A guide to implementing 3-way matching in accounts payable

What is a 3-way match?

A 3-way match is an accounts payable process where you verify three documents before paying any vendor. Your accounts payable team compares the purchase order (what you agreed to buy), the goods receipt note (what actually arrived), and the supplier's invoice (what they’re charging).

This invoice matching method ensures that payment details align before money leaves your business account. Each document must tell the same story about quantity, price, and delivery. Only when all three match does your accounts payable department approve payment.

The three-way matching process goes beyond just paying vendor invoices as they arrive. It catches issues like receiving 45 units when you ordered 50, getting charged for items never delivered, or paying prices that don't match your agreement.

How the 3-way matching process works

The three-way matching follows a precise sequence across multiple teams. Here's the purchasing process broken down:

Step 1: Create the purchase order

Your purchasing team sends a purchase order to the vendor. This PO includes item descriptions, quantities, prices, delivery terms, and payment details. The PO becomes your baseline for the matching process.

Step 2: Receive and verify goods

When the vendor delivers, your receiving team checks the shipment against the purchase order. They verify the quantity, quality, and condition, then create a goods receipt note (GRN) to document what arrived. Any problems get flagged right away.

Step 3: Receive the vendor invoice

The supplier sends their invoice requesting payment. This lists what they claim they delivered and what they expect you to pay.

Step 4: Execute the match

Your AP team or automated system compares all three documents. They check that quantities match, prices align, and descriptions stay consistent across the purchase order, GRN, and invoice.

Step 5: Approve or flag for review

Perfect match? The invoice moves to invoice approval, and the payment process continues. Is something off? It is flagged for investigation before any payment is made.

Example of 3-way matching

Let's use a real scenario. Your e-commerce startup needs 100 laptop cases for your remote team. You issue a purchase order: 100 cases at SGD $25 each, totalling SGD $2,500.

The shipment arrives. Your warehouse manager counts 100 cases in good condition and generates a goods receipt confirming delivery.

A week later, the vendor invoice shows up, billing you for 100 cases at SGD $25 each. Total: SGD $2,500.

Your AP department compares:

• Purchase order (PO): 100 cases at SGD $25 = SGD $2,500
  
• Goods receipt (GRN): 100 cases received
  
• Invoice: 100 cases at SGD $25 = SGD $2,500
  

Everything matches. Payment approved.

But what if the invoice said 110 cases, or SGD $27.50 per case? The three-way match would catch it immediately. You can contact the vendor, have the issue corrected, and then pay the correct amount.

2-way vs 3-way vs 4-way matching

Different matching methods offer varying levels of verification for your payment cycles.

• 2-way matching compares only the purchase order and the supplier's invoice. This faster method is suitable for low-risk purchases or service contracts that don't involve physical delivery. However, it doesn't verify that goods were actually received, leaving room for disputes.
  
• 3-way matching adds the GRN to the verification. This is the sweet spot for most businesses, striking a balance between thoroughness and efficiency. The 3-way match confirms not just what was ordered and billed, but what physically arrived at your location.
  
• 4-way matching includes a fourth component: an inspection report that verifies the quality and condition of the received goods. This is common in manufacturing, pharmaceuticals, and other industries where product quality is critical. While comprehensive, four-way matching extends payment cycles and requires additional resources.
  

In short:

[Table:1]

When to use a 3-way matching

You should implement three-way matching in accounts payable for high-value purchases, recurring vendor relationships, and any transaction where the risk of error or fraud justifies the verification effort.

Set dollar thresholds for when to apply this matching process. Many businesses choose to use 3-way matching for invoices over SGD $1,000 or SGD $5,000, while handling smaller purchases with simpler 2-way matching. This focuses your accounts payable team's attention on where financial risk is highest.

Use three-way invoice matching when dealing with new vendors, purchasing physical goods, or managing large quantities of items. Service-based purchases, such as software subscriptions or consulting fees, may not require the full three-way match since there's no physical delivery to verify.

Benefits of 3-way matching

The matching in accounts payable delivers tangible advantages that directly impact your bottom line and operational efficiency.

• Fraud prevention: Fraudulent invoices get stopped before payment. For someone to defraud you successfully, they'd need to forge a purchase order, fake a delivery receipt, and submit a matching invoice. That's extremely difficult. Small businesses are often more vulnerable to invoice fraud due to fewer internal controls. You can't afford to skip verification.
  
