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