What is the 3-Way Matching in AP & Why is it Important?

Every year, businesses lose billions of dollars paying for things they never ordered, never received, or were overcharged for. Small companies are hit hardest—they face billing fraud twice as often as bigger ones.

Imagine receiving an invoice for services or products your company never ordered, never received, and never approved—yet you unknowingly pay it. Sounds impossible, right? But even tech giants like Facebook and Google fell victim to this type of fraud, losing a staggering 123 million dollars.

A fraudster managed to trick these companies by sending fake invoices that looked legitimate. Without proper verification, the companies processed the payments as if they were real. While it might seem like an obvious mistake, invoice fraud is surprisingly common and affects businesses of all sizes.

One of the most effective ways to prevent invoice fraud is to use a process called three-way matching a simple yet powerful system.

Scammers are smart, but now you are smarter! By reading this blog post, let’s dive in

What is 3-way matching in Accounts Payable?

3-way matching is a verification process in accounts payable where three key documents are cross-checked to ensure accuracy and validity before approving a supplier invoice for payment. This control mechanism helps prevent errors, overpayments, and fraud.

What is compared in AP 3-way matching

To do this, three important documents are compared:

1. Purchase Order (PO)

A purchase order is a document that a company sends to a supplier when they want to buy something.

It includes details like:

♦  The name of the supplier.

♦  A list of items or services being purchased.

♦  The quantity of items.

♦  The price of each item.

♦  The total amount to be paid.

♦  Delivery date and terms of payment.

The PO acts as an agreement between the buyer and the supplier, ensuring that both parties understand the purchase details.

2. Receiving Report (Goods Receipt)

A receiving report is created when the company receives the goods or services from the supplier.

It helps the company check if:

♦  The correct number of items was delivered.

♦  The quality of the goods is as expected.

♦  The delivery matches what was requested in the purchase order.

3. Invoice

An invoice is a bill sent by the supplier asking for payment for the goods or services they delivered.

It includes important details such as:

♦  The supplier’s name and contact details.

♦  The items or services provided.

♦  The quantity and price of each item.

♦  The total amount due.

♦  Payment terms and due date.

The company compares the invoice with the purchase order and the receiving report to make sure they are being charged correctly.

How These Documents Are Compared

During 3-way matching in accounts payable, businesses check if:

♦  The items and quantities listed in the purchase order match what was delivered in the receiving report.
♦  The invoice from the supplier has the same prices and quantities as the purchase order and receiving report.
♦  The total cost on the invoice is correct and follows the agreed terms in the purchase order.

If all three documents match, the payment is approved. If there are differences, the company investigates the issue before making a payment.

What are the principles of 3-way matching in accounts payable?

1. Accuracy and Verification

The fundamental principle of 3-way matching in accounts payable is to ensure accuracy in financial transactions. Every detail in the purchase order, invoice, and receiving report must be carefully reviewed to confirm that the quantities, prices, and descriptions match exactly.
This verification process helps businesses prevent overpayments, duplicate payments, and financial discrepancies.

2. Compliance and Control

3-way matching in accounts payable enforces compliance with company policies and regulatory standards. Businesses must follow accounting best practices and ensure that every payment aligns with procurement and financial regulations.
Implementing strong internal controls through 3-way matching in accounts payable helps prevent unauthorized transactions and financial fraud.

3. Timeliness and Efficiency

The process of 3-way matching in accounts payable should be conducted in a timely manner to prevent payment delays and maintain good vendor relationships.
Delays in matching documents can lead to late payments, which might result in penalties or damaged supplier trust.

4. Transparency and Accountability

Maintaining transparency in 3-way matching in accounts payable ensures that financial transactions are traceable and justifiable.
All purchase orders, receiving reports, and invoices should be properly documented and easily accessible for review.
Dispute Resolution

Mismatches between the purchase order, invoice, and receiving report can lead to disputes between the buyer and supplier. 3-way matching in accounts payable helps businesses quickly identify and resolve such discrepancies.
Establishing a standardized process for dispute resolution minimizes delays and ensures that payments are processed accurately.

Automation and Technology Adoption

Leveraging technology in 3-way matching in accounts payable can significantly improve efficiency and accuracy.
Automated accounts payable systems can instantly compare purchase orders, invoices, and receiving reports, flagging any discrepancies for review.

Problems with Manual three-way matching in accounts payable

Three-way matching in accounts payable is a process where businesses compare three documents—purchase orders, delivery receipts, and invoices—to ensure everything matches before paying a vendor. While this sounds simple, doing it manually can cause big headaches.

