3-Way Invoice Matching

 ✅ Understanding 3-Way Invoice Matching: A Key Control in Accounts Payable

In every organisation, accuracy in vendor payments is essential for strong financial controls, reduced leakage, and audit compliance. One of the most widely used internal control processes is the 3-Way Invoice Matching system.

🔍 What is 3-Way Matching?
3-Way Matching is a verification process used in Accounts Payable to ensure the company only pays for goods actually ordered and received.
It matches three critical documents before approving the invoice for payment:

⸻

🔗 1️⃣ Purchase Order (PO)
• Issued by the company to the vendor
• Contains item details, quantity ordered, and price
• Serves as an agreement between buyer and supplier

⸻

📦 2️⃣ Goods Receipt Note (GRN)
• Prepared when goods are delivered
• Confirms quantity received and the condition of items
• Ensures what was ordered is actually delivered

⸻

🧾 3️⃣ Supplier Invoice
• Sent by the vendor
• Lists the items supplied, quantities, and total bill amount
• Basis for vendor payment

⸻

⭐ How 3-Way Matching Works (Simple Workflow)
1. PO is created and shared with vendor
2. Goods are delivered → GRN is prepared
3. Vendor sends invoice
4. AP team matches PO, GRN, and Invoice for:
• Quantity
• Price
• Item description
• Terms & tax
5. If all three match → Invoice is approved for payment
6. If there is a mismatch → Invoice is put on hold until resolved

⸻

🛡️ Why 3-Way Matching Is Important?

✔ Prevents duplicate or fraudulent invoices
✔ Ensures company pays only for goods received
✔ Supports audit requirements & internal controls
✔ Reduces vendor disputes
✔ Improves procurement-to-pay accuracy

📌 When Is 3-Way Matching Used?
• Material purchases
• Inventory items
• High-value procurement
• Industries with strong compliance needs (Manufacturing, FMCG, Insurance, etc.)

⸻

🧠 Example:
• PO quantity: 100 units @ ₹50
• GRN quantity: 100 units received
• Invoice: 100 units @ ₹50
👉 All match → AP approves payment

If invoice shows 110 units → On hold until vendor clarifies.

🔥 Final Thought

3-Way Matching is not just an AP task—it is a safeguard for profit, compliance, and operational efficiency.
Implementing it well can significantly reduce payment errors and strengthen vendor relationships.

2-Way Invoice Matching

 🔹 What is Two-Way Invoice Matching?

It is a verification process where the Accounts Payable team matches two key documents:

1️⃣ Purchase Order (PO)
2️⃣ Vendor Invoice

If both documents match in quantity, rate, taxes, and total amount, the invoice is cleared for payment.

⸻

🔹 What Exactly Gets Matched?

During matching, AP verifies:

✔ Item Description – same product/service as ordered
✔ Quantity – invoice quantity should not exceed PO quantity
✔ Price/Rate – must match the approved PO rate
✔ Taxes & Charges – GST, freight, discounts, etc. as per PO
✔ Payment Terms – credit period, due date
✔ Vendor Details – vendor name & PO number must match

⸻

🔹 Workflow of Two-Way Invoice Matching

Step 1: Vendor shares invoice
Step 2: AP team retrieves the corresponding PO
Step 3: System/analyst compares invoice values with PO
Step 4:
• If matched → invoice approved → payment scheduled
• If mismatch → discrepancy raised → vendor or procurement team resolves

⸻

🔹 Benefits of Two-Way Matching

✔ Prevents overbilling by vendors
✔ Eliminates duplicate invoices
✔ Ensures contractual pricing compliance
✔ Improves accuracy of vendor payments
✔ Strengthens internal financial and audit controls
✔ Reduces manual errors in AP
✔ Speeds up the invoice approval cycle

⸻

🔹 When Should Companies Use Two-Way Matching?

Best suited for organizations that have:
• A standard procurement process
• Low to medium risk purchases
• Clear PO-based ordering
• Need for faster AP processing compared to 3-way matching

Industries using it widely: IT services, consulting, agencies, trading, retail, manufacturing (low-risk items).

