What is three-way match in accounts payable and how does it work?
Three-way match is the accounts payable process of verifying that a supplier invoice matches the corresponding purchase order and goods receipt note before approving payment. The three documents checked are: (1) purchase order (PO) -- what was ordered and at what price; (2) goods receipt note (GRN) -- what was received and in what quantity; (3) invoice -- what the supplier is claiming payment for. All three must match within defined tolerances for the invoice to be approved without exception.
How is three-way match automated in AP systems?
Automated three-way match process: (1) Invoice received (paper, PDF, or e-invoice XML); (2) OCR or XML parsing extracts invoice data; (3) System looks up PO in ERP using the PO number on the invoice; (4) System retrieves the linked GRN(s) for quantities received; (5) System compares: invoice line quantities vs GRN quantities (within tolerance), invoice unit prices vs PO unit prices (within tolerance), invoice total vs calculated total; (6) Match result: full match (auto-approve), partial match with acceptable variance (auto-approve with note), or mismatch (exception queue).
Frequently Asked Questions
- What tolerances are typically applied in three-way match?
- Common three-way match tolerances: quantity tolerance of 2-5 percent (to accommodate minor delivery short-falls or rounding); price tolerance of 1-3 percent (to accommodate currency rounding or minor price variances); total invoice variance tolerance of a fixed amount (e.g., USD 50 or EUR 50) or percentage. Tolerances are configured in the ERP and should reflect business risk appetite; too-wide tolerances allow financial leakage, too-tight tolerances create excessive exception queues.
- What is two-way match and when is it used?
- Two-way match checks only the invoice against the purchase order (not against a goods receipt note). It is used for service purchases where no physical goods receipt exists (consulting fees, subscription services, facility management). Two-way match verifies that the service was ordered at the price invoiced, but relies on the business user confirming that the service was actually delivered (often via a service confirmation sign-off in the AP system).
Related Concepts
- What is a goods receipt note and how does it relate to invoice matching?
- What is an invoice discrepancy and how should it be handled in accounts payable?
- What is dynamic discounting and how does it relate to invoice processing?
- What is straight-through processing in accounts payable?
- What is an invoice dispute and what is the standard resolution process?