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:

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🔗 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

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📦 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

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

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⭐ 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

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🛡️ 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.)

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🧠 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.