2-way, 3-way, and 4-way matching is an important aspect of ordering and receiving associated with the accounting department. It's one of the best internal controls ever introduced within accounting. Even if it takes time, it's still worth the effort, because it helps to verify the accuracy of data.
What Are 2-Way, 3-Way, and 4-Way Matching in Accounting?
Chances are, if you work in accounting, you're already familiar with the idea, but let's revisit the concept as defined by Oracle:
Two-way matching verifies that purchase order and invoice information match within your tolerances as follows:
- Quantity billed is less than or equal to quantity ordered
- Invoice price is less than or equal to purchase order price
Three-way matching adds a third criterion to verify that receipt and invoice information match with the quantity tolerances you define:
- Quantity billed is less than or equal to quantity received
Four-way matching adds a fourth criterion to verify that acceptance documents and invoice information match within the quantity tolerances you define:
- Quantity billed is less than or equal to quantity accepted
Why Are 2-Way, 3-Way, and 4-Way Matching Important?
To non-accounting professionals this may seem complicated, but really what you're doing is ensuring that you're only being billed for the ordered quantity and quoted price, and then confirming that you did, in fact, receive the agreed upon quantity.
The allowance for "less than or equal to" means that a vendor shipping more than the agreed upon quantity for the same price, or charging less for the agreed upon quantity is acceptable. A flag is only thrown if the vendor sends less or charger more than the amounts agreed upon.
This puts the responsibility of error in favor of the customer onto the vendor, and exists in delivery-based manufacturing far more than one might assume.
How Are 2-Way, 3-Way, and 4-Way Matching Done?
So how does an accounting department track down the required pieces of this puzzle to ensure the matching occurs?
Traditionally, the purchase order would be filled out on paper and given to accounting. The vendor would then invoice the company, and at some point the product will be shipped out. Upon receipt, a receiving clerk will (hopefully) verify the quantity of the product received, and give the packing/receiving slip to the accounting department.
It then falls on the accounting department and the receiving department to match the purchase order, invoice, packing slip, and any other related documents to ensure that they are not overpaying, and that all required materials have been delivered.
Communication Problems Lead to Accounting Delays...
These two departments are often not the most synchronized in a company, allowing for errors and delays based on priority of work to be completed, and often times a lack of knowledge about where in the process a particular document may be.
What is Accounting Automation?
When an organization employs accounting automation, it goes beyond buzzwords like “lean accounting” and “cloud accounting,” to something even more powerful – automated accounting. Suddenly, accountants don’t have to perform 3-way matching or manually enter data. The majority of the accounts payable process is automated. They only need to intervene when there are exceptions or when higher-level thinking is required.
...But Accounting Automation Can Help
With workflow and process automation, accounting teams gain the tools to automate a large amount of this process and the visibility into where the work is at any stage in the flow.
When the documents are stored digitally (either through the use of electronic forms to replace the initial request, or by immediate scanning of the receiving slips), they become more secure and are free of the troubles of the infamous "piles" of organization that exist on desks throughout most companies.
2-Way, 3-Way, and 4-Way Matching Made Easy with Accounting Automation
Once in the system, pre-established routing can take place for approvals, matching, and verification. With a strong software solution this will include notifications to keep the involved parties informed that there is work to be done or that a particular document requires attention.
No more waiting, no more misplaced work, and no more strong-worded arguments that place blame between departments when some part of the matching goes awry.
Curious about how 3-way match works? Sign up for our upcoming 15-minute webinar to see it in action!