⸻

🔹 Example

PO: 100 units @ $50 each = $5,000
Invoice: 100 units @ $50 each = $5,000
→ Matches perfectly → Invoice approved.

If invoice shows 110 units or $55 rate → Mismatch → Put on hold.

⸻

🔹 Two-Way vs Three-Way Matching
• Two-Way: PO ↔ Invoice
• Three-Way: PO ↔ GRN ↔ Invoice (more strict)
Two-way is faster; three-way is more robust for goods receiving.

⸻

💡 Two-Way Matching helps companies maintain accuracy, transparency, and strong financial governance while keeping AP operations efficient.

Order to Cash (O2C) – End-to-End Process

 Order to Cash (O2C) – End-to-End Process

Order to Cash (O2C) is a critical business process that covers the entire customer lifecycle—from receiving an order to collecting payment and closing the books. A strong O2C process ensures smooth operations, healthy cash flow, and customer satisfaction.

📌 Key Steps in the O2C Process:

1️⃣ Order Management
• Customer places an order
• Sales order is created in the ERP system
• Order details (price, quantity, delivery date) are validated

2️⃣ Credit Management
• Customer credit limit and payment history are checked
• Order is approved or put on credit hold if limits are exceeded

3️⃣ Order Fulfillment / Delivery
• Goods are picked, packed, and shipped
• Delivery confirmation or Proof of Delivery (POD) is generated

4️⃣ Billing / Invoicing
• Invoice is created based on shipped goods or services delivered
• Invoice is sent to the customer (email / EDI / portal)

5️⃣ Accounts Receivable (AR)
• Invoice is posted to customer account
• Due date and payment terms are tracked

6️⃣ Cash Application
• Customer makes payment (NEFT, RTGS, cheque, online transfer)
• Payment is matched with open invoices
• Differences are resolved (short payment / deductions)

7️⃣ Dispute & Deduction Management
• Customer disputes or deductions are investigated
• Adjustments, credit notes, or re-billing are processed

8️⃣ Collections & Reporting
• Follow-ups on overdue invoices
• Aging analysis and DSO monitoring
• Month-end closing and reporting

⸻

🎯 Why O2C Matters:

✔ Improves cash flow
✔ Reduces revenue leakage
✔ Enhances customer experience
✔ Ensures accurate financial reporting

⸻

📢 A well-managed O2C process connects Sales, Logistics, Finance, and Customers seamlessly.

Accounts Receivable (AR) – End-to-End Process

 Accounts Receivable (AR) – End-to-End Process

Accounts Receivable plays a critical role in maintaining an organization’s cash flow and financial health. Below is a simplified view of the end-to-end AR cycle:

🔹 1. Customer Onboarding & Credit Assessment
• Customer master creation
• Creditworthiness check & credit limit approval
• Payment terms finalization

🔹 2. Sales Order Processing
• Receipt of customer order
• Order validation against credit limits
• Order confirmation

🔹 3. Goods Delivery / Service Completion
• Dispatch of goods or completion of services
• Proof of delivery (POD) or service confirmation

🔹 4. Invoice Generation
• Invoice creation as per agreed terms
• Tax calculation & compliance (GST/VAT)
• Invoice dispatch to customer

🔹 5. Accounts Receivable Accounting
• Invoice posting in ERP
• Customer ledger update
• Aging report generation

🔹 6. Collections Management
• Follow-ups on due invoices
• Customer communication & dispute handling
• Collection strategies as per aging

🔹 7. Cash Application
• Receipt of payment (bank/cheque/online)
• Payment matching with invoices
• Short / excess payment handling

🔹 8. Deductions & Dispute Resolution
• Investigation of deductions
• Coordination with sales/logistics
• Credit note issuance (if required)

🔹 9. Reconciliation & Reporting
• Customer account reconciliation
• AR aging analysis
• Month-end closing & reporting

🔹 10. Bad Debt Provision / Write-off (if applicable)
• Evaluation of doubtful debts
• Management approval
• Write-off posting

📌 Efficient AR management improves:
✔ Cash flow
✔ Working capital
✔ Customer relationships
✔ Financial accuracy

Accounts Payable (AP) – End-to-End Process

 Accounts Payable (AP) – End-to-End Process

  

Accounts Payable is a critical finance function that ensures timely and accurate payment to vendors while maintaining strong internal controls and compliance.

