Why packing slips are a missing link in accounting, and can reduce headaches around stock-outs and inventory errors

How does the 3-way match work in Accounts Payable (AP)?

​Three-way matching is the checking that what you order matches what receive and that matches you pay for.

The three key documents there are:
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1. Purchase Orders (POs)
2. Invoices
3. Receipts, packing lists, or order confirmations

Discrepancies can occur during any process, including damaged products, different SKUs, stolen packages, differences in prices, lost items, and many more. 

What is a 2-way match vs 3-way match?

Two way matching is a simple check that validates invoice details against order receipt details. This type of checking does not take into account purchased quantities or prices. With three way matching, the PO and order receipt are also cross-checked for consistency, thus providing the buyer with a more comprehensive level of detail for each transaction. In turn, this lends itself to a higher degree of accuracy and a more secure environment in which to manage payments.

The killer app of the personal computing (PC) revolution was the spreadsheet, called VisiCalc. VisiCalc was the very first business software to be invented on the first PC, made by Apple. Without the spreadsheet, PCs would have quickly failed to be adopted in the market. Spreadsheets were the killer app for accountants. Not only did professional accountants need spreadsheets, which is like a calculator on steroids, every body needs a PC to do simple calculations, like accounting for totals, doing taxes, organizing data, keeping records, etc.

Companies started to use computers to match invoices with purchase orders, driving down costs and increasing efficiency. By the 1980s, businesses had developed the third element in 3 way matching: the order receipt. By adding the receiving report to the process, businesses were able to match receipts, invoices, and purchase orders in an effort to reduce errors and ensure that orders were delivered as ordered and on time.

3 Way Matching: Why You Should Use It

3 way matching is based around reducing the overall risk associated with payments and can be especially valuable for small and mid-sized businesses that may use an online payment platform. Although 3 way matching appears to be a relatively simple process, it can have an outsized effect on your business’ bottom line. This is because 3 way matching allows you to verify the Cost of Goods Sold (COGS) or services ordered, Cost of goods or services delivered, Quantity of goods or services delivered, and Prices paid for products or services received.

To help you determine whether 3 way matching is right for you, let’s take a look at some of its benefits.

Benefits of 3 Way Matching

1. Reduced payment fraud: Incorporating 3 way matching into your accounts payable processes will decrease the risk of payment fraud by helping to identify and prevent duplicate billing and duplicated shipments. If any discrepancies are found, payments will be withheld until they are resolved.
   
   
2. Traceability & Accountability: 3 way matching helps solidify accountability and traceability in every facet of your business from suppliers to customers, which bolsters confidence throughout your organization.
   
   
3. Improved Purchase Order Quality: By implementing 3 way matching into your accounts payable processes, you will ensure that your purchase orders are complete before being authorized and processed. Reduced Processing Time: The three way match process has a built-in delay that oversees the processing and reconciliation of invoices before they can be paid. This delay gives you more time to review and approve invoices, improving efficiency in the accounts payable department.

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