3-way matching in accounts payable: How to increase accuracy

Imagine finding duplicate business payments, incorrect amounts, or other errors—a common nightmare for many businesses.

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That’s where three-way matching comes in handy. By cross-checking the purchase order (PO), goods received note (GRN), and vendor invoice, accounts payable teams catch mistakes before they impact the bottom line. But what exactly is three-way matching, and how does it work?

What is 3-way matching?

3-way matching in accounts payable is a verification process that checks three primary documents—the purchase order (PO), goods received note (GRN), and supplier invoice—to confirm that goods or services ordered, received, and billed match up before payment to prevent paying for incorrect quantities and prices.

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3-way matching is important for AP teams to catch discrepancies (mismatches between the PO, GRN, and supplier invoice) early, protecting your business.

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Benefits of 3-way matching include:

• Preventing costly errors: By catching discrepancies between the purchase order, goods receipt, and invoice early, 3-way matching ensures your business only pays for what it ordered and received.
• Safeguarding against fraud: Built-in checks help identify unauthorized or duplicate invoices, protecting your financial integrity.
• Improving vendor relationships: Accurate and timely payments build supplier trust, strengthening long-term partnerships.

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This process not only boosts financial accuracy and strengthens supplier trust but also acts as a critical internal control, protecting against fraud, overpayments, and errors by enforcing clear, consistent payment standards.

Why is 3-way matching important?

Three-way matching ensures accurate and authorized transactions, especially with significant assets like inventory. It helps prevent overpayment, fraud, and errors by verifying that goods or services ordered, received, and invoiced match before payment is made.

How 3-way matching works

As mentioned, three-way matching cross-verifies three primary documents before payment to ensure accuracy. In detail, the three individual components are: 

• Purchase order (PO): This describes what’s being bought, including quantity and price. It is approved and sent to the seller.
• Goods received note (GRN): A GRN, often used alongside the supplier’s packing slip, confirms that the delivery matches the PO and provides proof for 3-way matching.‍
• Supplier or vendor invoice: Lists delivered items and costs, checked against the PO and GRN. Once the invoice approval process is complete, the payment is made.

The 3-way matching process: Step by step

An AP department must follow several steps to match invoices during the three-way matching process.

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These are the typical steps an AP team needs to check:

1. Purchase order is created: The process begins when a need for goods or services is raised. The procurement team approves the purchase and sends the supplier a PO, including a unique PO number detailing quantities, agreed pricing, and delivery terms.
2. Goods are received and inspected: The supplier prepares and delivers the order. Upon receipt, verify the accuracy of the paperwork and address any discrepancies before finalizing the receipt and GRN.
3. Invoicing: During the billing cycle, the supplier sends an invoice detailing the delivered items, payment terms, pricing, and additional fees. This invoice acts as the third document in the 3-way matching process.
4. 3-way matching and verification: The AP team cross-checks the PO, GRN, and invoice to verify that quantities, prices, and terms align perfectly, flagging inconsistencies as part of the broader PO matching process to maintain accuracy.
5. Authorization: If all details match, the AP team authorizes payment. Payments are approved only after all documents align and mismatches are resolved. Only then can the invoice be posted.

What else to consider when performing a 3-way match

3-way matching helps to ensure more precise matching, but there are still a few considerations to keep in mind to make sure issues are avoided:

• Setting standards for discrepancies: To prevent minor discrepancies from stalling payments, set clear guidelines on what variances in price or quantity are tolerated.
• Partial deliveries: For large orders, partial shipments are expected. Set up a process to track and match deliveries against the PO and invoice to prevent duplicate payments or missed items.‍
• Automation: Automating the 3-way matching process can significantly reduce manual errors and improve accuracy and efficiency for your team—a topic we'll explore further.

Examples of 3-way matching in action

Suppose an accounts payable team at a tech company receives a $5,000 invoice from a supplier for 500 office supply kits for new hires. Here’s how the 3-way matching process works to verify the transaction:

1. Purchase order review: The procurement process begins with the procurement team generating a PO for 500 office supply kits, each priced at $10, for a total amount of $5,000. This PO is sent to the supplier and kept in the company’s records.
2. Goods receipt confirmation: Upon arrival of the supplies, the receiving department verifies the delivery against the PO. They confirm that 500 kits were received in good condition, with no discrepancies in quantity or quality, and record the receipt.
3. Invoice validation: The supplier sends an invoice listing 500 kits at $10 each, for a total of $5,000. The AP team then performs a 3-way match by cross-checking the invoice, PO, and good receipt notes to confirm alignment across all three documents.

