3 Way Matching In Accounts Payable: What Is It And Why Is It Important?

Managing errors or discrepancies in financial transactions is a universal challenge. Ensuring accuracy in accounts payable can be equally daunting. However, there’s a solution: 3-way invoice matching. This method ensures payment accuracy and safeguards your business from potential pitfalls, ultimately saving time and money.

Let’s explore how 3-way matching, combined with accounts payable automation, can streamline your financial processes and keep your accounts payable on track.

What Is Three Way Matching In Accounts Payable?

Three-way match is a process used in accounts payable to make sure a company only pays for goods or services that were actually ordered and received. It compares three key documents:

1. Purchase Order (PO) – what the company ordered
2. Receiving Report (or Goods Receipt) – what the company received
3. Invoice – what the vendor billed

If all three documents match in terms of item, quantity, and price, the invoice is approved for payment. If there’s a mismatch, the invoice is flagged for review.

Why 3 Way Matching Is Important?

3-Way matching is essential because it ensures accuracy and prevents fraud in the accounts payable process. By comparing the purchase order, receiving report, and invoice, it confirms that goods or services were ordered, received, and billed correctly. This reduces errors, avoids overpayments, and strengthens vendor relationships, ultimately safeguarding your company’s financial health.

How Does Three Way Matching Process Work?

3 Way matching is a crucial process in accounts payable that helps ensure the accuracy and integrity of financial transactions. We will learn through a detailed breakdown of how this process works, but before that, let me walk you through the documents that you need in a three way invoice matching process:

Documents Required For Three-Way AP Match

The three-way match is a critical internal control process in accounts payable. It ensures that a company only pays for goods or services that were properly ordered, received, and billed. To complete this process, three main documents are compared: the purchase order, the invoice, and the receiving report. Here’s what each of these documents is, how it works, and why it matters.

1. Purchase order (PO)

A purchase order is the first step in the procurement process. It’s a formal document created by the buyer (usually the procurement or purchasing team) and sent to a supplier. This document outlines exactly what is being ordered—including the type of goods or services, the quantity, the price per unit, the total amount, and delivery instructions such as location and expected date. It also includes a unique PO number that is used to track and reference the order throughout the process.

Think of the purchase order as the original agreement. It tells the supplier, “This is what we need, and here’s what we’ve agreed to pay for it.” It also protects the buyer by creating a paper trail that can be used to verify whether the supplier delivered what was promised.

2. Invoice

An invoice is the document sent by the supplier to the buyer after the goods have been delivered or the services have been completed. It acts as a formal request for payment and includes key information such as the items delivered, their quantities, unit prices, total cost, and applicable taxes or shipping fees. Crucially, it should reference the same PO number used in the original order.

The invoice allows the accounts payable team to confirm that the supplier is billing the company for exactly what was ordered—and nothing more. If there’s a difference between the PO and the invoice (such as pricing errors or incorrect quantities), that’s flagged during the three-way match. The invoice is the document that triggers the payment process, but only if everything matches.

3. Receiving report (Goods receipt)

The receiving report, also known as the goods receipt, is created by the receiving team or warehouse staff when the items physically arrive. This report confirms that the shipment was delivered and includes details such as the quantity received, the condition of the items, the delivery date, and any discrepancies (like missing or damaged goods).

This document is critical because it provides proof of delivery. Even if a supplier sends an accurate invoice and there’s a matching PO, the company shouldn’t approve payment unless they’ve actually received the goods. The receiving report helps confirm this. In some companies, this may be done digitally through barcode scanning or manually logged in an ERP or inventory system.

Additional supporting documents (optional but helpful)

While the three documents above are the core components of a three-way match, other documents can also help support the process, especially in cases of discrepancies or complex transactions. These include:

• Contract or service agreement (for services):
  When the purchase involves services instead of physical goods, a service agreement or contract may take the place of a receiving report. It outlines the scope of work, milestones, and terms. To verify the invoice, the AP team checks whether the invoiced work aligns with what was agreed and whether the service was completed.
• Packing slip:
  This document comes in the shipment from the supplier and lists what was packed. It’s often used by the receiving team to quickly check whether the right items and quantities were shipped. While it’s not always required in the match, it’s helpful during receiving and can serve as a first-level verification tool.
• Delivery note:
  A delivery note is sometimes provided by the supplier and signed by the person who receives the shipment. It acts as proof that goods were handed over and accepted. This can help settle disputes about whether or when a shipment was delivered.
• Inspection report:
  In industries where goods must meet specific quality standards, an inspection report may be created after delivery. It confirms whether the products meet the company’s requirements and whether they’re approved for use. If items are rejected, this report is a key document in withholding payment.
  

