Manual processing includes obtaining physical documents in the form of journals or ledgers. Using an automated system for your invoice processing, procurement, and other systems saves time, realizes better cost savings, and leaves more energy for accounting teams to perform higher-level tasks. While AP automation saves businesses thousands of dollars on manual approval process costs, that’s not the only benefit to automation. The right platform can save you time on needlessly complex procurement processes that eat up your schedule. Businesses that have switched from a manual procurement process with paper invoices to a completely automated system have seen some unbelievable results.
Using Order.co’s platform, they streamlined their procurement workflow, increased their vendor compliance to 100%, and saved a total of $68,000 in the first year. Considering that the entire purpose of three-way matching is to increase payment accuracy and avoid maverick spending, it’s essential to carry it out as efficiently as possible. AP 3-way matching is the process of taking an invoice for the purchase of goods or services and matching it with the corresponding purchase order (PO) and receiving information (order receipt). This is done to ensure that the details on each document agree with each other.
The three-way matching process can eliminate the payment of fraudulent invoices. A fraudulent invoice won’t have a corresponding purchase order or order receipt. Because the process requires three documents to be compared before payment can be issued, a fraudulent invoice will be detected immediately. Once all three documents have been received by your accounts payable department, you’ll need to scrutinize each to verify that all information is correct before payment is issued. If there are any discrepancies in the three components, the AP department may send only a partial payment or temporarily withhold payment.
- To perform three-way matching, you need a purchase order, a goods receipt note (GRN), and an invoice.
- If all the details in the three documents match, the invoice is approved, and payment is released.
- The auditor needs to follow the purchase process from requisition to payment to verify accuracy, completeness, cut-off, occurrence, and classification.
AI is about to transform the AP process, but in the meantime, save time and improve security by implementing three-way checking today. Plus, when you or your automated system detect errors, you’ll need to discuss the error with the purchasing and receiving department(s). This can further slow down the process, especially if teams are working at different locations. Also called a receiving report or delivery receipt, the GRN confirms that the receiving department has received the delivery. It contains information about the delivered items and states whether the delivery was full or partial. Three-way matching is your key to preventing invoice fraud and overpaying due to invoice errors.
What is a 3-Way Match in Accounts Payable?
Ordering from multiple vendors on different sites and completing several checkout processes can lead to disorganization and confusion. Companies that choose to employ three-way matching do so to reduce mistakes, catch illegal activity, and save money. However, with a manual process, even when trying to avoid overpaying, businesses can often end up with much higher processing costs. Upon migration, automated invoice management will improve existing delays, bottlenecks and processing costs that plague manual matching. Savvy finance departments know there are plenty of vulnerabilities that come with manual invoice matching and processing.
But it might be time to have a serious conversation with them when most invoices from a particular vendor include mistakes that all err in their favor. An AI-powered AP system can do more than just identify fraudulent invoices. For example, ML-based anomaly detection can monitor employees’ engagement with the AP process. The system flags malicious behavior so you can jump in before it’s too late. Four-way matching goes a step further than three-way matching by comparing invoices with inspection slips. An inspection slip shows the quantity of goods accepted after inspection.
Join our community of finance, operations, and procurement experts and stay up to date on the latest purchasing & payments content. This AP process guarantees that what is delivered matches the original order every time. To ensure that every order is complete, 3-way matching highlights discrepancies or inconsistencies between any of these critical documents. We saved more than $1 million on our spend in the first year and just recently identified an opportunity to save about $10,000 every month on recurring expenses with Planergy. And once everything has been found, your A/P team will still need to meticulously compare the relevant details across several documents, whose layouts will vary with each new supplier.
Cons Of 3-Way Matching
This task grows increasingly burdensome if multiple purchases are covered in a single payment request. Harry initially verifies that the business name and payment details are consistent across the documents, making it unlikely that a rogue fraudster is attempting to misdirect a legitimate payment. He then verifies that the inventory total of the 100 hats that he requested in the initial purchase order is matched by the packaging slip and invoice. Of course, even when you regain these funds, these errors can wreak havoc on your A/P efforts. And depending on how many manual steps are involved in your vendor’s invoicing efforts and your own A/P processes, common errors might even be unavoidable.
Replacing their manual 3-way matching with an automated process allowed them to process millions of invoices with ease. This move brought the company better ordering continuity, improved leverage with suppliers, and considerable cost savings. Managing all the invoices that the accounts payable (AP) department receives each month can be challenging, especially as your business grows. The accounts payable three-way matching process is one of several systems that help to ensure your company pays its bills accurately and on time. Comparing details across three documents helps identify errors and fraudulent invoices. Of course, invoices often have minor errors because of rounding off or other legitimate reasons.
When trying to scale for growth, manual AP processes can be a major deterrent. By migrating to automated matching processes, you can streamline your accounts payable procedures and handle an increased workload without missing a step. The three documents that must have matched totals include purchase orders, order receipts/packing slips, and invoices. Ensuring that these documents are matched before paying an invoice saves businesses from overpaying or paying for an item that they did not receive. While this scaled-down matching process might not flag issues as efficiently, it still helps avoid the common problems previously discussed and can capture increased value for your business.
Order Receipts/Packing Slips
The PO authorizes the purchase of listed items and includes specifics like the quantity and price (as agreed with the supplier) of items. If all the details in the three documents match, the invoice is approved, and payment is released. To learn more about https://www.bookkeeping-reviews.com/a-freelancer-s-guide-to-quickbooks-self-2/ implementing automated three-way matching in your procurement process, schedule a demo of Order.co today. What if you discovered that as much as 2% of your business’s payments are duplicates, charged for the wrong amount, or contain some other error?
Wanting to verify the accuracy of the payment request, he begins a 3-way matching process, gathering his copy of the initial purchase order, the packaging slip, and the recently-received invoice. 3-way matching in accounts payable (A/P) refers to a validation technique that is used to help confirm that a received invoice is accurate, credible, and should be paid. After all, no business wants to overpay on a purchase or fall victim committee on accounting procedure to fraud, so a cautious, trust-but-verify approach to any request for funds from your suppliers is healthy and should be encouraged. Automating the matching process can help save time, money, resources, and energy. Shifting to a digitized process ensures promptness in payments, accuracy in encoding data, and accessibility in various platforms. Most companies use a manual matching processes to record financial transactions.
This approach does not compare the receiving documentation to the supplier invoice, so there is a risk that the company will pay an invoice for an incorrectly-billed quantity. Its main advantage is somewhat faster processing speed than a three-way match, since the payables staff does not have to cross-reference any receiving reports. The co-working unicorn WeWork faced significant challenges in streamlining ordering and payments across their 800 global office locations. By implementing an integrated ordering and payment system, the company increased visibility into its AP processes and eliminated maverick spending.