Concept Definition
What is three-way matching?
Three-way matching is an AP control process that validates a supplier invoice by comparing it against the corresponding purchase order and goods receipt note. All three documents must agree on quantities, prices, and terms before payment is authorized. It reduces fraud, duplicate payments, and overpayments.
What are matching tolerances?
Most organizations define tolerance thresholds within which automatic approval is permitted. Common tolerance settings include:
- Price tolerance: Invoice unit price within X% of PO price (e.g., 2%) is auto-approved.
- Quantity tolerance: Invoice quantity within X% of GRN quantity (e.g., 5%) is auto-approved.
- Amount tolerance: Total invoice amount within a fixed amount above PO (e.g., USD 50) is auto-approved.
- Exceptions outside tolerances are routed to manual review.
Frequently Asked Questions
- What is two-way matching?
- Two-way matching compares only the invoice against the purchase order, without checking the goods receipt note. It is faster but less rigorous than three-way matching. Two-way matching is suitable for service invoices where no physical goods receipt exists.
- Can three-way matching be fully automated?
- Yes. E-invoicing platforms with ERP and WMS integration can perform three-way matching automatically for structured invoices. Automated matching requires the invoice to reference the PO number and line item identifiers that link to GRN records in the buyer system.