The Undeniable Benefits of Three-Way Matching in Accounts Payable

11/30/2022
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A three-way matching process can make your accounts payable process more accurate and curb the risk of fraud.

 

Invoice fraud is a serious problem for credit controllers, finance managers and CFOs. Unfortunately, hackers and scammers have been deploying business email compromise (BEC) attacks where they're impersonating C-level executives or finance controllers in a company. 

The data supports this. TechRepublic found that in the third quarter of 2020, the median number of BEC attacks received per company each week rose by 15% from the previous quarter. To make matters worse, attacks that employed invoice or payment fraud jumped by 155%.

Invoice fraud

This is where three-way matching can protect your AP (Accounts Payable) department from receiving inaccurate or fraudulent invoices. Automated three-way matching is a smart investment if you want to mitigate the risk of paying duplicate invoices, inaccuracies and fraud.

But how does three-way matching work and what are its benefits? Read on to find out the answers.

Chapter 1

How does three-way matching work?

There are three important documents that are necessary for managing payments via accounts payable. These are invoices, order receipts and purchase orders. Before the payment is fulfilled, the AP department verifies these documents to confirm the goods/services received matches the information on the invoice and that the payment made matches with the receipt.

Invoices: Whether it’s in paper or an EDI form, an invoice is a payment request from a vendor/supplier to a buyer. Invoices will contain information needed for the sale to be made, such as the total amount, a unique invoice number, contact details of the supplier/vendor and any discounts that are applied.

Order Receipts: These are proof of payments and come with the delivered goods. They contain information on the goods that have been delivered and how they were paid for.

Purchase Orders: This document officially confirms the goods and services were received. The buyer sends this to the supplier or vendor. Purchase orders authorize the purchase of a product. Purchase orders contain a purchase order number, details of the goods sold, the payment method, and the quantity of the goods delivered. 

Chapter 1

Two-way vs. three-way matching: what's the difference?

A two-way matching process involves matching an invoice for goods and services with a purchase order. This makes sure that the purchase order matches the invoice i.e. goods delivered match the goods ordered. Then after approval the appropriate payments are subsequently made.

Three-way matching involves adding receipts into that process. This enables payments made to be automated and can be matched automatically to the receipt on delivery. This enables any errors to be identified instantly and can be addressed appropriately. If inaccuracies are found during the process, then that payment will not be made until the issue is reconciled manually.

While two-way matching is a default for many businesses when it comes to verifying invoices, three-way matching is now more popular than ever as businesses are finding it can help them reduce spending on bigger, one-off orders. 

To show you the difference between a two-way matching process and a three-way matching process, let’s take a look at the steps of a two-way matching process:

  • A vendor sends an invoice for goods or services ordered via a purchase order.

  • AP creates an invoice that matches the purchase order.

  • While the invoice is awaiting approval, the details of the invoices are matched to the details on the purchase order receipt, to confirm that the invoice criteria has been met.

  • If the invoice criteria isn’t met, the invoice is put on hold until the problem is resolved.

  • If the invoice criteria is met, then the invoice can be fulfilled. 

In ensuring that the packing slip or order receipt match the invoice & purchase order, you are confirming that the goods received matches goods ordered. This helps to identify and address any discrepancies with ease.

Purchase order
Chapter 1

Reap multiple benefits from three-way matching

There are a few reasons why more and more businesses are implementing a three-way matching process to safeguard their AP process. Let’s take a look at three compelling reasons why your business should introduce three-way matching.

Enhances vendor/supplier relationships: Verified data is extremely important to vendors and suppliers. If invoices are consistently inaccurate and full of mistakes, then your suppliers may lose confidence in you and decide to no longer do business with you.

Improves your bottom line: Three-way matching can have a positive impact on your bottom line. Verifying data can safeguard your business against paying fraudulent invoices, paying twice, overpaying, damaged or missing shipments and more. 

Makes audits easier: Having access to better data can be helpful for auditors identifying any inconsistencies in your finances. Three-way matching makes your business better prepared for audits as you have a detailed record of all invoices, order receipts, and purchase orders.

Technology can also help with audits when it comes to the accounts receivable process too, as Creditsafe’s Enhanced Customer Due Diligence can make sure you’re doing business with confidence. You can carry out a risk assessment on your customers in 3 clicks, and speed up the investigation time when deciding whether to take on a customer with a single search.

steve carpenter

About the Author

Lina Chindamo, Director, Enterprise Accounts, Creditsafe Canada

Lina Chindamo is a Certified Credit Professional with over 25 years of experience in credit risk management. She has held senior leadership positions at companies like Sony Electronics, Maple Leaf Foods, and Mondelez Canada. Her extensive experience and current role, where she collaborates with c-suite partners and credit teams across various industries, make her a respected figure in the credit industry.

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