Here’s why:

♦ Time-Consuming Work - Manual three-way matching in accounts payable requires employees to check every detail across three documents. This slows down payments, especially for companies with lots of vendors. Imagine searching through piles of paperwork just to approve one invoice!

♦  Human Errors - Humans aren’t perfect. A tired employee might miss a typo, incorrect quantity, or mismatched price during three-way matching in accounts payable. Small mistakes can lead to overpayments, underpayments, or even fraud.

♦  Delayed Approvals - Manual processes take longer. If invoices pile up, vendors get paid late, hurting relationships. Delays in three-way matching in accounts payable can also cause cash flow problems for your business.

♦  Hard to Track Changes - Without automation, updating or fixing errors in purchase orders or invoices is messy. Paper trails get lost, and tracking who approved what becomes a nightmare.

♦  Higher Risk of Fraud - Manual three-way matching in accounts payable makes it easier for dishonest vendors (or employees) to sneak in fake invoices or duplicate charges. Automated systems flag suspicious activity faster.

♦  Wasted Resources - Employees stuck doing manual checks could focus on more important tasks. Three-way matching in accounts payable eats up time, money, and energy that could grow the business.

How Three-Way Matching Benefits Your Business 

Three-way matching is a process that compares three documents—your purchase order, delivery receipt, and invoice—to ensure your business only pays for what it ordered and received. Here’s how it helps in everyday terms:

1. Avoid Overpayments

Mistakes happen. A vendor might bill you for 100 laptops but only deliver 90, or charge a higher price than agreed. Three-way matching catches these errors by cross-checking the purchase order (what you asked for), delivery receipt (what arrived), and invoice (what you’re charged). If numbers don’t align, you fix the issue before paying. This simple check prevents wasting money on missing items, wrong quantities, or price hikes.

2. Stop Fraudulent Activity

Scammers might send fake invoices for goods you never ordered or inflate costs after a delivery. Three-way matching acts like a guardrail. For example, if an invoice lists extra items that weren’t on your original order or delivery proof, the system flags it. This protects your business from paying for ghost orders or dishonest vendor tactics.

3. Save Time and Reduce Stress

Manually checking invoices against orders and deliveries is time-consuming. Three-way matching automates this process, especially with accounting software. For instance, tools like QuickBooks can instantly highlight mismatches, so your team spends less time hunting errors and more time on important tasks. Fewer billing disputes also mean less back-and-forth with vendors.

4. Build Trust with Vendors

When vendors know you verify every invoice against orders and deliveries, they’re more likely to send accurate bills. Clear communication reduces conflicts—like arguing over missing items or incorrect charges—because you have proof (e.g., a signed delivery receipt). This fairness speeds up payments and strengthens partnerships, leading to better deals and reliability.

5. Keep Financial Records Accurate

Matching all three documents ensures your books reflect reality. For example, if you paid for 100 units but only received 90, your accounts would wrongly show extra inventory. Three-way matching fixes this, making budgeting, tax filings, and audits smoother. Clean records also impress investors or lenders who want transparency.

6. Stay Compliant with Rules

Industries like healthcare or government contracting have strict spending rules. Three-way matching provides a paper trail (orders, receipts, invoices) to prove every payment was legitimate. This helps avoid fines or legal trouble during audits.

How Automation Makes the 3-Way Matching Process Easier

1. Speeds Up the 3-Way Matching Process

Automation tools instantly scan and compare all three documents (order, receipt, invoice) in the 3-way matching process. Instead of manual checks, the software highlights matches or mismatches in seconds, slashing approval times from days to minutes.

2. Reduces Errors

Humans might miss a $5 price difference or a missing item. Automation ensures every detail in the 3-way matching process is checked—no typo, extra charge, or quantity error slips through.

3. Cuts Costs

Manual reviews waste time and money. By automating the 3-way matching process, your team avoids hours of paperwork, reallocating effort to tasks like vendor negotiations or process improvements.

4. Strengthens Fraud Detection in the 3-Way Matching Process

Scammers rely on manual gaps. Automation flags red flags in the 3-way matching process, like invoices without matching orders or duplicate bills, stopping fraud before payments go out.

5. Enhances Vendor Trust Through the 3-Way Matching Process

Delays and disputes strain relationships. Automation streamlines the 3-way matching process, ensuring vendors are paid faster and errors are resolved transparently. This builds long-term partnerships.

6. Makes the 3-Way Matching Process Scalable

As your business grows, manual checks become chaotic. Automation scales the 3-way matching process, handling 10 or 10,000 invoices with the same speed and accuracy.

