2- and 3-Way Matching in Accounts Payable: What Is the Difference and How Can AI Help?

April 16, 2024
2 and 3 way invoice matching
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The Purpose of Invoice Matching

Invoice matching is a critical process in accounts payable operations that ensures the details of key AP documents align. This verification process is essential for maintaining financial accuracy, ensuring compliance, and preventing fraud. Effective invoice matching confirms that businesses only pay for goods or services they have actually received, and at the agreed-upon terms. This not only helps in managing cash flow efficiently but also strengthens vendor relationships by ensuring timely and accurate payments.

You can read our full guide to invoice matching here.

2-Way vs. 3-Way Matching: Key Differences and Preferences

2-Way Matching: This involves verifying two documents – the purchase order (PO) and the invoice. The details in the invoice must exactly match the corresponding details in the PO, such as quantity, price, and item description. 2-way matching is simpler and faster but may be suitable for businesses with less complex operations or where there is less risk of receiving incorrect goods.

For example, a small software development company orders 50 licenses for a project management tool and uses 2-way matching to ensure the invoice matches the purchase order in quantity and price.

3-Way Matching: This process adds an extra layer of verification by including a third document – the receiving report. This is used to confirm that the goods or services billed on the invoice have actually been delivered or rendered, as per the details on the PO. 3-way matching is more comprehensive and hence preferred in industries where the accuracy of deliveries significantly impacts business operations, such as manufacturing and retail.

For instance, a retail store orders 100 units of a new smartphone model, and upon delivery, uses 3-way matching to verify that the quantity and model specified on the invoice and purchase order match the actual goods received as detailed in the receiving report.

Choosing between 2-way and 3-way matching often depends on the company's operational needs and the level of control required over the procurement process.

The Inefficiencies of Manual Matching

Traditional invoice matching can be exceedingly time-consuming and prone to errors when done manually. The process involves a significant amount of paperwork and requires meticulous attention to detail to ensure that all documents are in agreement. Manual matching can lead to delays, errors in payment processing, and even financial discrepancies, which can be costly to rectify. Additionally, as business scales, the volume of invoices can become unmanageable without an automated system, leading to bottlenecks and strained vendor relationships.

AI for Automated 2- and 3-Way Matching

Artificial Intelligence (AI) is revolutionising the way businesses handle invoice matching by automating the process. AI-powered systems can quickly compare documents, identify discrepancies without human error, and even learn from historical data to improve over time. These systems can handle large volumes of invoices with ease, significantly reducing processing time and freeing up staff for higher-value tasks.

Conclusion: The Future of Invoice Matching Is Automated

As businesses continue to seek efficiency and accuracy in their financial operations, the role of AI in invoice matching becomes increasingly vital. Automating 2-way and 3-way matching processes not only helps in reducing operational costs but also enhances compliance and vendor satisfaction. By adopting AI-driven solutions, companies can ensure they remain competitive, agile, and financially sound in today's fast-paced market environment. As technology advances, the integration of AI in financial workflows is not just a luxury but a necessity for businesses aiming for optimal operational efficiency.

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