The Pros and Cons of the 3-Way Match

If your company handles a large number of client and supplier transactions, managing accounts payable and ensuring accuracy can be a challenge. One effective way to improve payment processes is to adapt the three-way (3-way) match.

What is the 3-Way Match?

In accounting, the 3-way match refers to a procedure used when processing an invoice received from a vendor. The purpose of the 3-way match is to avoid paying incorrect or fraudulent invoices.

The question is, how useful is this process for small business owners? While it can be labor-intensive, it is highly recommended that you implement the use of three-way matching as an internal control measure, especially if your business is inventory heavy.

Here are the three documents needed:

  1. Vendor’s invoice which was received and will become part of the company’s accounts payable;
  2. Purchase order prepared by the company prior to authorizing the purchase of the goods;
  3. And receiving report prepared by the company.

The “match” refers to the comparison of quantities, price per unit, terms, etc., appearing on the vendor’s invoice to the information on the purchase order and to the quantities actually received. After the vendor’s invoice has been validated by the three-way match, it can be processed for payment.

Now that you know the why and how of the three-way match process, you can determine if it is right for your business. Here are a few considerations to keep in mind when it comes to implementing the 3-way match.

Pros of the 3-Way Match

  1. Prevents Duplication. By matching the numbers across the three documents, accounts payable can ensure that your company doesn’t incur the same costs multiple times.
  2. Painless Audits. Purchase orders, shipping orders, and invoices are the first things an auditor looks for so by regularly sorting out your company’s documents, you remove the need for an in-depth investigation of your business.
  3. Isolate Trouble Spots. Three-way matching promotes accountability through visibility. Inaccuracies can be investigated easily because they are easy to trace.

Cons of the 3-Way Match

  1. Labor-intensive. This is one of the primary cons in implementing the three-way match. Compiling all the documentation and reviewing it requires a lot of eyes and hours. This can cause payment delays and your business may incur penalties for not meeting the terms and conditions of payments.

Although the one con is significant, the pros of implementing the use of a three-way match can be extremely beneficial to inventory heavy businesses. In the long run, it could save you a significant amount of money if implemented properly.

Tentho Can Help

If you’re in need of help improving your accounts payable processes, our team of financial experts can help. We provide recommendations on where your business financials and processes can be improved, strategies you can implement to guarantee success, and much more. Schedule your free consultation to get started today. And remember, your business is our success!

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