Automating Three-Way Matching in Accounts Payable
If you work in finance or accounting then you are more than likely familiar with the process of three-way matching in accounts payable. The process of matching invoices to purchase orders (PO) and goods received notes (GRN) has been around for years and is a method of processing a supplier invoice to the point of accurate payment. Three-way matching also serves as a great method of validating different parts of the supply chain. Over the years, however, three-way matching, in its basic form has become slightly outdated. The manual, paper-based nature of the process leads to delays and causes human errors.
When the matching process is automated, organisations can automatically process a high percentage of their invoices from the creation of a purchase order to the receipt of an invoice.
What is three-way matching in accounts payable?
The three-way matching process acts as the ‘handover’ between procurement and accounts payable. A successful three-way match involves matching data on a PO, a GRN and an invoice. These three documents are critical to a successful three-way match.
Purchase Order (PO)
A PO is a document that confirms an order from procurement to a vendor. Typically this document will include the purchasing company’s name and address, date, product/service description and quantity, price and PO number.
Goods Received Note (GRN)
A GRN is proof that the product/service has been delivered or fulfilled. It is always matched with the PO to ensure that everything ordered has been delivered correctly. Typically a GRN will feature the same details as a PO with the addition of delivery details.
Once the goods are received or the service has been fulfilled, the supplier will send an invoice to the purchaser requesting payment. When an invoice is then received, it is matched against both the PO and GRN. In addition to the information on a PO and GRN, an invoice will include an invoice number, vendor contract information, any credit details, total amount due and payment schedule.
Traditionally, Accounts Payable would review the relevant information on each of the three documents. The information that is on these documents falls into two categories, line item data or header data. Line item data refers to a product or service that has been added to an invoice along with its relevant quantities, rates, and prices. Header data is all other information on an invoice such as invoice number, total price, and document date.
Organisations that decide to match line item data will see their processing times increase in comparison to those that only match header data. The reason for this is that matching line item data requires validation of every individual product or service that had been purchased as opposed to only the header data.
Automating three-way matching in accounts payable
When the three-way matching process is automated, organizations can automatically match a large number of their invoices. This means that the invoices will run straight through the AP process without any manual intervention, saving employee time and reducing errors.
What are the benefits of automating three-way matching in accounts payable?
Save employee time
One of the major drawbacks to three-way matching in accounts payable is the time taken to verify individual pieces of data on each document, especially line item data. Automating the process means that the data is automatically verified and only exceptions are flagged for manual verification. This allows employees to re-allocate their time to other areas. Because less time is spent verifying the data, orders get processed and paid for quicker, meaning organizations can also benefit from early payment discounts.
Improve supplier relationships
When the interactions between an organisation and their suppliers are seamless, the relationship is improved. A good relationship with a supplier can lead to preferential pricing and improved credit terms.
Protects against fraudulent and duplicate payments
Three-way matching means that data is verified consistently throughout the process. Keeping close tabs on POs, GRNs and invoices ensure that organisations are not overpaying or paying for duplicate items or invoices. The process also protects against fraudulent or non-authorised purchases. Any inconsistencies will be flagged and will then need to be manually approved.
Be audit ready
POs, GRNs, and invoices are among the most common documents that auditors ask for. When these documents are already correctly approved, matched, and organised, the audit process becomes seamless and won’t take too much employee time away from their main focus.
Contact Anota to see how GRN Matching can help improve your processes and save you time and money.