For about 40 years, companies have used three-way matching as an important internal control process in their procure-to-pay cycle. However, with hundreds to thousands of goods received daily, it can be difficult for companies to keep track of invoices and purchase orders. As businesses grow, accounts payable (AP) departments often struggle to keep up, especially if these departments are still managing invoices manually.
Using best practice accounts payable procedures along with effective processes and the right software is critical to your business’ success. Taking an honest look at your department’s current practices can help identify areas that need improvement in order to better manage time and provide cost savings for the organization.
Three-way matching is a core best practice for any accounts payable department, but operating on a paper-based system can still create inefficiencies and mistakes. AP automation software provides a streamlined solution to these backlogs and a simpler way for organizations of all sizes to manage orders, review purchases, support inventory count, and gain insights into where and how spending is occurring. Cloud-based platforms can also speed up processing, save the company money, and reduce clutter; here’s how.
First, What Is A Three-Way Invoice Match?
The concept of “three-way matching” refers to the process of reconciling, or matching, three documents, an invoice, a purchase order (PO), and a receiving report, with each other in order to verify that payment should be made. All three of these documents must match before the AP department approves payment. This process ensures only authorized purchases are reimbursed and that the correct vendor is paid for the correct goods.
Ultimately, three-way matching is a fundamental accounts payable procedure that helps prevent fraud, theft, or embezzlement. It also ensures companies don’t double pay on goods and services or pay for things that were never approved.
The Headache of Manual Three-Way Matching
For accounts payable departments still processing payments manually, three-way matching can be time-consuming and plagued by bottlenecks. Essentially, the system works like this:
A vendor submits an invoice to the accounts payable department for processing and payment. When the invoice is received, it must be physically matched with the corresponding purchase order form and packing slip. AP staff must dig both of these forms out of a filing cabinet to check them against the invoice. Invoice prices must be verified against the original PO’s prices and the quantities billed must be checked against the quantities received. Any discrepancies can cause delays as staff members take time to investigate the items or amounts in question. Once the discrepancies are resolved, the invoice must be routed manually for approval and cleared for payment.
The unfortunate drawback of this process is the routing of paper. Physical documents are easy to misplace and it’s not uncommon for a paper to be mishandled, stalling the approval process. Payments can also get delayed if approvers are out of the office. Ultimately, delayed payments can cause late fees and strained vendor relationships.
Once everything needed for the payment is secured, the invoice is entered into the system for payment where staff manually input General Ledger (GL) account codes along with line items on the invoice. Then, the paper checks are run, routed to the person who signs the checks, and put into envelopes for mailing. Finally, the check stub is attached to the three-way matching support documents and manually filed.
A Better Way: Three-Way Matching Using AP Automation Software
Manual processes are rapidly becoming outdated as AP automation software provides new opportunities to optimize performance, better manage cash, control spend, mitigate risk, and bring advanced capabilities to your business. AP automation software can automatically route invoices to either a two-way or three-way matching process. This saves your accounts payable department time and makes the receiving process easier.
Here are just a few benefits:
- Automation digitizes paper invoices so they can be stored online and are completely searchable.
- A cloud-based platform allows your team and approvers to work from anywhere, anytime. This means no waiting on employees who are out of the office to approve invoices ensuring payments are made on time.
- Staff can dramatically reduce the amount of time they spend searching for paperwork and filing, as well as cutting and mailing checks.
- AP automation software integrates with financial accounting and ERP systems directly with bank accounts to allow for on-time payments, better-controlled cash flow, and reduced fraud.
By automating your invoice collection, you can automatically sort, categorize, and input data upon arrival, saving tedious hours of invoice processing time. AP automation software extracts digital and handwritten data, automatically capturing and digitizing invoice data such as GL codes, line item information, and terms. Invoices will also be automatically compared to their corresponding POs and mismatches will be flagged.
Automation also helps streamline the routing process and speeds up approval times. Once an invoice is captured and validated, it is automatically routed directly to the manager responsible for approving the payment, accompanied by fully customizable workflows and notifications that ensure the invoice doesn’t get missed.
Additionally, having all your company documentation stored electronically means that reconciling any future questions about a check, an invoice, or a purchase order, is just a click of the keyboard away.
Overall, automatically matching invoices removes bottlenecks, improves accuracy, and frees up your staff to focus on strategic projects and analytical work that supports organizational efficiency and growth.
Time to Make the Switch
AP automation is quickly becoming the new best practice for accounts payable departments. Automating your processes takes the manual work out of three-way matching while allowing you to customize your settings for different types of invoices and automatically match purchase orders with invoices and receipts. No longer will your department staff need to pull paper from filing cabinets, route physical paper interdepartmentally, or input data by hand.
Teams can streamline approval workflows, cut invoice processing time, eliminate mistakes, ensure on-time payment, and improve working capital management, all while driving rapid ROI. Automation empowers companies to build personalized workflows that, ultimately, create stronger, nimbler, and more efficient accounting departments.
