Invoice errors, duplicate payments, and fraud can cost businesses significant money. Automated invoice matching helps prevent these issues by verifying invoices against purchase orders and receipts. A key part of this process is three-way matching, which ensures that every payment is accurate and justified before approval.
This article explains how three-way matching works within automated invoice matching systems, its purpose, and the benefits it brings to financial operations.
Looking for insights on financial reporting automation? Read "Why Financial Reporting Automation Is Essential for Companies."
What is Automated Invoice Matching?
Automated invoice matching ensures that invoices align with purchase orders and delivery receipts, reducing errors and streamlining financial processes. By utilizing software, businesses can systematically compare invoice details against relevant procurement documents without manual intervention.
This automation improves financial accuracy in several ways:
It eliminates manual data entry, reducing the risk of human errors in invoice processing.
It cross-checks prices, quantities, and terms against purchase orders and goods receipts, ensuring consistency.
It flags discrepancies, such as overcharges or missing items, for quick resolution.
It prevents duplicate payments by identifying previously processed invoices.
Manual invoice reconciliation is time-consuming and error-prone, often requiring extensive back-and-forth between teams. Automated systems cut down reconciliation time, allowing finance teams to focus on higher-value tasks instead of verifying documents manually. This efficiency helps businesses process invoices faster, avoid late payment penalties, and take advantage of early payment discounts.
Understanding Three-Way Matching in Automated Invoice Matching
Three-way matching ensures that financial transactions are accurate by cross-checking three key documents: the purchase order (PO), the goods receipt note (GRN), and the supplier invoice. This process helps businesses confirm that what was ordered matches what was delivered and invoiced before approving payment.
The purchase order is the initial document that specifies the items or services requested, including quantity, pricing, and terms. The goods receipt note is generated when the items arrive, confirming that they were received as expected. The supplier invoice is the final document, requesting payment for the delivered goods or services.
Benefits of Three-Way Matching in Automated Invoice Matching
Three-way matching in automated invoice processing ensures that invoices align with purchase orders and received goods, improving efficiency and accuracy while preventing fraud. By automating this process, businesses reduce manual workload and mitigate financial risks associated with incorrect or fraudulent invoices.
Automation accelerates invoice verification by eliminating the need for manual cross-checking. Instead of employees manually comparing documents, the system automatically matches invoices against corresponding purchase orders and goods receipt notes. This reduces processing time and allows accounts payable teams to focus on higher-value tasks.
Ensuring invoice accuracy is another key benefit. Automated three-way matching detects discrepancies in price, quantity, or delivery details before payment approval. This prevents overpayments and financial reporting errors. If mismatches occur, the system flags them for review, enabling quick resolution.
Additional advantages of three-way matching include:
Fraud prevention: Identifies duplicate invoices and unauthorized charges, reducing the risk of fraudulent payments.
Stronger vendor relationships: Ensures timely and accurate payments, minimizing disputes and improving trust.
Compliance and audit readiness: Maintains a clear transaction record, simplifying compliance with financial regulations.
Cost savings: Reduces labor costs and prevents financial losses from incorrect payments.
Three-Way Matching vs. Two-Way Matching
Two-way matching and three-way matching are both invoice verification methods used in accounts payable, but they differ in their level of validation. Two-way matching compares an invoice against the corresponding purchase order (PO) to ensure that the billed amount and ordered amount align. Three-way matching adds an additional verification step by incorporating a goods receipt note (GRN), confirming that the goods or services were delivered as expected before approving payment.
The choice between two-way and three-way matching depends on factors like cost, complexity, and risk exposure. Businesses might opt for two-way matching when:
Purchases involve digital services or subscriptions where physical delivery is not a concern.
The supplier relationship is well-established, reducing the risk of discrepancies.
The company prioritizes faster invoice processing over additional verification.
Three-way matching is more suitable when:
Physical goods are involved, and delivery confirmation is necessary.
High-value or high-risk purchases require stricter financial controls.
The company wants to prevent fraudulent or duplicate invoices.
While two-way matching is faster and requires less administrative effort, it carries a higher risk of paying for undelivered or incorrect items. Three-way matching, though more resource-intensive, improves accuracy and prevents payment errors by verifying that the PO, received goods, and invoice all align before releasing funds.
Key Steps Involved in Three-Way Matching
1. Receive and Review the Purchase Order (PO)
The purchase order (PO) is the foundation of the three-way matching process, providing a reference point for verifying invoice accuracy. Before processing any invoice, you need to confirm that the PO contains precise details to prevent discrepancies and financial errors.
A thorough review of the PO involves checking key elements, including:
Item descriptions: Ensure that the listed products or services match what was requested.
