumes effectively.
Learn more about B2BE’s Three Way Matching solution.
About B2BE
B2BE delivers electronic supply chain solutions globally, helping organisations to better manage their supply chain processes, providing greater levels of visibility, auditability and control. We’re driven by a passion for what we do, inspired by innovation, and underpinned by a wealth of knowledge. With over 20+ years of experience, the B2BE teams operate worldwide.
For more information, visit www.b2be.com.