How to Automate the 3-Way Matching Process

1. Use software like TYASuite to sync purchase orders, receipts, and invoices.
2. Set rules (e.g., “flag invoices over order amounts”) to customize the 3-way matching process.
3. Train teams to review flagged issues, ensuring the process stays efficient and human-reviewed where needed.

Examples of Three-Way Matching

1. Office Supplies Order

Situation: You order 100 laptops (purchase order).
What Happens:

1. The vendor delivers 90 laptops (delivery receipt).
2. The invoice bills you for 100 laptops.

How Three-Way Matching Helps:
By comparing the three documents, the system flags the 10-laptop shortage. You pay only for what arrived, saving 10,000(if each laptop costs 10,000)

2. Retail Inventory Restock

Situation: A store orders 500 T-shirts at Rs 1000 each (purchase order).
What Happens:

1. The shipment arrives with 500 T-shirts (delivery receipt).
2. The invoice charges Rs 1200 per T-shirt.

How Three-Way Matching Helps:
The price mismatch is caught instantly. You contact the vendor to correct the invoice, saving 200 on each shirt

3. Manufacturing Raw Materials

Situation: A factory orders 1,000 kg of steel (purchase order).
What Happens:

1. The delivery receipt shows 1,000 kg arrived, but 200 kg are damaged.
2. The invoice bills for the full 1,000 kg.

How Three-Way Matching Helps:
The damaged goods are noted in the delivery receipt. You adjust the payment to 800 kg, avoiding 2,000 in wasted costs (if steel is 2,000 in wasted costs (if steel is10/kg).

4. Hospital Medical Supplies

Situation: A clinic orders 50 boxes of gloves (purchase order).
What Happens:

1. The vendor delivers 50 boxes (delivery receipt).
2. A duplicate invoice is sent a week later for the same order.

How Three-Way Matching Helps:
The system detects the duplicate invoice using the purchase order number, preventing double payment.

5. Construction Project Materials

Situation: A contractor orders 50 bags of cement (purchase order).
What Happens:

1. The vendor delivers 50 bags but charges for 60 (invoice).
2. The delivery receipt confirms 50 bags arrived.

How Three-Way Matching Helps:
The extra 10 bags on the invoice are flagged. You pay only for what was delivered, saving 200(200(20 per bag).

Automate 3 – way matching with TYASuite

1. Seamless PO, GRN, and Invoice Integration

TYASuite links the PO, GRN, and vendor invoice within a single platform. The system automatically matches these documents, flagging discrepancies in quantity, price, or tax calculations before payment processing.

2. Real-Time Compliance Validation

With advanced compliance features, TYASuite ensures all invoices adhere to tax regulations and company policies. Automated GST validation, vendor KYC checks, and invoice verification prevent regulatory violations.

3. Auto-Detection of Discrepancies

The system identifies mismatches between the PO, GRN, and invoice. If any item quantity or price deviation is detected, it triggers an automated alert to the procurement and finance teams for quick resolution.

4. Budget Control and Approval Workflow

TYASuite integrates budget controls within the 3-way matching process. If an invoice exceeds the approved budget, the system automatically escalates it for higher-level approval, ensuring financial discipline.

5. Smart Auto-Escalation for Pending Approvals

Pending invoice approvals can delay payment cycles. TYASuite’s auto-escalation matrix ensures that invoices are routed to the right approvers based on pre-configured rules, speeding up the process.

6. Vendor Rating and Compliance Scorecard

The system evaluates vendors based on past transactions, compliance adherence, and timely deliveries. This data-driven approach enhances vendor management and ensures better procurement decisions.

7. Faster Accounts Payable Processing

By automating 3-way matching, TYASuite significantly reduces the workload on accounts payable teams. The system auto-matches invoices to received goods and approved purchase orders, expediting approvals and payment processing.

8. Procure-to-Pay (P2P) Automation

TYASuite seamlessly integrates 3-way matching with the entire procure-to-pay cycle. From PR to PO creation, GRN, invoice verification, and final payment, the software eliminates manual intervention, boosting efficiency.

TYASuite’s cloud-based procurement automation ensures 100% accuracy in 3-way matching, eliminating financial risks and strengthening procurement operations.

Conclusion

3-way matching is a critical safeguard for accounts payable, ensuring businesses only pay for what they ordered, received, and were correctly invoiced. By cross-checking purchase orders, goods receipts, and supplier invoices, companies prevent costly errors, overpayments, and fraud. Manual processes, while foundational, are time-consuming and error-prone, highlighting the need for automation. Tools like TYASuite streamline the 3-way matching process, enhancing speed, accuracy, compliance, and scalability

Ready to safeguard your business from costly errors and fraud?

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