• Error detection: People make mistakes. Someone types SGD $250 instead of SGD $25. Another person approves 110 units when you only ordered 100. Matching catches these payment errors before they become expensive problems.
  
• Cash flow protection: Every dollar you overpay is a dollar you can't use to grow. Duplicate payments, wrong quantities, and inflated prices all drain cash. Matching keeps that money in your account where it belongs.
  
• Improved vendor relationships: Timely payments built on accurate documentation strengthen supplier partnerships. When disputes happen, you have clear proof showing what was ordered, received, and invoiced.
  
• Audit readiness: Complete documentation of the entire payment process makes audits straightforward. Your accounts payable department can quickly produce the purchase order, GRN, and invoice for any transaction.
  
• Better financial controls: The matching process enforces approval workflows and prevents unauthorised purchases from getting paid. This visibility enables you to manage spending across teams and departments.
  

Teams involved in 3-way matching

Successful three-way matching needs coordination across departments. Each plays a specific role in the accounts payable process.

Purchasing and procurement team

The purchasing team creates and issues purchase orders. They negotiate with vendors, set pricing, and ensure POs have accurate information for later verification. Their work establishes the baseline.

Receiving and inventory team

This team physically receives shipments, verifies quantities, checks for damage, and generates GRN. Their documentation proves what actually arrived. In smaller companies, this role might be filled by your warehouse manager or office manager.

Finance and AP team

The accounts payable team executes the actual three-way matching, comparing documents and approving invoices. They identify discrepancies, follow up on errors, and ensure only legitimate invoices get paid.

Suppliers and vendors

Good vendors send accurate invoices matching their delivery and your purchase order. They understand your verification process and work with it.

Audit department

Internal or external auditors verify that your controls are functioning correctly. They verify that the accounts payable process protects against fraud and catches errors.

3-way matching: protection against fraud

Invoice fraud is a real threat that hits businesses of all sizes. In one notable case, cybercriminals sent fake invoices to Google and Facebook, resulting in multimillion-dollar payments before the fraud was discovered.

The three-way match provides multiple checkpoints that make it nearly impossible for fraudulent invoices to slip through. For an invoice to be paid, it must correspond to a legitimate purchase order (proof of authorisation) and a goods receipt note (proof of delivery). Fraudsters would need to compromise multiple systems and forge several documents to succeed.

The three-way match is successful because it enforces the crucial accounting control known as Segregation of Duties. The employee who authorises the purchase (Procurement) is separate from the one who receives the goods (Receiving) and separFate again from the one who processes the payment (Accounts Payable). This separation is the true operational barrier against internal fraud.

Small and medium businesses face particular vulnerability since they often lack the resources to recover from fraud losses. According to the Association of Certified Fraud Examiners, organisations lose about 5% of annual revenues to fraud. For a company doing S$1 million in revenue, that's S$50,000 gone. The matching in accounts payable acts as a shield against these losses.

The process also prevents internal fraud. Employees can't create fake vendors and pay fraudulent invoices because separate teams must verify the purchase order and goods receipt before payment is released.

Best practices to streamline 3-way matching

Implement these strategies to make your matching process efficient without sacrificing control. The process doesn't have to slow you down. These steps keep it practical and efficient:

Set dollar thresholds

Apply complete 3-way matching above a certain amount. Below that threshold, use simpler checks. This keeps small purchases moving while protecting against significant losses.

Define acceptable variances

Define clear tolerance limits (e.g., 2-3% of the PO amount) within which an invoice is automatically approved despite minor differences. For example, a minor variance caused by small shipping costs shouldn't hold up payment. This allows the system to focus human attention only on exceptions that truly matter.

Establish clear approval workflows

Document who can approve exceptions. Define how discrepancies get resolved. Create escalation paths for problematic invoices. Remove ambiguity to prevent payments from getting stuck.

Maintain vendor performance records

Track which suppliers consistently submit clean invoices. Vendors with a good track record may qualify for faster processing. Problem vendors get extra scrutiny.

Centralise documentation

Keep everything in one system. Your AP team shouldn't waste time hunting for purchase orders across folders and email chains.

