Finance and AP Teams
How do organizations reconcile invoices between buyer and seller systems?
Invoice reconciliation confirms that the invoice sent by the seller matches the purchase order raised by the buyer and the goods or services actually received. Discrepancies between invoice data, PO data, and goods receipt data are exceptions that require human resolution. Automated three-way matching resolves the majority of invoices without intervention; only genuine discrepancies reach human attention.
How does automated three-way matching work?
Three-way matching compares three documents to confirm invoice validity:
- PO matching: Invoice supplier, amount, and items matched against the purchase order
- GRN matching: Invoice quantities matched against the goods receipt note for delivered goods
- Tolerance rules: Small price and quantity variances within configured tolerance bands auto-approved
- Full match: All three documents agree within tolerances; invoice auto-approved for payment
- Partial match: Some lines match, some do not; matched portions may be approved while mismatches are queried
- No match: Invoice has no corresponding PO or GRN; routed for exception handling with priority escalation
Frequently Asked Questions
- What tolerance percentage is typically configured for three-way matching?
- Most organizations configure price tolerance of 1-3 percent and quantity tolerance of 0-2 percent for three-way matching. Tighter tolerances catch more discrepancies but create more exceptions. Looser tolerances reduce exceptions but risk approving invoices with material errors. The appropriate tolerance depends on the organization's risk appetite, supplier quality, and the value of invoices typically processed. High-value invoices often have tighter tolerance bands configured.
- How does three-way matching apply to service invoices without goods receipts?
- Service invoices do not have a goods receipt note because no physical goods are delivered. Service invoicing uses two-way matching (invoice vs. PO) supplemented by service acceptance confirmation. Service acceptance is typically provided by the business owner who commissioned the service, confirming that deliverables were received. This creates a digital equivalent of the goods receipt for services that feeds into the matching workflow.
Related Concepts
- What is a goods receipt note and how does it relate to invoice matching?
- What is three-way match in accounts payable and how does it work?
- What is the accounts payable subledger and how does it interact with the general ledger?
- What is an invoice discrepancy and how should it be handled in accounts payable?
- What is a purchase order?