1. Purchase Order (PO) Creation:
   • Initiation: The process begins when a buyer creates a purchase order. This document details the items or services requested, including quantities, specifications, agreed prices, and delivery terms.
   • Approval: The purchase order is then reviewed and approved by the appropriate department to confirm the need for the purchase and budget availability.
2. Goods/Services Receipt:
   • Delivery: The supplier delivers the goods or services as per the terms of the purchase order.
   • Receiving Report: Upon receipt, the receiving department generates a receiving report. This document lists the received items or services, quantities, and conditions. It serves as evidence that the goods or services were delivered.
3. Invoice Receipt:
   • Supplier Invoice: The supplier sends an invoice to the buyer, detailing the items or services provided, quantities, and the total amount due, as well as payment terms.
   • Invoice Recording: The accounts payable department records the invoice in the accounting system, triggering the 3-way matching process.
4. Matching Process:
   • Comparison: The three documents (purchase order, receiving report, and invoice) are compared to ensure consistency and accuracy. Here’s what is checked:
     • Quantities: The quantities listed on the invoice must match those on the purchase order and receiving report.
     • Prices: The prices on the invoice should correspond with the purchase order.
     • Terms: Delivery terms, payment terms, and any other specific conditions must be consistent across all documents.
   • Discrepancies: If there are any discrepancies, the accounts payable team investigates and resolves them. This might involve contacting the supplier or the receiving department to clarify issues.
5. Approval and Payment:
   • Approval: Once the documents match, the invoice is approved for payment. If the organization uses an automated system, this approval might be processed automatically.
   • Payment Processing: The payment is then scheduled according to the agreed-upon terms. The accounts payable team ensures that the payment is made timely to maintain good supplier relationships and possibly take advantage of early payment discounts.
6. Record Keeping:
   • Documentation: All documents involved in the 3-Way matching process are stored for record-keeping and audit purposes. This documentation is crucial for financial transparency and compliance with accounting standards.
   • Audit Trail: Maintaining an audit trail helps in tracking and verifying the accuracy of transactions during internal or external audits.

When Should You Use Three Way Invoice Matching?

Three way matching is particularly useful for transactions involving physical goods. It should be used whenever you want to ensure that payments are made only for goods that were actually ordered and received. It’s less critical for services, where a 2-way match might suffice due to the intangible nature of the delivered product.

Here are some key situations where it is particularly beneficial:

1. Large Purchases: For substantial purchases, 3 Way matching verifies that the quantity and price of goods received match the purchase order and invoice. This is crucial for maintaining accurate inventory records and avoiding overpayments.

2. High-Value Transactions: When dealing with high-value transactions, 3 Way matching helps prevent fraud and errors. By cross-checking documents, you ensure that every dollar spent is accounted for and that payments are made only for goods or services received.

3. New Vendors: Using 3 Way matching with new vendors ensures that initial transactions are accurate and reliable. This builds a foundation of trust and accuracy, setting the tone for future dealings.

4. Complex Orders: For orders involving multiple items or services, Three Way matching ensures that every component is delivered as specified and billed correctly. This reduces the risk of missing or incorrect items.

5. Contractual Obligations: When purchases are made under specific contractual terms, 3-Way matching ensures compliance with those terms. This helps in verifying that all agreed-upon conditions are met before making payments.

6. Recurring Orders: For businesses with recurring orders, 3-Way matching ensures consistency and accuracy over time. It verifies that each recurring delivery matches the agreed terms and prevents any gradual discrepancies.

7. Preventing Overpayments: Invoices might contain errors or duplicate charges. 3-Way matching catches these discrepancies by ensuring that the invoice matches both the purchase order and the receiving report, preventing overpayments.