Set processing deadlines

Create timelines for each step. Invoices shouldn't sit in queues indefinitely. Clear deadlines ensure the payment process moves smoothly.

Pitfalls of the manual matching process

Manual three-way matching sounds good in theory. In practice, it drains resources and creates bottlenecks in your payment process.

Time-intensive labour

Someone needs to gather the PO, find the goods receipt, locate the invoice, and then compare them line by line. A complex 10-page purchase order can take hours to match correctly.

High error rates

Humans get tired. They miss things. Item descriptions vary between documents. Quantities are listed in different units. Reviewers working on their 50th invoice start making mistakes.

Payment delays

Manual processing creates backlogs. Vendors wait longer for payment. You miss early payment discounts. Supplier relationships suffer because you're slow to pay even legitimate invoices.

Difficulty scaling

Transaction volume doubles. Your manual process can't keep up. You either add more AP staff (expensive) or let the backlog grow (risky). Neither option works well.

Poor visibility

Where is invoice #12345 in the approval workflow? Who's reviewing it? Why hasn't it moved in two weeks? Paper-based systems make answering these questions difficult.

Document management challenges

The goods receipt is in the warehouse manager's email. The PO is in your procurement software. The invoice is in a filing cabinet. Tracking down all three consumes a considerable amount of time.

Benefits of automating the matching process

Automated invoice matching changes everything. It transforms the accounts payable process from a bottleneck into a strategic advantage.

Here's what you get.

Speed and efficiency

Software compares documents instantly. What took hours now takes seconds. Your entire payment process accelerates.

Higher accuracy

Systems don't get distracted or tired. Automated invoice matching catches every discrepancy. Payment errors drop to nearly zero.

Real-time visibility

You can see exactly where every invoice is located. Identify bottlenecks. Track processing times. Spot patterns in vendor errors.

Seamless integration

Automated systems connect to your accounting software, ERP, and procurement platforms. Data flows automatically. No more manual processing.

Scalability

Process 100 invoices or 10,000 with the same speed and accuracy. Growth doesn't require proportional increases in AP department staff.

Early payment captures

Faster processing means you can take those 2% early payment discounts. That adds up quickly across dozens of vendors.

Exception management

The automated system automatically approves clean matches. It flags problems for human review. Your AP team focuses solely on issues that need attention.

Better vendor relations

Consistent, timely payments strengthen supplier partnerships. Vendors notice when you pay on time, every time.

How Aspire can help you with 3-way matching

If you're a small or medium-sized business owner, accounts payable complexity doesn't have to slow you down. At Aspire, we help you streamline your entire payment process, from purchase to payment.

Issue unlimited corporate cards with custom spending limits and automated approval workflows. Every transaction is updated in your accounting software automatically in real-time. Your accounts payable team gets real-time visibility into all company spending.

Aspire's bill pay automation integrates with your existing systems to streamline invoice management. Process vendor payments faster with bulk payment capabilities and same-day transfers. Set up approval chains that align with your internal controls while keeping the payment process moving smoothly.

Manage global payments across 30+ countries without juggling multiple bank accounts. Transparent FX rates and instant transfers mean suppliers get paid on time, every time.

Connect Aspire with tools like Xero, QuickBooks, or NetSuite for seamless flow from purchase to payment. Your finance team gets control and visibility without the manual processing that bogs down traditional accounts payable operations.

Why wait? Open an account with Aspire right away and scale your business!

Frequently asked questions

What is a 3-way match result?

A 3-way match result tells you whether the purchase order, goods receipt, and invoice align within acceptable tolerances. A positive match approves payment. A negative result flags discrepancies needing investigation.

How is 3-way matching related to auditing?

The three-way matching process creates a clear audit trail. It shows purchases were authorised, goods were received, and payments matched approved amounts. Auditors use this documentation to verify that your controls work.

What are the major components of 3-way matching?

Three components: the purchase order (what you agreed to buy), the goods receipt note (what actually arrived), and the vendor invoice (what they're charging). All three must align before payment gets released.

How to resolve 3-way matching discrepancies?

Investigate immediately. Contact the vendor about billing errors. Check with your receiving team about delivery issues. Review the purchase order for accuracy. Resolve by issuing a credit memo, requesting a corrected invoice, or confirming partial delivery justifies partial payment. Document everything before releasing payment.