Three-way match is an accounts payable verification process that compares three documents before approving a supplier invoice for payment: the purchase order, the goods receipt (or delivery confirmation), and the supplier's invoice. Payment is only approved when all three documents align within acceptable tolerances.
Understanding Three-Way Match
Three-way match is a financial control that ensures a company only pays for goods or services that were actually ordered and received. It connects the procurement function ( purchase order ), the warehouse or operations function ( goods receipt ), and the finance function (invoice) to verify that all three agree on quantity, price, and item identity.
In CPG operations, three-way match is a standard part of the procure-to-pay process. It prevents duplicate payments, overpayments, and fraud. It also creates accountability across the supply chain by requiring documentation at each handoff point.
Core Components of a Three-Way Match
The three-way match process links three distinct documents.
The Purchase Order (PO) is the buyer-issued document that specifies what was ordered, at what price, and in what quantity. It is the reference document against which the other two are compared.
The Goods Receipt (GR) is a record created when the buyer receives the goods, confirming the quantity and condition of items actually delivered.
The Supplier Invoice is the billing document from the supplier requesting payment, specifying quantity, unit price, and total amount.
Three-way match checks that the invoice quantity matches the GR quantity, the invoice price matches the PO price, and the goods described match those on both the PO and GR.
Three-Way Match in Practice
When a supplier invoice arrives, the AP team or automated ERP system retrieves the corresponding purchase order and goods receipt. The system compares the three documents. If they match within set tolerances (for example, a variance threshold of 2%), the invoice is approved for payment and scheduled according to payment terms.
If there is a discrepancy, the invoice is held pending investigation. Common discrepancies include invoiced quantities exceeding received quantities, price differences from the PO, or invoices for items not on the original PO. The AP team works with procurement and the supplier to resolve discrepancies before releasing payment.
ERP systems automate three-way match by linking PO, GR, and invoice records and flagging exceptions for manual review.
Related Concepts
- Purchase Order is the first document in the three-way match process.
- Goods Receipt is the second document, confirming physical receipt of ordered items.
- Purchase Requisition is the internal document that initiates the procurement chain leading to a PO.
- Blanket Purchase Order : blanket POs are subject to three-way match on each release.
- Procurement is the function responsible for the procure-to-pay process of which three-way match is a part.
