Paper documents require huge storage areas that need to be kept safe from damage due to human handling and nature’s forces. When documents are not organized properly, retrieval for reference becomes a headache. Manual verification of information on various documents is a time-consuming process. In some cases, even gathering the required documents also takes a long time. The 4-way matching adds another verification layer to the 3-way check by checking the quantity accepted.
- A lot of the time, errors in invoices are noticed after the payment has been made.
- Nothing can take the wind out of your sails like manually matching printed POs with invoices and packing slips.
- In corporate bookkeeping—or any financial endeavor—you want your records to match.
Most companies do some form of matching of vendor invoices to purchase orders and/or goods receipts. The ice cream company confirms the purchase order, and the vendor issues an invoice for the goods. This breaks down the sale into quantity ordered (1,000) along with cost per unit ($1) and total cost ($1,000 plus any applicable sales tax).
Advantages of Automating 3-Way Matching
If all the details in the three documents match, the invoice is approved, and payment is released. The buyer acknowledges a receiving report issued by the supplier as proof of payment standard deduction definition and order completion. You can think about eliminating smaller value invoices and recurring invoices from the 3-Way Matching In Accounts Payable procedure in order to make it simpler.
- Manual data processing and invoice matching is laborious and may be prone to errors and misinterpretation.
- Whether it’s from the government, investors, or other vested parties, three-way matching creates a robust paper trail that’s useful for verifying how much legitimate expenses a business has made.
- A Three-way match is the process of matching the purchase order (PO), invoice, and goods receipt (GRN) note to validate the supplier’s invoice before payment is made.
- To ensure that every order is complete, 3-way matching highlights discrepancies or inconsistencies between any of these critical documents.
- The AP department at Computer Co. receives a $4,500 invoice from a vendor for 1,500 circuit boards.
Three way matching compares line item details and totals across purchase orders (PO), receipts for good, and vendor invoices sent to the customer. Internal and external auditors may examine purchase orders, order receipts, and invoices during an acquisition and payment cycle audit. The auditor needs to follow the purchase process from requisition to payment to verify accuracy, completeness, cut-off, occurrence, and classification. Keeping these documents together will streamline the audit process, saving countless hours for audit personnel. Every business can benefit from speeding up payments and reducing the threat of human error.
Way & 3-Way Matching in Accounts Payable Explained
On the other hand, reconciliation is the process of checking two data sets to see if they agree. A cash flow statement created using the indirect method is an excellent example of a reconciliation between the net profit and the cash flow. This approach compares various aspects, including the invoice amount, invoice number, and order quantities, with the corresponding purchase order (PO) and GRN.
When calculated for several goods on a monthly basis, manual processing costs may run into six figures. Misplaced paper documents, incorrect information, and human oversight further increase the cost of manual invoice matching. 3-way invoice matching is a must to ensure that every order is complete. A 3-way match in accounts payable (AP) highlights the discrepancies or inconsistencies between any of the above-mentioned documents.
What is a 3-Way Match in Accounts Payable?
Also called a receiving report or delivery receipt, the GRN confirms that the receiving department has received the delivery. It contains information about the delivered items and states whether the delivery was full or partial. Unfortunately, your suppliers won’t take a day off from submitting new invoices or expecting prompt reimbursement for their efforts. One of the major red flags that an auditor might encounter in their investigation is discrepancies between financial documents.
What about companies with a large volume of non-PO invoices?
Three-way checking results is an efficient accounts payable process that protects your bottom line and cash flow. Now that the accounts payable department has the invoice, purchase order, and receipt in hand, they can use 3-way matching to ensure all details are correct. The number of units, cost per unit, and total cost should be the same across all three documents.
What is 3-Way Matching in Accounts Payable?
Here is everything you need to know about 3-way matching, from how it works to its drawbacks. Although physical records may be traditional and accessible, there are far more disadvantages to them compared to automated solutions.
Documents involved in 2-way and 3-way matching
Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law. Some enterprises, especially larger ones, also follow the 4-way matching process for invoices. A stationary shop requested to order 400 books from a publication house. They sent a purchase order for the 400 books, priced at Rs.100 per book.