A three-way match is a process of matching three documents to ensure that you pay an invoice that matches what you ordered.
The three documents in a three-way match process are as follows:
1. Purchase order document
2. Invoice document
3. Goods receipt document
The process of the three-way match reduces the time it takes otherwise to approve an invoice.
If the order contact receives an invoice and the invoice amount matches the purchase order amount, there is no need to approve the invoice manually.
A manual review is required if the invoice document doesn’t match the other two documents.
By enabling the three-way match, you are reducing the manual approvals required for invoices.
The three-way match process works best for material purchases. A two-way match process is more appropriate if you are purchasing services.
A three-way match process has the following benefits:
Most companies that don’t have a 3-way match process need all invoices to be approved.
If you have a manual AP process, the AP team first needs to download the invoice from the email attachment.
If you have paper invoices, then those need to be scanned, which is time-consuming.
When implementing a 3-way match process, you should look at the complete AP automation process.
It is a considerable effort if you are currently entering every invoice approved by the appropriate stakeholder into your accounting system.
This approach requires multiple follow up with stakeholders and resending the emails for approval. Lots of fun!
With a 3-way match process, you only send those invoices for approval that the system couldn’t match with a purchase order and receipt.
That reduces the time it takes to process invoices because fewer invoices need approval.
Though a 3-way match reduces the overall cycle time, you still need to match the invoice with other documents. That takes time and could be a considerable time suck if you have many invoices to process.
That is why you should look at implementing an automated 3-way match process to further reduce the invoice processing cycle time.
Here compliance refers to ensuring that the invoice approval meets the purchasing policy standards for approval.
Suppose your purchasing policy mentions that the respective stakeholders must approve all invoice exceptions. That means you must document all approvals logs for audit purposes.
That is time-consuming and could take considerable effort from the AP(Accounts Payable) team.
Implementing a 3-way match process ensures that appropriate stakeholders are reviewing the invoice exceptions.
Moreover, if you automate the 3-way match process, you have a digital audit trail of the 3-way match process to support your audit requirements.
An indirect benefit of a 3-way match process is that it reduces paper invoices.
In our experience, the more time you spend with the 3-way match process, the higher the tendency to work with vendors to digitize the invoice receipt process.
In fact, in our experience, we have seen companies go from 60% paper invoices to 30% paper invoices in less than five months. That is a 50% reduction in paper invoices and not having to scan paper invoices.
A common question is who manages the three-way match process.
In most organizations, the AP (Accounts Payable) or the accounting department is responsible for processing invoices and related 3-way match processes.
In smaller companies, the operations team could manage this process. The accounting department takes up the 3-way match process as the organization scales.
The AP team works closely with Procurement to ensure that they are helping in resolving the invoice price-related issues.
They also collaborate with the warehouse team to ensure timely receipts of products.