Three-Way Matching
Three-way matching is an accounts payable control that compares three documents — the purchase order (PO), the goods receipt (or receiving report), and the vendor invoice — before authorizing payment. Each document must agree on item descriptions, quantities, and pricing within configured tolerance thresholds. Discrepancies trigger exception workflows for investigation. Three-way matching prevents overpayment, payment for undelivered goods, and invoice fraud, making it a foundational AP internal control required by most audit frameworks.
Key Details
- The three documents: PO (what was ordered and at what price), goods receipt (what was actually received), invoice (what the vendor is charging)
- Match criteria typically include: line-item descriptions, quantities (ordered vs. received vs. invoiced), unit prices, and total amounts
- Tolerance thresholds allow small variances to pass without exception — e.g., quantity within 5% or amount within $10 of PO value
- Two-way matching (PO to invoice only) is used for services where there is no physical goods receipt to match against
- Automated three-way matching eliminates manual document comparison, reducing invoice processing time from 10+ days to under 48 hours
- Exception handling routes mismatches to buyers or receiving departments with side-by-side document comparison for quick resolution
- Audit requirement: SOX and internal audit frameworks consider three-way matching a key control for preventing unauthorized payments and AP fraud