In accounts payable three-way matching is a procedure used to authenticate and verify disbursal of payment to a creditor. This type of match involves matching Purchase Order (PO), Goods Receipt Note (GRN) & Invoice. Various departments work together to check things like price billed, quantity billed, quality & quantity of goods received etc.
Three-way matching is an important & common technique for firms since it mitigates credit risk by avoiding fraud invoices, underpaying, overpaying etc.
Purchase Order (PO) – After a supplier has been finalized an official document is issued by a company to a supplier to buy specific goods or services. It usually contains date, quantity, pricing, shipping terms, T&C etc.
Goods Receipt Note (GRN) – It is a document which is usually signed by the buyer at the time of delivery thus acting as an evidence that quantity delivered is exactly as desired by the buyer in its purchase order.
Invoice – Also known as a bill, it is a statement of all items purchased by a buyer in an order with price & quantity along with the total sum due on a particular date.
To avoid payment delays for a minor difference buyer would usually have a small currency amount set as tolerance limit so any mismatch within the prescribed threshold is ignored and the invoice is paid after successful three-way matching.
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