Understanding the 3-Way Match Process

The 3-way match is a critical internal control in the procurement process. It is a reconciliation method that compares three key :

• Purchase Order (PO) – The document that details what has been ordered.
• Invoice – The bill from the supplier.
• Receipt or Goods Receipt – Confirmation that goods or services were delivered.

For small business owners, this process helps ensure that payments are only made when goods or services match what was requested and delivered. This minimizes financial risk and maintains the integrity of your accounting.

Step-by-Step 3-Way Matching Process

1. Purchase Order Creation and Verification

The process begins with the creation of a purchase order. Here are some actionable steps to follow:

1. Detail Expectations: List specific items, quantities, prices, and delivery dates.
2. Obtain Approvals: Ensure that the PO is approved by a manager or an authorized personnel.
3. Record Keeping: Save all POs electronically or in a secure filing system for quick retrieval during matching.

Tip: Automate PO creation where possible. Software solutions can help reduce manual entry errors and speed up the process.

2. Invoice Accuracy and Common Pitfalls

The invoice, typically generated by the supplier, should mirror the purchase order’s details. However, discrepancies often occur.

• Overcharging: The invoice may list higher prices than those stated in the PO.
• Incorrect Quantities: The number of items billed might differ.
• Additional Fees: Extra charges sometimes sneak in without prior approval.

Actionable Advice: Always cross-check the PO details against the invoice. Comparing the numbers side-by-side can often highlight errors that require quick resolution.

3. Receipt Confirmation and Discrepancy Resolution

Once the goods arrive or services are rendered, the receipt document confirms what has actually been received.

• Inspection: Verify quality and quantity upon receipt.
• Documentation: Keep a record of any damaged or missing items.
• Timely Reporting: Report discrepancies to your supplier immediately.

Often, the receipt might differ from the PO or invoice, for example, arriving quantities could be lower than ordered. When this occurs, document the differences in writing and contact the supplier to settle the issue.

"Matching these three documents reduces errors and builds a trustworthy relationship with your suppliers."

Practical Examples for Small Business Owners

Consider these practical examples to help clarify the 3-way matching process:

Example 1: Office Supplies Order

A small business places a PO for 50 ergonomic chairs. The supplier invoices the business for 50 chairs at a slightly higher price due to an administrative error, and only 45 chairs are delivered.

What to Do:

1. Compare the PO, invoice, and receipt to identify discrepancies.
2. Contact the supplier to explain that the invoiced price does not match the PO and that the delivery quantity is lower.
3. Negotiate a corrected invoice and ensure that the missing chairs are either delivered or refunded.

Example 2: Service Procurement

Imagine your business hires a consulting agency for a project, with the PO detailing specific deliverables. The agency sends an invoice for additional hours not mentioned in the PO, and later, the project report (receipt) shows that only the agreed deliverables were provided.

Steps to correct it:

• Review and verify the original PO against the invoice.
• Discuss any extra charges with the consultant.
• Finalize the reconciliation with a revised invoice if necessary.

These examples underscore the importance of having transparent processes and clear documentation.

Actionable Tips for Efficient 3-Way Matching

• Digitize Your Documents: Use digital tools to create, store, and compare POs, invoices, and receipts. This reduces manual errors and speeds up the reconciliation process.
• Set Clear Procedures: Educate your team on the importance of the 3-way match process and establish consistent protocols for every procurement cycle.
• Perform Regular Audits: Periodically audit your matching process to catch discrepancies early before they lead to larger financial issues.
• Leverage Technology: Consider investing in procurement software that offers automated matching features, making it easier to isolate variances.

Conclusion

The 3-way match process — comparing your purchase order, invoice, and receipt — is fundamental for maintaining financial integrity, avoiding overpayments, and enhancing supplier relationships. Small business owners can benefit greatly from adhering to these practices.

By embracing digital tools, ensuring team accountability, and routinely auditing your documentation, you can streamline your procurement process and prevent costly errors. Remember, consistency in applying the 3-way match process builds the foundation for reliable and scalable business operations.