8. Ensuring Quality: Verifying that received goods match the order specifications helps maintain product quality. This is particularly important in industries where product standards are critical, such as manufacturing or healthcare.

In essence, Three Way matching is a vital tool in maintaining financial integrity, improving vendor relationships, and ensuring operational efficiency. By implementing it in these scenarios, you can protect your business from financial risks and enhance overall accuracy in the accounts payable process.

Example Of 3 Way Match

To better understand how the three-way match process works in a business setting, let’s look at a detailed example involving a manufacturing company that regularly purchases equipment components from suppliers.

Step 1: Purchase order is created and sent to the supplier

A manufacturing company needs to order 100 pressure gauges for its production line. The procurement team creates a purchase order (PO) that specifies:

• Item: Pressure gauge
• Quantity: 100 units
• Unit price: $50
• Total amount: $5,000
• Delivery location and expected delivery date

This PO is sent to the supplier and acts as a formal agreement between the two parties.

Step 2: Invoice is received from the supplier

After accepting the order, the supplier ships the goods and sends an invoice to the company’s accounts payable department. The invoice includes:

• PO number reference
• Item details and quantity: 100 pressure gauges
• Unit cost: $50
• Total amount billed: $5,000
• Payment terms

This invoice essentially requests payment for the goods that were ordered.

Step 3: Goods receipt is issued upon delivery

When the shipment arrives, the receiving department inspects and counts the delivered items. They confirm that all 100 pressure gauges have been delivered in good condition and create a receiving report (also called goods receipt), which documents:

• What items were received
• The quantity received
• Condition of the goods
• Delivery date

This report is crucial because it provides physical proof that the company actually received what was ordered.

Step 4: Three-way match is performed by accounts payable

Once the PO, the invoice, and the receiving report are available, the accounts payable team compares all three documents:

• The purchase order confirms what was ordered
• The invoice confirms what was billed
• The receiving report confirms what was received

In this example, all three documents show 100 pressure gauges at $50 each, with a total value of $5,000. Since the quantities, items, and prices all match across the documents, the invoice passes the three-way match and is approved for payment.

Additional documents: Packing slip (optional)

In some cases, the delivery may also include a packing slip from the supplier. While not always part of the formal three-way match, the packing slip can help the receiving team double-check what was shipped and assist in resolving discrepancies (e.g., missing or damaged items).

Benefits Of Three Way Matching

Implementing a 3-Way matching process in accounts payable offers numerous advantages, which contribute to the overall efficiency, accuracy, and financial health of a business. Here’s a closer look at the key benefits:

1. Improved Accuracy in Payments:
   • Validation: 3-Way matching ensures that each invoice is cross-verified against the purchase order and the receiving report. This validation process confirms that the billed amounts are correct and correspond to what was ordered and received.
   • Error Reduction: By matching these three documents, businesses can catch and correct discrepancies such as overbilling, incorrect quantities, or unauthorized charges before payments are made.
2. Enhanced Fraud Prevention:
   • Control Mechanism: The process serves as a control mechanism to prevent fraudulent activities. By requiring multiple levels of verification, it becomes harder for fraudulent invoices to slip through the cracks.
   • Accountability: The involvement of different departments (purchasing, receiving, and accounts payable) in the process increases accountability and reduces the risk of collusion.
3. Better Cash Flow Management:
   • Timely Payments: Ensuring that only accurate and approved invoices are paid on time helps in maintaining a steady cash flow. This is crucial for meeting financial obligations and planning investments.
   • Avoiding Overpayments: By verifying each payment thoroughly, businesses can avoid overpayments, thereby conserving cash for other critical needs.
4. Enhanced Supplier Relationships:
   • Transparency: The process fosters transparency between the business and its suppliers. Clear and accurate payments build trust and enhance relationships.
   • Dispute Resolution: When discrepancies are found and addressed promptly, it prevents misunderstandings and disputes with suppliers, leading to smoother operations and better long-term partnerships.
5. Compliance and Audit Readiness:
   • Documentation: 3 Way matching involves thorough documentation of purchase orders, receiving reports, and invoices. This ensures that all financial transactions are well-documented and easily traceable.
   • Audit Trail: Maintaining a clear audit trail helps ensure compliance with accounting standards and regulatory requirements. It also facilitates easier and more efficient audits, both internal and external.
6. Operational Efficiency:
   • Streamlined Processes: Automating the 3-way matching process can significantly streamline accounts payable operations. It reduces the need for manual checks and accelerates the approval process.
   • Error Handling: Automation helps in quickly identifying and resolving discrepancies, thereby reducing the time and effort required for manual reconciliation.
7. Cost Savings:
   • Early Payment Discounts: Accurate and timely invoice processing can enable businesses to take advantage of early payment discounts offered by suppliers, leading to cost savings.
   • Reduced Administrative Costs: By minimizing errors and disputes, businesses can reduce the administrative costs associated with resolving billing issues and processing payments.
8. Enhanced Financial Planning:
   • Predictability: With accurate and timely invoice processing, businesses can better predict their cash outflows. This predictability aids in financial planning and budgeting.
   • Resource Allocation: Knowing when payments are due and ensuring they are accurate allows businesses to allocate resources more effectively.

