Three-way match

At the time of processing payments, accounts payable functions often use a three-way match control to ensure that only legitimate and accurate invoices are paid. Before going into the detail of what a three-way match control is, let’s take a look at the following diagram showing various documents related to the procurement cycle.

Three-way match uses three important documents from the above procurement cycle and compares them. These documents are:

  • Purchase order
  • Goods received note
  • Invoice

Purchase order gives the information about what the company ordered. It is then compared with the goods received note to ensure that the company got what it ordered. Finally, goods ordered and received are compared with the information on the vendor’s invoice. If there is any discrepancy identified, the accounts payable staff contacts the vendor to rectify the discrepancy, for instance, by requesting a revised invoice or a credit note as an adjustment to the original invoice.

If the accounts payable staff is satisfied about the accuracy of the invoice after comparing and evaluating the information from three separate documents (three-way match), invoice amount is paid to the vendor.

Example of three-way match

A company has ordered three laptops with 8GB RAM costing $800 each. The vendor supplies the laptops, and the store in-charge prepares a goods receiving note for the three laptops, after checking the specifications of the laptops. Invoice is received from the vendor with a credit period of 30 days. At the time of processing the payments, the accounts payable staff performs the three-way match.

On comparing the above three documents, the accounts payable staff found that the vendor has issued invoice for laptops with 16GB RAM, whereas the laptops ordered and received were with 8GB RAM. The accounts payable department then contacts the vendor, who apologizes for the mistake and issues a revised invoice of $2,400. This revised invoice is processed and $2,400 is paid to the vendor.