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The AP team can approve the payment since the PO, goods receipt, and invoice match perfectly. If any discrepancies appeared—like receiving fewer kits than ordered or encountering a price mismatch—the team would flag the invoice for review and hold payment until the issue is resolved.

How to optimize 3-way matching for improved efficiency

Improving efficiency with the 3-way matching process starts with understanding some simple best practices:

1. Prioritize high-value invoices: Focus manual efforts on high-value or one-time invoices with the most significant financial risk. Low-value or recurring payments can often be verified upon setup, freeing resources for more critical transactions.
2. Set clear tolerances for discrepancies: Define acceptable margins of error for price or quantity mismatches to prevent minor discrepancies from causing unnecessary delays while still flagging significant issues for review.
3. Standardize documentation and processes: Make sure all corresponding purchase orders, GRNs, and invoices follow a consistent format to speed up manual matching and reduce confusion.
4. Organize records and train your AP team: Keep all matching-related documents in one easily accessible location, whether physical or digital. Additionally, train your AP or finance team on how to resolve common discrepancies to make the process less error-prone.

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While these best practices can improve the 3-way matching process, automated invoice processing offers another powerful way to increase efficiency.

Manual vs automated 3-way matching 

Manual 3-way matching has its strengths—it’s straightforward, allows for human judgment, and works well in low-volume environments. However, it can quickly become a bottleneck as transaction volume grows. Some common challenges with manual matching include:

• Time-consuming processes: Manually cross-checking documents is labor-intensive, especially when handling high volumes of invoices, leading to inefficiencies.
• Higher risk of errors: Human oversight can lead to mistakes, such as mismatched details and misplaced documents.‍
• Delayed payment process: Discrepancies take longer to reconcile manually, which can result in late payments and strained supplier relationships.

Why automation can help and how to optimize your process with it

Automated three-way matching eliminates the headaches of a manual matching process and provides additional benefits for your AP team. Here’s how accounts payable automation works and why it can help grow businesses:

1. Digitizes and centralizes documents: Automation software integrates with your ERP or AP software to pull POs, goods receipts, and invoices into one platform. Tools like Optical Character Recognition (OCR) digitize paper invoices, making sure every detail is noticed.
2. Automatic matching: The system automatically cross-checks documents, applying pre-set rules to identify discrepancies quickly.
3. Streamlines workflows and exception handling: Flagged mismatches are routed to the right person through automated workflows, cutting out manual back-and-forth. Pre-defined rules can even resolve common issues like partial shipments automatically.
4. Provides actionable insights: Dashboards and reporting tools offer more visibility into your accounts payable process, helping you track trends, spot bottlenecks, and ensure compliance.

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While manual processes can work for smaller setups, AP automation provides added benefits for businesses managing high invoice volumes, such as:

1. Faster processing times: Automation matches invoices quickly, cuts processing times from days to minutes, keeps payments on time, and keeps suppliers happy.
2. Error reduction: Pre-set rules and automated checks minimize the risk of human mistakes.
3. Scalability: High invoice volume? No problem. Automated 3-way matching can handle thousands of transactions, allowing your team to focus on more strategic tasks.
4. Proactive fraud detection: Automation tools can analyze patterns and flag unusual activity, protecting against fraudulent invoices.

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Automated matching helps AP departments move faster by saving time and improving invoice management, all while streamlining your AP process.

Comparing 3-way with 2-way and 4-way matching

With the basics of 3-way matching and automation covered, many businesses still wonder which invoice matching process is right for them—2-way, 3-way, or even 4-way?

2-way matching vs 3-way matching

In two-way matching, the AP team matches the invoice directly with the PO to ensure that the invoice quantity, price, and terms align with the initial order.

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Unlike three-way matching, two-way matching skips the goods receipt, making it ideal for services or digital products where no physical items are delivered; for transactions involving goods, though, three-way matching provides an added layer of verification.

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Here’s a side-by-side comparison:

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4-way matching vs 3-way matching

Four-way matching includes all the steps in 3-way matching, with an added layer of verification: an inspection or acceptance report.

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This extra layer of verification is ideal for industries with strict quality requirements, like manufacturing or construction, while three-way matching typically offers ample verification for standard goods transactions.

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Here’s another side-by-side comparison:

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Improving your 3-way matching accuracy with automation

Automation doesn’t just make 3-way matching faster—it makes it more efficient and reliable.

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By digitizing documents, automating workflows, and providing visibility, your AP team can focus on strategic tasks while reducing errors, improving accuracy, and strengthening supplier relationships.

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With automated systems like Ramp’s accounts payable software, you can implement a seamless, automated solution tailored to your needs.

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With Ramp, your team can focus on streamlining operations and driving value for your business without the hassle of manual invoice processing.