Invoice matching 101: types, processes, and examples

Invoice matching is a critical process in financial management, ensuring that the details on an invoice align with corresponding purchase orders, receipts, and other relevant documents. By accurately verifying these details, businesses can prevent overpayments, maintain accurate financial records, and strengthen supplier relationships. 

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Whether using a 2-way, 3-way, or 4-way match, optimizing this process is key to enhancing operational efficiency and safeguarding financial integrity. This post will explore the different types of invoice matching, provide real-world examples, and offer strategies to improve your invoice matching process.

What is invoice matching?

Invoice matching involves comparing and verifying the details and quantities listed on an invoice with corresponding purchase orders, receipts, and other relevant documents. The purpose of invoice matching is to make sure that the invoice accurately reflects the goods or services received and the agreed-upon terms and prices. 

How does it work (and why is it important)?

Invoice matching is essential for accurate financial management. It involves verifying invoices against purchase orders and receipts. It comes in multiple forms: 2-way, 3-way, and 4-way matching, chosen based on transaction type and supplier trust. This process ensures the correctness of financial records and transactions, preventing overpayments and maintaining supplier relationships. When done correctly, invoice matching enhances financial accuracy, operational efficiency, and vendor relations.

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By matching invoices with purchase orders and receipts, businesses can identify and resolve any discrepancies or errors before proceeding with payment. This helps maintain accurate financial records and prevent overpayments or incorrect charges.

Types of invoice matching

There are two main types of invoice matching: 2-way match and 3-way match. Some companies need an extra layer of quality assurance beyond the standard 3-ways, and they may do a 4-way match. The process typically begins when the vendor sends an invoice to the company, which is then compared against the purchase order and receipt documents. Any discrepancies are resolved before payment is authorized. 

2-way match

A two-way match compares the purchase order and the invoice to ensure consistency before payment. It helps verify that the quantity, price, and terms match, reducing errors and preventing overpayment or fraud.

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Documents:

1. Purchase Order 
2. Invoice 

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Because the 2-way match involves trust regarding receiving materials precisely the same as the purchase order, this process is only used with trusted suppliers. Most trusted suppliers are related to the purchasing company through joint ventures, subsidiaries, or parent companies.

3-way match

A three-way match compares the purchase order, the invoice, and the receiving report.  This process helps verify that the quantity, price, and terms match across all three documents, reducing errors, overpayment, or fraud, and confirming that the goods or services were received as ordered.

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Documents:

1. Purchase Order
2. Invoice
3. Receiving Report

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The three-way match provides an additional layer of verification, making it ideal for transactions with less trusted suppliers or when the purchase involves higher risks, ensuring accuracy and accountability.

4-way match

A four-way match adds an inspection report to the three-way match process, comparing the purchase order, invoice, receiving report, and inspection report. This process ensures that the quantity, price, terms, and quality of goods or services received match the expectations, reducing errors, overpayment, fraud, and ensuring the delivered goods meet required standards.

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Documents:

1. Purchase Order
2. Invoice
3. Receiving Report
4. Inspection Report

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The four-way match is typically used for high-value or sensitive purchases where quality verification is crucial. It provides the highest level of assurance in the procurement process.

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Invoice matching examples

2-Way match example

A car manufacturer needed seatbelts for their new car line, so they ordered 10,000 seatbelts with their trusted distribution center. After fulfilling the order, the distribution center shipped the seatbelts directly to the manufacturer and sent an invoice to the accounts payable department.

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Since this was a trusted internal supplier, the receiving department didn’t need to generate a goods receipt document, although they still checked for any defects. The accounts payable team then matched the purchase order with the invoice, ensuring everything aligned before issuing payment. Any discrepancies would have required adjustments, but everything checked out, and the payment process continued smoothly.

3-Way match example

A construction company ordered 1,000 bags of cement from a new supplier. Once the cement was delivered, the company’s receiving department checked the delivery to ensure the quantity matched what was ordered and found everything in order. The supplier then sent an invoice to the accounts payable department. 

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Before processing the payment, the accounts payable team compared the purchase order, the receiving report, and the invoice to ensure they all matched. This additional verification step ensured the company only paid for what was received in good condition, protecting them from any potential discrepancies or overcharges.

4-Way match example

A car manufacturer ordered 100,000 tons of steel from a supplier to produce their vehicles. After placing the order, the supplier shipped the steel and sent a shipping notice to the manufacturer. Upon receiving the shipment, the manufacturer’s receiving department checked the quantity and quality of the steel, ensuring it matched the shipping notice. The quality control team also inspected the steel to ensure it met the required standards. 

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The supplier then sent an invoice to the accounts payable department. The accounts payable team performed a thorough 4-way match, comparing the purchase order, receiving report, inspection report, and invoice. This comprehensive process ensured that the quantity, quality, and price all aligned before payment was made, safeguarding the manufacturer from any issues.

How to improve your invoice matching process

To optimize the invoice matching process, companies can implement several strategies that enhance efficiency, reduce errors, and streamline operations. Here are some key approaches:

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• Implement automation tools: Use invoice processing automation to handle two-way or three-way matching between invoices, purchase orders, and receipts, reducing manual checks and minimizing human error.
• Centralize invoice management: Centralize all invoices in a single system for easy tracking and quicker resolution of discrepancies.
• Set up predefined matching rules: Establish predefined matching rules and thresholds to automatically flag issues, streamlining operations and improving payment accuracy.
• Speed up approval workflows: Leverage automation to expedite approval processes, reducing bottlenecks and ensuring timely payments.
• Manage deviations and tolerance levels: Establish clear guidelines for handling deviations (quantity or price discrepancies) between invoices and purchase orders. Set tolerance limits to accept minor variances, automatically reducing manual intervention. Implement a hold process for significant discrepancies to resolve issues before payments are processed, balancing efficiency and accuracy.

Automatically match and process invoices with Ramp

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With features like duplicate invoice detection, diverse payment methods (check, card, ACH, international wire), and seamless integration with accounting systems, Ramp Bill Pay automates your entire accounts payable workflow so every bill is recorded, approved, and paid without any data entry or repetitive tasks. Try Ramp for free.