Quantities: Verify that the specified amounts align with procurement requirements.
Agreed-upon prices: Confirm that the unit costs and total amounts reflect the terms negotiated with the supplier.
Supplier details: Validate that the PO is issued to the correct vendor to avoid misdirected payments.
Delivery terms: Ensure that shipping timelines and conditions comply with contract agreements.
If any inconsistencies exist at this stage, addressing them early prevents further complications when matching the invoice and goods receipt note (GRN). A well-documented and accurate PO streamlines the matching process, reducing the risk of payment delays and disputes.
2. Log and Verify the Goods Receipt Note (GRN)
The Goods Receipt Note (GRN) is a key document in the three-way matching process. It is proof that the ordered goods or services have been received. Without an accurate GRN, verifying invoices against purchase orders becomes unreliable, increasing the risk of payment errors.
To ensure proper invoice matching, you have to record the GRN as soon as the goods arrive. This document should include essential details such as:
The purchase order (PO) number to link the receipt with the original order.
The quantity and description of received items to confirm order fulfillment.
The date of receipt for tracking delivery timelines.
The condition of the goods to document any damages or discrepancies.
Once recorded, the GRN has to be verified before proceeding with invoice matching. Cross-check the receipt details against the PO to confirm that the supplier has delivered the correct items in the agreed quantities. If any discrepancies exist, they should be flagged for resolution before the invoice is approved.
A well-documented GRN improves financial accuracy by preventing payments for items that were never received. It also strengthens supplier accountability and streamlines audits by providing clear records of deliveries. Automating GRN logging through procurement or enterprise resource planning (ERP) systems can further reduce manual errors and speed up the invoice reconciliation process.
3. Receive and Validate the Supplier Invoice
Verifying the supplier invoice is an important step in the three-way matching process. Before proceeding with payment, you have to ensure that the invoice aligns with both the purchase order (PO) and the goods receipt note (GRN). This prevents errors, unauthorized charges, and potential fraud.
The verification process involves systematically cross-checking key invoice details against the PO and GRN. These details include:
Item descriptions: Confirm that the invoiced items match what was ordered and received.
Quantities: Ensure that the number of units billed is consistent with both the PO and the GRN.
Pricing: Verify that the unit prices and total amounts align with the agreed-upon terms in the PO.
Taxes and additional charges: Check for any unexpected fees or discrepancies in tax calculations.
Payment terms: Confirm that the due dates and conditions comply with the agreed contract.
Automated invoice matching systems streamline this process by using predefined rules and algorithms to perform these checks instantly. If all three documents match, the invoice proceeds to the next approval stage.
Otherwise, the system flags discrepancies for review. Some solutions also provide automated notifications to vendors, requesting corrections before resubmission.
4. Cross-Check PO, GRN, and Invoice for Consistency
Ensuring consistency between the purchase order (PO), goods receipt note (GRN), and supplier invoice is a critical step in the three-way matching process. This step verifies that the ordered, received, and billed quantities and prices align, preventing discrepancies that could lead to financial errors, overpayments, or fraud.
To cross-check these documents effectively, you need to compare key details, including:
Item quantities: Ensure the number of goods received matches both the PO and the invoice.
Unit prices: Confirm that the prices on the invoice align with the agreed rates in the PO.
Item descriptions: Verify that the billed items correspond to what was ordered and received.
Total amounts: Check that the invoice total correctly reflects the sum of all matched line items.
Tax and additional charges: Ensure any applicable taxes, discounts, or shipping fees are calculated correctly.
When discrepancies arise, they should be flagged for review. Automated invoice matching systems streamline this process by instantly identifying mismatches and categorizing them based on predefined rules.
If an issue is detected, the system can notify the relevant team members, allowing them to investigate and resolve errors before processing payment.
Using automation minimizes the time spent on manual reconciliation. Instead of manually reviewing documents, accounts payable teams can rely on automated invoice matching to highlight inconsistencies, reducing administrative effort and expediting approvals.
This approach not only improves accuracy but also strengthens financial controls, ensuring that only validated invoices proceed to payment.
5. Resolve Discrepancies
Discrepancies in invoice matching have to be addressed before payment approval to prevent financial errors and compliance risks. When mismatches occur between the purchase order (PO), goods receipt note (GRN), and supplier invoice, a structured process is followed to resolve them efficiently.
First, identify the type and cause of the discrepancy. Common mismatches include:
Quantity discrepancies: The invoice quantity does not match the received goods.
Pricing errors: The invoice price differs from the agreed purchase order price.
Missing or incorrect items: The invoice includes items not listed on the PO or excludes delivered goods.
Tax and fee inconsistencies: Additional charges, such as shipping or tax, are not aligned with the PO terms.
