Table of Contents: What is Invoice Matching and Why Does It Matter? | What is 2-Way vs. 3-Way Matching in Accounts Payable? | 2-Way vs. 3-Way Matching: Which is Better? | What Causes Mismatches? | Should You Automate Invoice Matching?
Invoice matching is an important part of the accounts payable process. But sometimes it can be difficult to decide whether 2-way vs. 3-way matching is best for your business.
What’s the difference between 2-way and 3-way match processes? How does matching help businesses save time and reduce mistakes? Read on to learn more about your invoice matching options.
What is Invoice Matching and Why Does it Matter?
Matching in finance is part of invoice processing. It is the act of checking an invoice to make sure the information on it aligns with the information on the corresponding purchase order or sales receipt.
Matching matters because it helps ensure your business receives what it paid for. A mismatch means something’s off. For example, the total on the purchase order doesn’t equal that of the invoice.
A business can have a person match invoices manually. Or the business can use AP automation software, which is designed to automate invoice matching among other tasks.
What is 2-Way vs. 3-Way Matching in Accounts Payable?
2-way matching in accounts payable checks that the data on the purchase order and invoice align.
3-way matching in accounts payable goes one step further and checks that the data on the purchase order, invoice, and sales receipt are the same.
2-Way vs. 3-Way Matching: Which is Better?
You’ll find benefits and drawbacks in both 2-way and 3-way match processes. 2-way matching generally takes less time, because it involves checking two documents instead of three.
However, 3-way matching is more likely to find mistakes because it involves checking three documents rather than two.
Many businesses prefer 3-way matching to protect against overpayments, duplicate payments, and fulfilling fraudulent invoices.
Recurring vs. Non-Recurring Purchases
In your evaluation of 2-way and 3-way matching, consider whether your business deals mostly with recurring vs. non-recurring purchases. Typically, two-way matching is sufficient for recurring (regular) purchases. Three-way matching may be a better fit for non-recurring purchases.
For instance, if your business is billed monthly for financial software, a 2-way match may be sufficient because that cost is familiar and consistent, making a matching mix-up less likely.
But if you make a one-time purchase of a major database computer for your office, 3-way matching may be preferable. You may want to be cautious and ensure the purchase order, invoice, and receipt sync up because you are unfamiliar with the related costs.
What Causes Mismatches?
Invoice and purchase order data sometimes doesn’t match. These situations are called mismatches, deviations, or discrepancies.
There are many reasons why mismatches occur. Mismatches could be a financial error on the invoice because of constantly changing international currency exchange rates. Someone may have entered data incorrectly. Unexpected shipping costs may have been added.
Two common types of deviations are:
• The number of items on the invoice doesn’t equal the number on the purchase order or the sales receipt
• The invoice total doesn’t sync with the purchase order total
Tolerating Mismatches
AP departments that use automated invoice matching can set up a threshold for tolerating mismatches. The following example illustrates how this can work.
Let’s say you order 100 packages of software for your finance team and set up a 5% tolerance level. You get an invoice for 102 packages. That’s within the 5% tolerance level, so your automated matching system accepts the invoice.
However, if you receive an invoice for 115 software packages, that’s outside your 5% tolerance level. The system will automatically flag that invoice for manual review.
Automated matching can help teams identify and solve mismatches quickly. Staff only need to intervene when necessary to resolve a potential issue.
Should You Consider Automated Invoice Matching?
Automated matching in accounts payable can result in potential advantages compared to manual invoice matching.
Efficiency: Automated systems can streamline the reconciliation of invoices with POs, expediting the invoice processing workflow.
Accuracy: Mistakes can be reduced as predefined algorithms help to minimize human error and discrepancies.
Cost-savings: Decreasing the manual labor involved in the matching process can reduce the operational costs associated with this task.
Accessibility: Accounting teams can quickly and easily find receipts, purchase orders, and invoices organized digitally in a central repository.
AP automation software can give your team the ability to automate invoice matching in addition to other AP process improvements.
More on Automated Invoice Matching
Your business has options. You can use 2-way or 3-way matching. It’s best to evaluate the specific situation and weigh the costs and benefits of each. In many cases, a 3-way match will be the best choice because it catches more mistakes, helping enable greater financial control.
You can also choose between manual or automated matching. Automated matching offers many impactful potential benefits, including efficiency and cost savings.
If you’re interested in learning more about automating matching in your business, click below to book a demo with AvidXchange.