Below is the end-to-end Accounts Payable (AP) process from procurement to payment:

⸻

🔹 1. Vendor Onboarding
• Collection of vendor details (Name, Address, GST, PAN, Bank details)
• Vendor due diligence & compliance checks
• Creation of vendor master in ERP (SAP / Oracle / NetSuite)

⸻

🔹 2. Purchase Requisition (PR)
• Internal request raised for goods or services
• Approval as per company authorization matrix
• Budget availability check

⸻

🔹 3. Purchase Order (PO) Creation
• Approved PR converted into Purchase Order
• PO sent to vendor with terms, pricing & delivery conditions
• PO recorded in ERP system

⸻

🔹 4. Receipt of Goods / Services
• Goods Receipt Note (GRN) prepared for material received
• Service Entry Sheet (SES) for services rendered
• Quantity and quality verification

⸻

🔹 5. Invoice Receipt
• Invoice received via email / portal / EDI / physical copy
• Invoice logged and indexed
• Basic invoice validation (Vendor, PO number, date, amount)

⸻

🔹 6. 2-Way / 3-Way Matching
• 2-Way Match: PO vs Invoice
• 3-Way Match: PO vs GRN/SES vs Invoice
• Discrepancies resolved with vendor or procurement team

⸻

🔹 7. Invoice Posting
• Invoice posted in ERP
• Expense or inventory accounting
• GST/VAT input tax recording
• Liability created in vendor account

⸻

🔹 8. Approval Workflow
• Invoice routed for approval as per delegation of authority
• Compliance with internal controls and audit requirements

⸻

🔹 9. Payment Run
• Payment proposal generated
• Due date and cash flow consideration
• Payment approval by authorized signatories

⸻

🔹 10. Vendor Payment
• Payment processed via NEFT / RTGS / ACH / Wire / Cheque
• Payment confirmation sent to vendor
• Bank posting completed

⸻

🔹 11. Accounting & Reconciliation
• Vendor ledger reconciliation
• Bank reconciliation
• GR/IR clearing
• Aging analysis of payables

⸻

🔹 12. Reporting & Compliance
• AP aging reports
• Vendor balance confirmation
• GST/TDS compliance
• Support during audits (Internal & Statutory)

🎯 Key Objectives of AP Process

✔ Timely vendor payments
✔ Accurate financial reporting
✔ Strong internal controls
✔ Regulatory compliance
✔ Improved vendor relationships

Procure to Pay (P2P) – End-to-End Process Explained

 Procure to Pay (P2P) – End-to-End Process Explained

The Procure-to-Pay (P2P) process covers the complete cycle from identifying a business need to making payment to the supplier. A strong P2P process ensures cost control, compliance, and efficient cash flow management.

🔹 1. Requirement Identification
• Business/user identifies the need for goods or services
• Budget availability is checked

🔹 2. Purchase Requisition (PR)
• PR is raised in ERP (SAP/Oracle/etc.)
• Includes quantity, specifications, and delivery date
• Approval as per delegation of authority (DOA)

🔹 3. Vendor Selection & Onboarding
• Vendor evaluation and selection
• KYC, bank details, tax documents collected
• Vendor master creation in ERP

🔹 4. Purchase Order (PO) Creation
• PO issued to vendor with agreed terms
• Price, quantity, delivery, and payment terms defined
• PO approval and dispatch to vendor

🔹 5. Goods Receipt / Service Entry
• Goods Receipt Note (GRN) for materials
• Service Entry Sheet (SES) for services
• Confirms receipt and quality of goods/services

