In the account payable process – the procurement and receiving stage, the 2-way, 3-way, and 4-way matching plays a vital role. It is worth investing in this control to make sure your business doesn’t pay for things you didn’t receive or overpay for things you did.
What is matching?
We perform the matching for goods and services ordered through your ordered purchase. Matching is a process that takes place during an online approval process. As applicable, the invoice matching is matched to 2-way, 3-way, and 4-way matching. That is,
- 2-way matching – Purchase orders
- 3-way matching – Receives information
- 4-way matching – Inspect information
The invoice should meet the required tolerance matching or the invoice is on hold, where you cannot make the payment until they resolve the hold. The hold can also be realized manually.
Key point: The 2-way matching is set to default for all the invoices. If you have the 3 way or 4-way matching requirement, then you must set that on every purchase order when created.
What are 2-way, 3-way, and 4-way matching? What’s their difference?
If you’re an accountant you may be familiar with the topic – 2-way, 3-way, and 4-way matching. Let’s dive deeper to know more about what is 2 way, 3 way, and 4-way matching and their difference.
In 2 way matching, you have to verify both the purchase order and the information of your invoice match are with your level of tolerance as followed below,
- Does the billed quantity is less than or equals to your ordered quantity?
- Does the price of the invoice is less than or equal to the purchase order price?
In 3 way matching, the receipt quantity tolerances are compared to the invoice quantity tolerances. The 3-way matching defines,
- Does the billed quantity is less than or equal to your received quantity?
Additionally, the 4-way matching verifies the acceptance document and the invoice matches the tolerance quantity. In this 4 way matching, it verifies,
- Does the Billed quantity is less than or equal to the accepted quantity?
To determine your matching criteria, there is a requirement to set a tolerance. This is also critical. In some cases, most companies consider quantities inside the tolerance limits as matched.
Difference between 2-way vs 3-way matching?
From the above 2-way and 3-way matching explanation, you might get a clear picture regarding the topic. Here is the difference between the 2-way and 3-way matching in simple terms.
With the help of 2-way matching, you can make sure that all your data on the purchase order and your invoice aligns. And with the help of 3-way matching, you go with the one step further and can make your certain data on the purchase order, invoice, and the sales receipt the same.
Which is the better matching? 2-way or 3-way matching?
Whether 2-way matching or 3-way matching, both include benefits as well as the drawback.
It’s more efficient to check the documents in pairs, which is easier if you use 2-way matching. But, with the help of 3-way matching, you can determine more mistakes than 2-way matching. The reason behind this is you are checking 3 documents instead of two documents.