If the company is still stuck in traditional payment workflows, a large number of transactions involving clients and suppliers will be challenging. One effective way to improve payment processes and supplier relationships is to adapt the three-way matching process to your supply chain. In order to avoid processing fraudulent invoices, your accounts payable team has to be extra careful.
If there are any issues, your business will usually withhold payment until the discrepancy is rectified. The supplier’s invoice is a document that details the goods or services supplied and is a request for payment from the buyer. It includes the supplier’s contact information, a description of the goods or services provided, payment details, and the total owed. After you compared the purchase order to the goods receipt note, you determined that you did, in fact, request the delivery of ten boxes, and the additional box on the invoice was an error. Sometimes, an exception is found between the three documents in 3-way matching (which means the process worked).
If tolerance does not meet, place a hold on the invoice, and proceed for step 8. If tolerance does not meet, place a hold on the invoice, and proceed for step 5. To determine your matching criteria, there is a requirement to set a tolerance.
Ways to make sure your company’s purchase orders are managed smoothly, cost- and time-efficiently, with the best procurement practices brought to life. This makes three-way matching easy and straightforward, as all required information is available anytime it’s needed. Manual 3-way matching can be highly time-consuming, so many companies turn to automation. As with any process, three-way matching will go smoothly if it’s set up and executed efficiently. Let’s see some tips that help you make the most out of the process without getting stuck in the details.
You can make three-way matching more efficient by excluding small-dollar and recurring invoices from the matching requirement. Three-way matching is an accounts payable process that checks that the details on a purchase order, the supplier’s invoice and the delivery receipt match before an invoice is paid. Two-way matching checks only the details of the supplier’s invoice against the details of the purchase order. Three-way matching is an AP invoice process that determines whether a supplier invoice should be paid.
When small businesses are starting out, essential processes and related workflows undergo a slow evolution. With a small workforce, most early efforts involve staff members handling paperwork and entering information manually. This slow pace often applies to processes such as three-way matching in accounts payable departments. While issuing several invoices for the same company, vendors might accidentally repeat an item in more than one invoice – when it’s just a one-time purchase. This results in an imbalance between what they are requested to pay and what they should actually pay, and it complicates invoice matching.
Switching to an electronic payable software solution, like Tipalti, will eradicate the disadvantages of manual matching processes. Thus, the “three-way match” concept refers to matching three documents – the invoice, the purchase order, and the receiving report – to ensure that a payment should be made. The procedure is used to ensure that only authorized purchases are back office accounting reimbursed, thereby preventing losses due to fraud and carelessness. In the invoice, the supplier clearly outlines the goods or services offered, the quantity supplied (or the time duration, if applicable), the unit price of each supplied product, and any other applicable details. The supplier’s invoice is essentially a request to pay money owed to the supplier.
Every invoice is evaluated against multiple criteria including Vendor ID, Invoice Date, Total, Subtotal, etc. Price and quantity variances are identified and compared against acceptable levels which can be routed for exception processing based upon your pre-set tolerances. Autovouch has an exception workflow that not only automatically routes invoices that need further processing to the appropriate person but also provides process statistics for managers.
The purchase order is simply a request made by an individual, or a department of an organization, highlighting their requirements, the quantity, and the details of what they need and why. The procurement department verifies the purchase order and sends it to the supplier. They detail their requirements, the quantity and quality of goods required, and the amount they intend to pay for it. Understanding what your company needs and how you can improve, especially with invoice processing, can be a good starting point for gaining long-term traction.