🔹 6. Invoice Receipt
• Invoice received via email / portal / e-invoicing
• 2-way or 3-way matching initiated
• PO vs GRN vs Invoice

🔹 7. Invoice Verification & Accounting
• Price, quantity, and tax validation
• Posting of invoice in ERP
• Exception handling for mismatches

🔹 8. Payment Processing
• Payment proposal run as per due date
• Approval of payment batch
• Payment via bank transfer / cheque / NEFT / RTGS

🔹 9. Vendor Reconciliation & Reporting
• Vendor ledger reconciliation
• Aging and outstanding analysis
• Compliance and audit reporting

⸻

✅ Key Benefits of an Efficient P2P Process

✔ Better cost control
✔ Improved vendor relationships
✔ Reduced fraud risk
✔ Timely payments
✔ Strong audit compliance

⸻

📌 Where P2P Professionals Add Value
• Automation & process improvement
• Exception handling
• Vendor query resolution
• Compliance with tax & internal controls

AP to GL Reconciliation in Oracle Fusion

 AP to GL Reconciliation in Oracle Fusion

  

A Functional, End-to-End Business User Perspective.

🎯Purpose of the Process:
Ensure that all supplier-related transactions recorded in AP are:
🔸Correctly accounted for in the AP Subledger.
🔸Fully transferred & posted to the GL.
🔸Reconcilable at period end.
🔸Free from posting gaps, timing issues, or manual override risks.

Step1️⃣
Configure AP Accounting & Integration Setup
Functional Control Foundation
👉Review:
🔸Payables Options
🔸Subledger Accounting (SLA) setup
🔸Liability, Expense, Tax, Accrual accounts
👉Validate:
🔹AP liability accounts correctly mapped to GL.
🔹Chart of Accounts consistency.
🔹Accounting rules reflect business reality.

Step2️⃣
Create & Validate AP Transactions
Business_User Activities
👉Create AP transactions via:
🔸Standard Invoices (Manual or Import).
🔸Credit Memos & Debit Memos.
🔸Payments & Refunds.
🔸Adjustments (as required).
👉Ensure:
🔹Correct supplier & invoice type.
🔹Accurate distributions.
🔹Proper tax handling.
✔ Validation before accounting.
✔ No workaround without justification.

Step3️⃣
Account AP Transactions (Create Accounting)
AP → Accounting Bridge
💻Run Create Accounting – Payables
👉Confirm:
🔸Status = Final.
🔸No accounting errors.
🔸Correct accounting date.
👉Review:
🔹Subledger journals.
🔹Liability & expense postings.
⚠️ Key Control Points
Invoice Date ≠ Accounting Date ≠ GL Period (unless controlled).
✅Verify Subledger Period is open & aligned with GL Period.

Step4️⃣
Transfer & Post Journals to GL
Integration Checkpoint
🔸Transfer AP journals to GL.
🔸Post journals.
👉Verify:
🔹Balanced journals.
🔹Correct liability control accounts.
🔹No unposted or rejected batches.
📌Any unposted journal = reconciliation break.

Step5️⃣
Perform AP to GL Reconciliation.
Core Reconciliation Activity.
👉Compare:
🔸AP Subledger balance.
🔸Payables Trial Balance.
🔸GL AP Control (Liability) account.
🔸GL Trial Balance.
👉Use:
🔹AP to GL Reconciliation Report.
🔹Payables Trial Balance.
🔹Subledger vs GL balance reports.
🔍Investigate common differences:
🔖Unaccounted invoices.
🔖Timing differences.
🔖Prepayments & application issues.
🔖Manual GL journals posted to AP accounts.
🔖Period misalignment.
🔖Cancelled or reversed transactions.

Step6️⃣
Resolve Differences & Close Period
Business Ownership
🔸Clear pending AP transactions.
🔸Re-run accounting if required.
🔸Align periods between AP & GL.
🔸Document reconciliation & explanations.
🔸Obtain review & sign-off.
✅Clean AP liability balance.
✅Reliable financial statements.