Streamlining Inventory Purchasing: 3-Way Purchase Order Matching 101

LearnApril 1, 20246 min read
Caroline Lu, Product Marketing Manager

The three-way PO matching process is a crucial component of procurement and accounting that ensures accuracy and transparency in inventory management and vendor payments. It involves verifying the purchase order (PO), the goods received note (GRN) or receipt, and the invoice or bill to ensure that businesses only pay for what they order and receive. This process acts as a safeguard against fraud, promotes transactional accuracy, and strengthens supplier relationships. To learn more about the benefits and challenges of the three-way match process, as well as best practices and technological advancements, continue reading the rest of the article.

Streamlining vendor payments with the three-way purchase order matching process

The three-way matching process is a critical component in procurement and accounting, ensuring accurate inventory purchases and payments and enhancing financial reporting. This process involves three key documents: the purchase order (PO), the goods received note (GRN), and the invoice or bill. Each document plays a unique role in the process, safeguarding against fraud, promoting transactional accuracy, and strengthening supplier relationships. This process is particularly beneficial in inventory-led industries like e-commerce and consumer packaged goods, where it ensures accurate inventory purchases and payments by reconciling goods received and payment discrepancies.

Understanding the three key documents

Purchase Order (PO)

The purchase order (PO) is created by the buying or operations department and contains important information such as the items, quantity, and price. It serves as an official confirmation of the order and sets the terms and conditions for the purchase. The PO acts as a reference point for the subsequent steps in the three-way match process.

Goods Received Note (GRN)

The goods received note (GRN) is generated when the goods are delivered and received. It serves as proof that the goods have been received and confirms that everything matches the details specified in the PO. The GRN plays a crucial role in ensuring that the goods received align with the purchase order and the brand or business has received the right amount of goods ordered at the specified price.

Invoice

The invoice is sent by the seller and lists the goods or services provided. It includes details such as the quantity, price, and any applicable taxes or discounts. The invoice serves as the basis for payment processing and is compared against the PO and GRN to ensure that all the information matches and that the payment is accurate. Solutions like Settle ensure accuracy by verifying the invoice against the purchase order and the goods received using automated three-way matching technology, alerting of any discrepancies between the three documents all the way down to the line item.

The role of the operations, procurement, and accounts payable teams

The three-way match process often involves the accounts payable team and the team conducting the purchasing of inventory, typically the procurement or operations team. After the vendor invoice is reviewed and approved by the operations, procurement, or accounts payable team, payment is routed to the seller. All three teams can play a crucial role in closing the match by processing the payment. Any of those teams can be the one conducting the comparison between the three documents with the accounts payable team oftentimes approving and paying the invoice. Because overpayments can be costly, this collaborative effort is necessary to ensure that the three documents align, safeguarding against fraud, ensuring transactional and accounting accuracy, and building strong supplier relationships.

Benefits of 3-way purchase order matching

  1. Prevent overpayments and duplicate payments: With three-way match, businesses can ensure that they are only paying for the goods or services that they have ordered and received. They can also better track vendor payments to ensure they are not sending the same payment more than once to the same vendor. This not only helps to prevent financial losses due to overpayment but also aids in maintaining good relationships with suppliers by avoiding disputes over payment amounts.
  2. Stop invoice fraud: A recent survey showed invoice fraud costs middle markets businesses, on average $280,000 per year on average. Although invoice fraud takes many forms, one of the most popular scams involve scammers submitting invoices from illegitimate vendors to businesses hoping that they would be simply approved and paid without any checking for legitimacy.
  3. Accurate financial reporting and audits preparation: Three-way matching provides a clear and accurate record of a company's procurement activities, which can be invaluable when preparing financial reports or conducting audits. This can help to ensure that a company's financial statements accurately reflect its financial position and performance, thereby enhancing the credibility of its financial reporting.

Automatic 3-Way Matching: modernizing the three-way match process

Manually conducting the three-way matching process through spreadsheets, switching screens, and printing documents to compare line items between documents can be time consuming and error-prone. Automation, particularly through the adoption of purchase order management technology, is modernizing the three-way match process by simplifying tracking, managing, and auditing, accelerating the payment resolution process. Here are just a few ways that automation drives efficiency and accuracy: by automating workflows, centralizing purchasing data, and providing real-time visibility into transactions. Automation simplifies tracking, managing, and auditing, accelerating the resolution process.

  1. Saves valuable time: Purchase order technology can compare purchase orders, receipts, and invoices and automatically flag discrepancies between the documents.
  2. Accelerate payment cycles: By quickly pinpointing on where discrepancies are instead of checking every line item of all three documents, teams can make faster decisions on payment approvals and resolutions
  3. Centralizes Accounts Payable files: Keeping all the relevant AP documents involved in three-way matching in one system eliminates the need for searching through drives, download folders, and emails for the right documents.

Settle: Revolutionizing procurement with Purchase Order Automatic 3-Way Matching

At Settle, we understand the importance of efficient cash flow management for growing consumer businesses. That's why we offer an all-in-one platform that streamlines workflows from creating purchase orders to paying invoices.

With Settle, you can easily create and manage purchase orders, track goods received, and pay vendors. Plus, our platform automates the three-way match process, eliminating manual errors and speeding up payment processing. We automatically link your purchase orders to your bills and GRNs with accuracy while dynamically validating all three documents and flagging discrepancies for you all the way down to the line item. Check out the interactive tour of our automatic 3-way matching here or get started for free with unlimited POs and three free matches today.

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