What if you discovered that as much as 2% of your business’s payments are duplicates, charged for the wrong amount, or contain some other error?
According to industry survey data, that’s the case for many businesses; and that’s why it’s so important for businesses to ensure that your accounts payable department (AP department) is verifying the legitimacy and accuracy of the invoices that get paid.
That’s where 3-way matching comes in. Many businesses have instituted this practice to reduce the likelihood of fraudulent invoices, embezzlement, computer glitches, or human error resulting in an unauthorized payment of any kind. This is a completely valid solution to the issue in theory. However, in practice, the process often used to implement it has some glaring flaws.
Considering that the entire purpose of the 3-way matching process is to reduce spending by increasing payment accuracy, would it surprise you to learn that for many companies, manually implementing this cost-saving system actually ends up being more expensive than just paying the occasional erroneous invoice?
In this article, you’ll discover:
- The meaning of 3-way matching in accounts payable
- The benefits of a three-way matching process
- How 3-way match automation addresses payment accuracy issues without becoming more expensive than the issue it solves
- The additional benefits that the right automation software can provide
What Is 3-Way Matching in Accounts Payable?
Three-way matching in accounts payable is an internal control method that ensures that the invoice, purchase order, and receiving report all have consistent line item details. The goal of this approval process is to ensure that the invoice is consistent with the products and amount ordered (listed on the purchase order) and match the goods delivered to the receiving department and the corresponding receiving report.
This accounts payable process guarantees that what a business ordered is what gets delivered and paid for.
What is the Difference Between Two-Way Matching, Three-Way Matching, and Four-Way Matching
Two, three, and four-way matching are all accounts payable approval processes, however, they each conduct the matching process to a different degree. Two-way matching is the most basic approval process where the vendor’s invoice number and details are checked against the purchase order number (PO number) and details to ensure that the documents match. 3-way matching adds the receiving report or the receipt of the goods as a further verification method.
The most complex, labor-intensive, and time-consuming invoice matching technique is 4-way matching where the supplier invoice number and details are matched against the PO number and details, the receiving report or goods receipt, and yet another match process is conducted on the packing slip/order receipt.
What Are the Benefits of 3-Way Matching?
The main point of implementing a 3-way match process in the purchasing department is to cut costs. It’s used as a money-saving measure to ensure companies don’t overpay for goods or pay fraudulent invoices. It has the added benefit of making bookkeeping and audits easier to deal with as well.
The Real Cost of a Manual 3-Way Match Process
Companies that choose to employ the three-way-match process do so to reduce mistakes, catch illegal activity, and save money. The problem is, 75% of businesses don’t have a fully automated purchasing process so by trying to avoid overpaying, they can often end up with much higher processing costs. Using even a partially manual procurement system can leave a business hemorrhaging money to a surprising degree.
Take a look at some findings of several industry studies and reports regarding the cost of choosing to manually implement the three-way match process as a cost-saving method.
Industry Facts & Statistics:
- Each paper invoice can cost anywhere from $12 to nearly as much as $40.
- Errors cost an average of $53.50 to correct.
- Each paper AP invoices can incur a $3.90 storage cost.
- 40% of companies store their records for a full decade.
When all is said and done, expenses from manual invoice matching can amount to hundreds of thousands or even millions of extra dollars in processing costs, all out of fear of overpaying.
How Three-Way Match Automation Can Help
Businesses that switched from a manual procurement process using paper invoices in efforts to completely automate their systems have seen some unbelievable results and have beyond proven the value and efficacy of the automated three-way matching internal control process.
Based on accounts payable department data and relevant research done thus far, businesses with fully automation-based internal control systems and invoice matching could realize a savings of up to $300,000 or more depending on their invoice processing volume. Take a look at some of the data:
Beneficial Outcomes of Shifting Matching Processes:
- Savings of 90% on accounts payable costs
- Accounts receivable expenses reduced by nearly half
- Instances of invoice errors dropped 37%
- Lowered invoice processing costs by 29% on average
- Businesses with 10K+ monthly invoices saved $300k
Case Studies: Benefits of 3-way matching automation
While automation can save businesses thousands of dollars on manual approval process costs, that is not the only benefit to automation. The right platform can save you time on needlessly complex and time-consuming procurement processes that eat up your schedule, allowing you to do more of what needs to be done with efficiency. Many businesses have trouble keeping track of where everything was ordered from, which providers are approved, and when deliveries are due. For others, ordering from multiple vendors on different sites and completing several checkout processes causes a lot of trouble. All of these issues are easily addressed with the right automation software and a platform designed to streamline workflow.
Benefit of 3-way matching #1: Time Is Money
The more time spent on the purchasing and accounts payable process, the less time you have for everything else. When it’s taking a lot of time to place orders, complete the approval process, and deal with supply chain logistics, that’s often a sign of an inefficient procurement process. For example, Nick Staples, CEO of Zenergy, a cycling-focused chain of workout studios, was spending an average of 8 hours on purchasing.
His business was expanding, but with every new location came a new list of products to order and an extra logistical issue to address. He started using Order and within a day he was up and running on the platform. It only took an hour for the managers to learn the process and having one platform to find, order, ship, and track everything made things much easier on him. He now gets it done 24x faster.
Benefit of 3-way matching #2: Systems of Simplicity
Keith Bowles of ZeroCater had a complex, inefficient, and time-consuming invoicing process that wasn’t for anyone. They had limited visibility, no organization, and everything was a mess. He had trouble keeping track of where things were ordered from them spent days on invoicing. With the Order Chrome Extension that allows them to shop anywhere, checkout across vendors, and consolidate invoices, he now has a much better system with 50x fewer invoices, and he’s thrilled with all the time it freed up.
Benefit of 3-way matching #3: Streamlined Savings
Tesh Ramsarup of XpresSpa had a chaotic list of different vendors, products, and carriers, only 70% of which were compliant with their corporate standards. With Order’s platform, they were able to get that number up to 100% and streamline their procurement workflow to save time and a total of $68,000 their first year.
Bottom Line on 3-Way Matching
Three-way matching is a great system when done correctly. Too many companies use manual invoice matching and spend far more than they realize on it. Using an automated system for your invoice processing, procurement, and other systems can save you so much time, money, and hassle that there’s no good reason to keep doing it the wrong way. Researchers & financial experts agree that automation is the way to go. In fact, when financial executives were surveyed on their Top Strategic Action, 62% said automation of invoice receipt and workflow.
Order gives you one platform to automate the entire matching process, saving you from manual data entry and human error. Request a demo, here.