3 way matching in Accounts Payable safeguards businesses against the threat of fraud, over payment and provides control over spending. Automated 3 way matching gives business owners the security they need to ensure only ordered items are paid for.
There are three documents integral to 3 way matching; a purchase order, an invoice and a delivery note. A purchase order is the official document sent to a supplier with details of an order, an invoice is the request for payment from the supplier and a delivery note / receipt confirms what has been delivered and the payment method. It's likely many businesses will have a separate purchase order process too.
Accounts Payable teams will check that these three documents match exactly to verify what has been delivered is what was ordered, before authorising payment.
It is at this stage any discrepancies or errors are flagged, such as an incorrect price or missing goods, and if so, payment is put on hold. This will remain the case until the issue is rectified and 3 way matching can be performed again.
Manual 3 way matching processes require a lot of time and effort, having to cross reference numerous data points means errors can easily occur.
With manual 3 way matching processes, paper documents or those saved electronically in network folders first need to be located. This can be a time consuming process, whether it's looking for a purchase order a colleague says they've filed, or trying to access an invoice stored on the server via a poor VPN connection from home.
Paper documents can be lost or damaged causing delays to suppliers, and preventing organisations from taking early repayment discounts.
Organisations with multiple offices can also struggle with logistical challenges. If goods are delivered to a branch, but Finance manages all payments from Head Office, how can checks be easily managed?
Delivery notes posted in bulk cause delays, if documents are saved to a network folder, mistakes can easily happen or there can be access issues, and emailed information relies on timely responses from both sides.
Manual 3 way matching offers very little visibility into how the entire process is performing. There is no single way to understand how many invoices need paying, those that are on hold or which suppliers are offering early repayment discounts.
With an automated solution to manage 3 way matching, all purchase orders, invoices and delivery notes are stored digitally in a centralised system. Documents are either scanned in if received on paper, stored directly from email or picked up by the system from a desk top watch folder.
Once they enter the system, key data such as reference numbers, dates, company names etc. are accurately captured and stored as indexed information. This same data is used when searching for documents, making documents quick and easy to find.
Integration with finance packages or ERP systems means this information can be automatically pushed into them, removing the need for manual data entry and wasted time copying and pasting.
When an invoice enters the digital system, a workflow is initiated behind the scenes to look for a purchase order and delivery note with a matching reference number. It will also check the invoice total with the amount stated on the purchase order and if all are correct, the system performs the 3 way match and moves the invoice through to the completion step.
At this stage, a member of staff adds GL codes to the invoice line items and creates the booking record. For invoices with multiple items that need to be checked quickly, a digital stamp can be used and added as an overlay to the document. The system stores the original alongside any mark upped up invoices.
If the 3 way match is successful, the invoice is marked as approved and sent for payment. The system can also perform a 'quick match' based on parameters set by the business - such as any invoice under £1,000 from a trusted supplier can automatically be moved through to payment.
If you're reading this blog it's likely you're facing challenges with your Accounts Payable process, and we want to help. We hear the benefits our clients experience once our solutions are up and running and they often wish they'd made the change sooner.
We all wish we had more time in our day to complete tasks, and a digital system that automates 3 way matching gives employees just that. It takes less time to locate documents, re-keying data is no longer required and the process of physically matching documents is removed
This gives staff more time to work on other jobs, or get out of the door on time!
With an automated system purchase orders that haven't been pre-approved cannot be submitted, not can fraudulent invoices be accidently paid. There are rules in place to stop this happening, for example a purchase order can only enter the system if the chosen supplier is on an approved supplier list, or an invoice cannot be paid without a delivery note.
Businesses can save money on wasted purchases and overpayments.
All documents are efficiently stored and indexed in digital filing cabinets making them easy to find. Information within the system cannot be lost or misplaced and so readily available during an audit.
When 3 way matching is automated, every step has to be followed before the next can begin. This provides organisations with accurate data which can effectively be used to make important financial decisions. Mistakes are avoided when there are multiple checks in place.
A digital system provides better visibility of the full Accounts Payable process compared with manual or paper systems. In a matter of clicks, management can track deliveries and payments with suppliers and customers and go on to understand ordering patterns. Placing repeated orders with the same suppliers builds better relationships, ensuring consistent quality and potential deals on price.
Why continue with old processes that are no longer fit for purpose and consume more employees time than they should. Paper processes may have once worked but as the business grows they will buckle under the pressure.
Don't let the competition move ahead, speak with us about 3 way matching in accounts payable and understand the improvements we can make to your processes. We'd welcome a chat about the problems you're experiencing as well as any bespoke requirements you may have.
Book a time in our diary and start making a change today.