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Why a Three-Way Match is Important to Your Business

Say an invoice shows up one day, claiming that you owe money for certain goods or services. Do you have a process to make sure the bill is legitimate? If you pay before realizing it isn’t, it may be nearly impossible to retrieve your funds.

A recent report from the Association of Certified Fraud Examiners (ACFE) found that billing schemes were “the most common form of asset misappropriation and also caused the highest median loss.”

To keep your bottom line safe both from bad intent and human error, one best practice is the three-way match. This practice can give you peace of mind and save you follow-up time when going through the purchase process with staff and vendors.

The Components of a Three-Way Match

The three-way match lines up three key documents at the end of your procure-to-pay (P2P) process:

  • Purchase order (PO): describes what goods or services have been ordered, including quantity and agreed-upon price

  • Order receipt: records goods or services received from vendors, including quantity

  • Invoice from the vendor: communicates how much is owed to the vendor for goods or services

The goal? To make sure invoices from vendors match up to what you have ordered and received before you pay them.

Formalizing a P2P process and aligning with your vendors enables three-way matching. To successfully complete three-way matches, it’s key to strive for internal consistency and make sure vendors understand your documentation needs.

Another variant on this process is the two-way match, which includes the PO and invoice but excludes the order receipt. This method is often used for services, where “delivery” is harder to track.

Benefits of Implementing a Three-Way Match

There are many reasons to embrace the three-way match. Here are some highlights:

Fraud Prevention: Three-way matching can flag invoices which lack corresponding documentation. These invoices can then be further scrutinized to ensure they are valid.

Real-Time Accounting: A vendor might be slow to send an invoice, creating a lag in recording liabilities. Three-way matching can help you track accruals and avoid surprises.

Payment Process Streamlining: When an invoice is successfully matched to a PO and an order receipt, you can be confident in paying it when it is due.

Cost Savings: Catching errors with the three-way match can save you again and again. Maybe you were invoiced for 65 items but you only received 40. Or maybe the vendor accidentally sent a duplicate invoice. A three-match can save you from paying many kinds of erroneous charges.

Enhanced Supplier Relationships: Having a formalized three-way match process can help ensure that you always pay on time and in full, strengthening ties and trust with vendors (and sometimes netting discounts too).

Audit Support: A robust paper trail from three-way matches helps ensure accurate financial reporting and greater compliance, impressing auditors.

Favorable Dispute Resolution: In any dispute, having a record of your three documents for the purchase means that you’ll be able to make your case with solid evidence and increase your chances of reaching an amicable resolution with vendors.

Challenges in Executing a Perfect Three-Way Match

While finance staff prefer a three-way match that completely lines up, there are many reasons why it might not, such as:

  • Shipment delays resulting in missing products

  • Errors in the shipment, whether product type or quantity

  • Invoice or receipt errors

  • Purchase order modifications

These mismatches are, of course, more good reasons to perform the process! Beyond documents that don’t line up, there may be internal roadblocks to implementing a three-way match. 

Potential Company Roadblocks

While implementing or formalizing a three-way match in your businesses, you may encounter these challenges:

Greater time commitment: ​​A three-way match process will require you to spend time following up on documents that don’t match. It’s faster to just pay bills, even if you’re not sure whether everything checks out. But it is less secure and could be much more expensive in the long run.

Resistance to change: Staff who are used to looser methods may not want to adopt the three-way match, creating tensions during the P2P process. However, the effort to implement the three-way match is worth it for all the reasons mentioned above.

Strategies to Streamline the Three-Way Matching Process

  1. Have empathetic, attentive conversations. Validate any concerns your staff may have. Communicate the benefits of the three-way match and how it’s critical to your business’ financial health. Involve your stakeholders at every stage of planning.

  2. Set up standard procedures and documentation. Establish all document formats and cross-check protocols early in the implementation phase. Review and revise formats during a “beta-test” period to ensure that the process is working for you.

  3. Establish variance thresholds. To avoid slowdowns, you may want to have a tolerance for unreconciled differences. You could do this on both a percentage and dollar basis. When differences between documents are below the variance threshold you set, they can be accepted without further review.

  4. Train procurement and accounts payable staff. Onboard each relevant staff member on your match policy and share how it benefits them. Continue to include them in the document format and protocol design process.

  5. Standardize protocols with vendors. If you are changing your policy, make sure that vendors know what they need to do to be paid.

  6. Automate the process. Manually matching vendor invoices to order receipts and POs can be exhausting. From  tracking down correct documents to resolving issues and keeping everything organized, a three-way match is a difficult task. By automating the process, you can overcome these challenges and make it efficient.  

To learn more about how Spendwise can help you automate your three-way match process, sign up for a free demo here!


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