2 Way Matching Vs 3 Way Matching

3-way matching involves comparing three key documents: the purchase order, receiving report, and invoice to ensure that the goods or services ordered match what was received and invoiced. This comprehensive process helps prevent discrepancies, overpayments, and fraud by verifying all aspects of a transaction. 

In contrast, 2-way matching only compares the purchase order and invoice, omitting the receiving report. While 2-way matching is simpler and faster, it can miss errors such as incorrect quantities received, making 3-way matching a more thorough and reliable method for ensuring payment accuracy. 

Example:

• 2-Way Match: You receive an invoice for 100 widgets at $10 each, matching the purchase order. However, without the receiving report, you might miss that only 80 widgets were actually delivered.
• 3-Way Match: You not only check the invoice against the purchase order but also confirm that the receiving report indicates 100 widgets were delivered. This comprehensive check ensures accuracy.

Challenges with manual invoice matching

Manual invoice matching—the process of comparing purchase orders, invoices, and receiving reports by hand—has long been part of traditional accounts payable workflows. While it may work for low-volume environments, it quickly becomes inefficient and error-prone as businesses grow and transactions increase. Below are some of the most common and costly challenges companies face when relying on manual methods to complete the three-way match.

1. Time-consuming and repetitive work

Manually comparing three separate documents (purchase order, invoice, and receiving report) for each transaction takes a significant amount of time. AP teams often have to go line-by-line to ensure that quantities, prices, and item details match. When hundreds or thousands of invoices are processed monthly, this becomes a bottleneck that delays approvals and payments. It also leaves less time for strategic tasks like vendor negotiations or financial analysis.

2. Prone to human errors

Manual processes depend heavily on accuracy and attention to detail. Even small mistakes—like a missed price discrepancy or mismatched PO number—can lead to incorrect payments, duplicate entries, or reconciliation issues. Errors can also result in paying for goods not received or missing early payment discount opportunities, directly impacting the bottom line.

3. Delayed payments and vendor dissatisfaction

Manual matching often leads to longer invoice processing times. If a mismatch is found, the invoice has to be sent back for clarification or correction, and the process stalls. These delays can cause missed payment deadlines, which in turn may damage supplier relationships, lead to late fees, or prevent the company from taking advantage of early payment discounts.

4. Lack of visibility and tracking issues

In manual systems, data is often stored in spreadsheets, paper files, or siloed software, making it hard to track the real-time status of an invoice. Without a centralized view, AP teams struggle to identify where invoices are stuck, which documents are missing, or who needs to take action next. This lack of visibility increases the chances of bottlenecks and compliance gaps.

5. Difficulty handling exceptions and mismatches

Exceptions—such as partial deliveries, pricing discrepancies, or missing documents—are common in AP. Manually identifying and resolving these exceptions takes time and often requires coordination between procurement, receiving, and finance teams. Without automated alerts or workflows, these mismatches can go unnoticed or take days to resolve, further delaying payment cycles.

