Have you ever heard of the three-way match? In accounting the three-way match refers to a procedure used when processing an invoice received from a vendor. The purpose of the three-way match is to avoid paying incorrect or fraudulent invoices.
The question is, is this useful for small business owners or not? While this process is labor intensive, if your business is inventory heavy, I highly recommend you implementing the use of three-way matching as an internal control measure.
Here are the three documents needed for this process:
- Vendor’s invoice which was received and will become part of the company’s accounts payable,
- Purchase order prepared by the company prior to authorizing the purchase of the goods, 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 we have explained how three-way matching works, do you think you would benefit? Here are some of the pros and cons of implementing its use….
- 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.
- It makes for painless audits….purchase orders, shipping orders and invoices are the first thing an auditor looks for. By regularly sorting out your company’s documents, you remove the need for an in-depth investigation of your business.
- It helps isolate trouble spots….three-way matching promotes accountability through visibility. Inaccuracies can be investigated easily because they are easy to trace.
- It’s labor intensive….this is the one con to implementing the use of the three way match. To compile so much documentation and review 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 condition of payment.
- 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.
Need help with your Accounts Payable processes? Contact us for an assessment, and let us give you some suggestions. Your business is our success, so remember that!