2 & 3 way matching explained

Updated on :  

08 min read.

2-way and 3-way matching in accounts payable is a vital task for an organisation. It ensures that you pay for what you have purchased and helps in avoiding fraud. This process allows the business to save time and money, reduce mistakes and grow faster.

What are 2-way and 3-way matching?

2-way matching

In a 2-way matching system, the information on the purchase order is verified with the invoice. 

3-way matching

A 3-way matching system verifies that the information on the purchase order, invoice, and goods receipt note (GRN in case of goods, SRN in case of services) are the same. If they match, the supplier’s invoice will be approved for payment. It also helps decide if an invoice has to be paid partly or in full.

Documents involved in 2-way and 3-way matching

The documents involved in 2-way and 3-way matching are:

  1. Purchase order
  2. Invoice
  3. Goods Receipt Note
  4. Service Receipt Note or Service Entry Sheet

What are the benefits of 2-way and 3-way matching?

  1. Avoids overpayment- The matching process eliminates the risk of overpayment or other payment-related problems. It protects businesses from unnecessary expenses. It also ensures the maintenance of accurate data. This ultimately saves a lot of time and money.
  2. Foolproof and secure payment process- A 2-way and 3-way matching is performed before making payment to a supplier to reduce the risk of payments against unauthorised purchases.
  3. Helps in auditing- The matching process makes auditing and bookkeeping easier. Complete documentation helps to keep the purchasing process transparent.
  4. Build strong supplier relations- The matching process helps to strengthen supplier relations. The timely submission of documents with the supplier makes them feel valued. This helps to build a trustworthy relationship.

Process of 2- and 3-way matching

2-way matching

The process of 2-way matching is as follows:

  1. The buyer places an order with the supplier by sending a purchase order. 
  2. The supplier sends an invoice to the buyer against the sale of goods or services ordered through a purchase order.
  3. The invoice is matched with the purchase order by the accounts payable module. During this process, the invoice quantity, invoice value, item code, HSN code, tax amount, etc., are matched with the purchase order details to ensure accuracy.
  4. In case of any mismatch between the purchase order and invoice, the payment against the invoice is kept on hold until the discrepancies are resolved.

3-way matching

The process of 3-way matching is as follows:

  1. The goods ordered through a purchase order are received by the appropriate authority such as stores personnel, inventory manager, warehouse gate-keeper.
  2. The delivery of goods (item quantity, item rate and amount) is entered into the system.
  3. A 3-way match is performed to ensure that the details mentioned in the invoice, purchase order and sales receipt are the same.
  4. In case of discrepancies, the payment against the invoice is kept on hold. 
  5. If the details are accurate in a 3-way match, the invoice is approved, and payment is released.

How can automation help achieve maximum matching efficiency?

Automating the entire matching process in the accounts payable process helps save a lot of time, money and effort. The ClearAP (Accounts Payable) enables automation of accounts payable processes by providing an efficient invoice validation and management system to ensure compliance, increased savings and stronger engagement with all your suppliers.

Manually matching the invoices is a tedious process since the AP team must verify documents across disparate systems. The ClearAP helps businesses set up invoice matching rules tolerance limits and configure exception approval workflows. It increases operational efficiency by speeding up everyone’s work and helping them save precious man-hours for invoice data entry. The ClearAP solution can help:

  1. To pull the purchase orders from the system once they are created
  2. To convert and digitise any unstructured invoice data
  3. To automatically match the purchase orders with the incoming invoices
  4. To recommend actions (approved, rejected, hold) that needs to be taken on invoices
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