Mastering 3-Way Matching in Accounts Payable

Managing accounts payable efficiently is a cornerstone of effective financial operations, especially for businesses handling high transaction volumes. One of the most critical steps in this process is 3-way matching, a method that ensures every invoice is accurate and aligns with the corresponding purchase order and goods received note (GRN). By catching discrepancies early, 3-way matching helps reduce errors, prevent overpayments, and maintain compliance with procurement policies.

In today’s business landscape, manual matching processes can lead to delays, inefficiencies, and costly mistakes. This is why many businesses in Singapore and the Philippines are turning to accounts payable automation and advanced procure-to-pay software to streamline workflows. Leveraging tools like vendor invoice management ensures faster and more accurate processing, paving the way for stronger supplier relationships and improved financial oversight.

What Is 3-Way Matching in Accounts Payable?

3-way matching is a process used in accounts payable to ensure accuracy in transactions. It involves comparing three key documents: the purchase order (PO), the goods received note (GRN), and the invoice. The goal is to confirm that the details, such as quantities, prices, and terms, match across all three.

This process helps businesses verify that they’re paying only for what was ordered and received. If there are any discrepancies, they can be flagged and resolved before payments are made.

Why Is 3-Way Matching Important?

3-way matching is a safeguard for your business. By verifying that purchase orders, goods received notes, and invoices all align, this process ensures you’re only paying for what you ordered and received. 

Without 3-way matching, errors like duplicate payments, overcharges, or payment for undelivered goods can slip through unnoticed. For businesses in fast-paced markets like Singapore, where high transaction volumes are common, such mistakes can lead to financial losses and strained vendor relationships.

Automating 3-way matching with tools like vendor invoice management ensures faster processing, fewer errors, and better compliance. It builds trust with suppliers by ensuring payments are accurate and on time, strengthening relationships while keeping your accounts payable efficient and secure.

When should 3-way matching be used?

3-way matching should be used whenever a business processes payments for goods or services to ensure accuracy and accountability. It’s particularly important for companies that handle large purchase orders, work with multiple suppliers, or manage complex supply chains. The process is most commonly used in procurement workflows where there’s a need to verify that what was ordered, delivered, and billed matches perfectly.

For example, if your company orders 500 units of a product, the purchase order confirms the quantity and price agreed upon, the goods received note ensures that the correct quantity was delivered, and the invoice confirms the amount billed matches these details.

Businesses should also use 3-way matching when managing high-value transactions or working in industries like manufacturing, retail, or logistics, where financial accuracy is critical. By using this method, discrepancies such as incorrect pricing, missing goods, or duplicate invoices are caught early, avoiding costly errors. Even for smaller companies, implementing 3-way matching is beneficial for maintaining financial transparency and protecting cash flow.

With tools like procure-to-pay automation, businesses can integrate this process seamlessly into their workflows. Automation ensures that matches are verified instantly, saving time and reducing the chance of human error. This makes 3-way matching a valuable practice for any business aiming to improve financial accuracy and maintain smooth supplier relationships.

How The 3-Way Matching Process Works

The 3-way matching process begins with the purchase order, which is a document created by the buyer that specifies what is being ordered, the quantity, the price, and the terms of purchase. This sets the foundation for the matching process.

When the supplier delivers the goods or services, a goods received note is created to confirm what was delivered. This document is important because it records the exact quantity and quality of the items received, ensuring they match what was requested in the purchase order. Finally, the supplier sends an invoice, which is a bill for the goods or services provided. The invoice includes details like the amount owed, the pricing, and the terms of payment.

The 3-way matching process compares these three documents. The aim is to confirm that what was ordered matches what was delivered and what is being billed. For example, if the PO requests 100 units at $10 each, the GRN confirms 100 units were received, and the invoice also bills for 100 units at $10 each. If everything matches, the invoice is approved for payment.

If there are discrepancies, such as the supplier billing for 120 units when only 100 were received, the accounts payable team will flag this and work with the supplier to resolve the issue. Automating this process with tools like procure-to-pay software ensures that matches are completed quickly and accurately, reducing errors and saving time. This process helps businesses avoid overpayments, ensures compliance, and strengthens supplier relationships by ensuring fair and accurate transactions.

How Is 3-Way Matching Different From 2-Way Matching

The key difference between 3-way matching and 2-way matching lies in the number of documents being compared. In 2-way matching, only the purchase order and the invoice are checked to ensure the details align, such as the quantity ordered and the amount billed. However, in 3-way matching, a third document, the goods received note, is added to verify that the items ordered were actually delivered.

While 2-way matching is faster and simpler, it doesn’t account for discrepancies in delivery, such as missing or damaged goods. 3-way matching offers greater accuracy and control, making it the preferred method for businesses managing high-value transactions or large supply chains.

8 Key Benefits Of 3-Way Matching

1. Prevents overpayments: By verifying invoices against purchase orders and goods received notes, 3-way matching ensures businesses only pay for what was ordered and delivered.
2. Reduces errors: It catches discrepancies like incorrect pricing, quantities, or duplicate invoices, reducing costly mistakes.
3. Improves compliance: Aligning payments with procurement policies helps businesses stay audit-ready and meet regulatory requirements.
4. Enhances supplier relationships: Accurate and timely payments build trust and strengthen partnerships with vendors.
5. Saves time with automation: Automating the process with accounts payable software speeds up verification and reduces manual work.
6. Boosts financial accuracy: Ensures that transactions are recorded correctly, supporting better financial reporting and budgeting.
7. Prevents fraud: Verifying documents helps identify fraudulent invoices before payments are made.
8. Increases operational efficiency: Streamlined workflows free up time for finance teams to focus on strategic tasks, improving overall productivity.
   

How To Automate 3-Way Matching

Automating 3-way matching transforms a traditionally time-consuming process into a seamless, efficient workflow. With the help of advanced accounts payable software, businesses can eliminate manual checks and speed up invoice approvals. Automation works by digitally capturing data from purchase orders, goods received notes, and invoices, then comparing them in real-time. If the details match, the system approves the invoice for payment automatically. 

Discrepancies, such as missing items or incorrect pricing, are flagged immediately, allowing finance teams to resolve issues quickly. Automating this process not only reduces errors but also ensures faster, more accurate payments, which strengthens supplier relationships.

Summit’s vendor invoice management solution plays a key role in automating the invoice matching process. By integrating into your existing financial workflows, Summit streamlines 3-way matching, ensures compliance, and provides real-time visibility into spending. This makes it easier for businesses in Singapore and the Philippines to handle high transaction volumes with greater accuracy and efficiency.

Streamline your accounts payable today

Ready to take your accounts payable process to the next level? Talk to us today and discover how Summit can help you streamline workflows and drive operational efficiency.