6. Scaling issues as volume grows

As a business expands, so does the number of transactions and vendor relationships. Manual processes that were manageable at a smaller scale become overwhelming and inefficient. Hiring more staff to keep up with volume isn’t always sustainable, and it can introduce even more variability and inconsistency in how invoices are handled.

Manual invoice matching slows down processes, increases errors, and makes it hard to scale. These challenges only grow with business complexity and transaction volume.

The solution? Invoice matching automation. It eliminates manual effort, flags mismatches instantly, and speeds up approvals. Businesses across industries have seen real results—faster processing, fewer errors, and stronger financial control.

What is automated invoice matching?

Automated invoice matching is the process of using technology to compare key documents in accounts payable—typically the purchase order (PO), invoice, and receiving report—without manual intervention. Instead of staff checking each document line by line, automation tools extract, validate, and match data across all three documents in real time.

If everything matches (quantities, prices, and item details), the invoice is approved automatically. If there’s a mismatch, the system flags it for review—reducing time spent on manual checks and exception handling.

Benefits of automated invoice matching

Manual invoice matching often leads to delays, errors, and growing inefficiencies—especially as businesses scale. Automation directly addresses these challenges by bringing speed, accuracy, and consistency into the process. Below are the key benefits of automated invoice matching and the problems they solve in modern accounts payable operations:

1. Eliminate time-consuming manual work

Manually matching invoices with POs and receiving reports takes hours—especially when documents are printed, emailed, or stored in different systems. Automation removes the need for repetitive, line-by-line checks by instantly comparing data across all documents. This frees up your AP team to focus on exceptions, strategic analysis, or vendor communication instead of paperwork.

2. Reduce human errors and mismatches

Typos, missed line items, or mismatched totals are common in manual processes and can lead to overpayments or incorrect approvals. Automated systems extract and validate data with a high degree of accuracy, flagging discrepancies early so they can be resolved before payment is issued. This minimizes financial risk and improves trust in your AP process.

3. Accelerate invoice approvals and payment cycles

Slow approvals often result from bottlenecks in reviewing and validating documents. With automation, matching happens in real time, and matched invoices can be routed directly for approval—often without human touch. This speeds up your entire payment process, helping you meet due dates and take advantage of early payment discounts.

4. Gain real-time visibility and control

Manual matching processes are often scattered across spreadsheets, emails, or paper files, making it hard to track invoice status or identify delays. Automated systems provide centralized dashboards where AP teams can monitor every match, exception, and approval step in real time. This visibility helps with forecasting, compliance, and internal reporting.

5. Strengthen supplier relationships

Delays in invoice matching often lead to late payments and strained vendor communication. With automation ensuring timely and accurate payments, vendors are more likely to receive updates, get paid on time, and maintain a smooth partnership. Fewer payment disputes also mean fewer back-and-forth emails or calls.

6. Easily scale as your business grows

What works for 100 invoices per month doesn’t work for 10,000. As your vendor base and transaction volume grow, automation allows your AP process to scale without hiring more staff or sacrificing accuracy. It ensures consistent performance regardless of volume, seasonal spikes, or business expansion.

How to Automate 3-Way Matching

Automating the three way matching process offers several benefits over the manual method. It reduces human error, saves time, enhances efficiency, and ensures consistency. By leveraging technology, businesses can streamline their accounts payable process and focus on more strategic tasks. Here’s how you can automate 3-Way matching:

• Choose the right software: Select an accounts payable automation software that supports 3-way matching. Ensure it integrates with your existing ERP or accounting systems.
• Set up integration: Integrate the software with your purchase order, receiving, and invoicing systems. This ensures seamless data flow and real-time updates.
• Define matching criteria: Configure the software to match purchase orders, receiving reports, and invoices based on predefined criteria such as quantity, price, and terms.
• Automate data entry: Use optical character recognition (OCR) or electronic data interchange (EDI) to automatically capture data from invoices, purchase orders, and receiving documents.
• Implement workflow rules: Set up automated workflows to handle discrepancies. For example, if the quantities don’t match, the system can automatically flag the issue for review.
• Continuous monitoring and reporting: Use the software to continuously monitor the matching process and generate reports. This helps in identifying patterns and areas for improvement.
• Train your team: Ensure your accounts payable team is trained on the new automated system. They should know how to handle exceptions and use the software effectively.

