Three-Way Match
A three-way match compares the purchase order, the receiving document, and the vendor invoice before a payable is approved for payment. Agreement on quantity, price, and terms is the control that prevents paying for goods never ordered or never received.
- Accounting Operations & Financial Close
The three-way match is the accounts payable control that requires three independent documents to agree before an invoice is approved for payment: the purchase order, showing what was authorized and at what price; the receiving document or goods receipt, showing what actually arrived; and the vendor invoice, showing what is being billed. Each document originates with a different party or function, which is what gives the control its strength.
The comparison covers quantity, unit price, extended amount, and terms. The purchase order and the invoice should agree on price and terms. The receiving document and the invoice should agree on quantity. Where all three agree within tolerance, the payable is approved. Where they do not, the item becomes an exception and goes to a person.
Tolerances are a policy decision that gets made by default if nobody makes it deliberately. A zero-tolerance policy sends freight rounding and pennies of unit-price drift to a human, which buries the exception queue and trains everyone to approve without looking. Tolerances set too wide let real overbilling through. The workable approach is a small percentage tolerance with an absolute cap, applied per line rather than per invoice, and set differently for categories where price genuinely fluctuates.
What the control actually prevents is worth being precise about, because it is often oversold. It prevents payment for goods that were never ordered, payment for goods that were never received, payment at a price other than the one negotiated, and it makes straightforward duplicate invoicing much harder. It does not prevent a fictitious vendor set up by someone who can also raise purchase orders and record receipts, which is a segregation of duties problem rather than a matching problem. It does not detect collusion between a buyer and a supplier. And it says nothing about whether the purchase was a good idea.
Two-way matching, purchase order to invoice, is the appropriate variant for services and other categories where there is no physical receipt. The substitute for the receiving document is an approval by the person who consumed the service, and that approval should be evidenced rather than assumed.
The control has a direct close implication. Goods received before period end but not yet invoiced are a liability of the period regardless of the invoice date, and the received-not-invoiced population is the population that has to be accrued. A three-way match process that maintains a clean received-not-invoiced report makes cutoff testing straightforward. One that does not leaves the accrual to be estimated, and estimated accruals for unrecorded liabilities are a standing audit finding.
Related terms: Internal Control Over Financial Reporting, Month-End Close, General Ledger, Account Reconciliation
Related skills: Three-way match, Cutoff and unrecorded liabilities
Go deeper: Accounting Automation
Matching three documents across three systems, line by line, is the highest-volume clerical control in the payables cycle. Adopt's agents perform the match, apply the tolerance policy, and route only the genuine exceptions. Sign up free.