Once the issue is identified, communicate with relevant parties. Procurement teams verify purchase terms, warehouse staff confirm delivery records, and suppliers provide clarifications or corrections. If the discrepancy is minor, predefined system tolerance might allow automatic approval. Otherwise, an exception workflow is triggered, requiring manual review and resolution.
For unresolved discrepancies, send the invoice back to the vendor for correction. Automated invoice matching systems streamline this step by allowing users to flag errors and request revisions with minimal manual effort. Vendors can then correct and resubmit the invoice, ensuring accurate payment processing.
After resolving discrepancies, update records in the financial system and proceed with invoice approval. Automation tools integrate with accounting platforms, ensuring that only verified invoices move forward for payment. This structured approach minimizes errors, prevents overpayments, and maintains financial accuracy.
6. Approve and Process Payment
Once the purchase order, goods receipt note, and supplier invoice have been verified for accuracy, the final step is approving the invoice for payment. This ensures that only valid and correctly matched invoices proceed to payment processing, reducing financial errors and fraud risks.
Payment approval in an automated invoice matching system follows a structured process:
The system automatically flags invoices that meet all matching criteria, allowing them to proceed to approval.
If discrepancies were previously identified and resolved, the corrected invoice is re-evaluated before approval.
Approved invoices are then sent to the accounts payable system for payment execution based on the company’s payment schedule and terms.
Automation streamlines this process by eliminating manual approvals and reducing delays. Integration with the enterprise resource planning (ERP) system ensures that payment records are updated in real time, improving financial visibility. Additionally, predefined business rules can be applied to enforce compliance with internal policies, such as requiring secondary approval for high-value invoices.
Role of Low-Code Technology in Implementing Three-Way Matching
Low-code technology helps you automate the three-way matching process without needing advanced programming skills. With simple visual tools, you can easily build workflows that connect purchase orders, goods receipt notes, and invoices into one automated system. This makes it faster for you to match documents, spot errors, and approve payments with less manual effort.
Using low-code platforms, you can create custom workflows tailored to your company’s needs. These workflows connect smoothly with your existing ERP or accounting systems, so invoice data flows automatically between departments. With easy-to-use drag-and-drop features, your finance team can build and manage automation without waiting on IT support. Plus, as your business grows, you can adjust these workflows to handle more data and changing requirements.
eSystems helps you implement three-way matching through its low-code and automation services. Their low-code solutions let you design and automate the entire invoice-matching process quickly. With eSystems, you can easily connect your procurement, goods receipt, and invoicing systems using platforms like Mendix, OutSystems, and Workato.
Through eSystems’ integration services, you can link your cloud and on-premise applications, ensuring that purchase orders, goods receipts, and invoices automatically flow into one system for matching. This removes silos between your finance and procurement teams and reduces manual work. eSystems gives you the tools to automate approvals, handle exceptions, and keep your three-way matching process fast, accurate, and easy to manage.
Conclusion
Three-way matching strengthens financial control and minimizes discrepancies in automated invoice processing. It's both a safeguard against fraud and an efficiency driver for accounts payable teams.
Implementing it with automation ensures accuracy, reduces manual workload, and accelerates payment cycles. Organizations adopting this approach gain better financial oversight and stronger supplier relationships.
About eSystems
We are eSystems, a Nordic company that helps businesses improve how they work by using low-code technology and automation. Our focus is on making digital processes faster, easier, and more flexible for companies like yours. We specialize in building custom solutions using leading low-code platforms and automation tools like Workato to connect systems and automate workflows.
In automated invoice matching, including three-way matching, we help you streamline financial data across purchase orders, goods receipts, and invoices. Our solutions remove manual tasks, reduce errors, and ensure that your financial processes are smooth and efficient.
Ready to simplify and automate your invoice matching? Get started with eSystems today.
FAQ
How To Do Invoice Matching?
Invoice matching compares invoices with purchase orders and receipts to detect errors. Automating this reduces fraud, speeds up approvals, and improves financial accuracy.
How Can I Automate Invoicing?
Automate invoicing by using software to match POs, receipts, and invoices. This cuts manual work, improves cash flow, and boosts efficiency.
What Is the 3-Way Invoice Matching Process?
It compares purchase orders, goods receipts, and invoices to approve payments. If all match, payment is processed; if not, it’s flagged for review.
What Happens If a PO Does Not Match an Invoice?
Mismatches trigger system alerts or payment holds until reviewed. This prevents overpayments and keeps financial records accurate.
What Are the Benefits of 3-Way Matching?
It reduces fraud, avoids payment errors, and improves financial control. Automation speeds up processes and ensures better compliance.
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