Automate Three Way Matching Process With HighRadius AP Automation Software

Still spending hours manually matching invoices, POs, and goods receipts? It doesn’t have to be this complicated.

Accounts Payable teams often get stuck chasing down mismatches, checking line items one by one, or emailing back and forth with procurement. It slows down approvals, leads to missed early payment discounts, and clogs up your workflow. HighRadius changes that with touchless, AI-powered three-way matching.

Here’s how HighRadius helps your AP team work smarter:

1. Instant matching across invoices, purchase orders, and goods receipts

HighRadius pulls data from your ERP and auto-matches documents—no more manual comparisons, no more delays.

2. Built-in exception handling

If there’s a mismatch, the system identifies it, suggests possible resolutions, and sends it to the right person. Everything moves faster—with less back and forth.

3. Smart tolerance rules that keep things moving

Set rules for acceptable variances so small differences don’t block your process.

4. Audit-ready and always synced with your ERP

Every action is logged and updated in real time, so you stay compliant and in control without lifting a finger.

The result?

• Faster approvals
• Fewer errors
• Happier vendors
• And an AP team that finally has time to focus on high-value work

HighRadius helps you move from reactive to strategic. No more chasing paper. No more matching line items manually. Just clean, accurate, automated workflows that scale with your business.

Ready to see it in action? Book your personalized demo today and take the manual work out of invoice matching—for good.

Conclusion

3-way matching is a critical process in accounts payable that ensures accuracy, prevents fraud, and improves financial efficiency. By understanding and implementing 3-way matching, you can protect your business from financial discrepancies and streamline your payment processes. Automated Invoice Matching Software further enhances these benefits, making the process faster and more reliable.

FAQs On 3 Way Match In Accounts Payable

1. What is the 3-way match issue?

The 3-way match issue arises when discrepancies occur between purchase orders, invoices, and receiving reports. It’s crucial to reconcile these documents to ensure accurate payment processing.

2. Who performs a 3-way match?

A 3-way match is typically performed by accounts payable departments or finance teams within organizations. Their role is to verify alignment among purchase orders, invoices, and receiving reports before approving payments.

3. What is 3-way vs 4-way matching?

In 3-way matching, documents compared include the purchase order, invoice, and receiving report to verify goods ordered, received, and billed accurately. 4-way matching adds an additional step of quality inspection before payment, ensuring both quantity and quality compliance.

4. What is the main goal for a 3-way match?

The main goal of a 3-way match is to ensure accurate payment processing by confirming that goods or services were ordered, received, and billed correctly. This process helps prevent overpayments, reduces errors, and safeguards against fraud.

5. Which document typically triggers the 3-way match?

A purchase order typically triggers the 3-way match process. Upon receipt of goods or services and subsequent submission of an invoice, all three documents—purchase order, receiving report, and invoice—are compared to verify accuracy before payment is authorized.

6. Who are the decision makers involved in the three-way matching process?

The main decision makers in the three-way matching process are the procurement team, the receiving team, and the accounts payable (AP) team.

Each of these groups plays a specific role:

• The procurement team creates the purchase order and ensures the correct items, prices, and quantities are agreed upon before ordering.
• The receiving team checks and confirms that the goods or services were delivered as expected and records this in the receiving report.
• The AP team reviews the invoice and compares it with the PO and receiving report to decide if the invoice should be approved for payment.

Sometimes, finance managers or department heads are looped in when there’s a mismatch or an exception that needs special approval.

6. What are the best practices for making the three-way matching process more efficient?

To make the three-way matching process more efficient, the best approach is to automate and simplify as much as possible.

Here are a few proven practices that can help:

• Automate the matching process to reduce manual effort and errors.
• Standardize PO and invoice formats so that matching is easier and consistent.
• Set tolerance limits to allow small, acceptable mismatches to go through without manual intervention.
• Keep all documents in one place using an integrated system or shared platform.
• Ensure good communication across procurement, receiving, and AP teams to quickly resolve any issues.

These steps help speed up approvals, cut down on mistakes, and create a smoother workflow overall.