2-way matching in accounts payable refers to a validation technique that compares the details of received invoices against their corresponding, originally-submitted purchase orders (POs). Ideally, by contrasting these two key documents, accounting staff can more readily confirm that a payment request is accurate, credible, and should be paid.
Here is everything you need to know about 2-way matching, including why it’s important and helpful 2-way matching examples.
What is 2-Way Matching – An In-Depth Look
3-way matching is an accounts payable best practice in which, after a business receives an invoice from one of their suppliers, they will run through a series of internal authorizations to confirm that paying the requested amount is appropriate. These checks are intended to limit the risk of your business falling victim to fraud from internal corruption, scammers, or shady suppliers. These verification efforts also help to identify potential shipping, receiving, and bookkeeping errors that could lead to overpayment.
2-way matching is also the easiest and most common form of “n-way matching,” which are invoice matching efforts that focus on confirming the consistency of records throughout the procure-to-pay process. As more document types are introduced to the evaluation, the n value increases (e.g., 3-way matching, 4-way matching).
What is the difference between a 2-way, 3-way, and 4-way match?
Alongside the purchase order and invoice, 3-way matching efforts also consider the details associated with your receiving records — typically any packaging slips or goods received notes (GRNs) that accompanied the delivery. By factoring in these documents, you can confirm that the good or service was delivered and that it corresponds with what was originally requested and what needs to be paid.
With this added component, internal fraud becomes much more complicated since any falsified documentation must also interface with your receiving or warehouse systems. Further, these inventory management efforts are routinely handled outside of your finance team, requiring more collaboration for any potential corruption.
Also, by confirming the delivery information, your A/P staff can avoid authorizing premature payments for orders that were never shipped or running behind schedule.
For more information, please see our article on 3-way matching in accounts payable.
Taking your validation efforts one step further, 4-way matching adds the consideration of inspection reports to the mix. So, when a shipment or service is received from a supplier, your team will evaluate the quality or condition of the delivery and document their findings for later invoice-matching efforts.
With this approach, you can more easily identify if a vendor is sending — and charging your business for — damaged or low-quality materials. Similarly, you can more readily confirm that the quantity of goods that were actually shipped matches claims made by your supplier and corresponding packaging slips.
Why is 2-Way Matching Important?
Paying new invoices without checking that they are correct can slow business growth, weaken your cash position, and undermine your company’s overall financial health and security. However, by employing verification standards — in particular 2-way matching or greater — you can help your business avoid:
- Bookkeeping challenges: that are caused by document irregularities and mismatched finances
- Dishonest employees: who might create dummy vendor accounts or payment requests
- Duplicate invoices: that charge twice for the same product or service delivery
- External fraudsters: who might submit invoices for items that were never ordered, let alone delivered
- Sloppy vendors: that make frequent miscalculations in their billing efforts
- Unintended mistakes: that might be caused by transcription errors, bad math, or arise from other manual processes
How Does 2-Way Matching Work?
The 2-way matching process
The typical 2-way matching process can be broken down into the following steps.
- Step 1: Your business sends a purchase order to a supplier that identifies a requested good or service’s quantity, pricing, and delivery terms.
- Step 2: The supplier delivers the corresponding order.
- Step 3: The supplier then sends an invoice that outlines payment expectations as well as order details, such as quantity, pricing, and any additional fees.
- Step 4: Your A/P team uses 2-way matching to verify that the details on the original purchase order correspond with those listed on the invoice.
- Step 5: If matched, your business authorizes the payment to the supplier, but if the evaluated data conflicts, the invoice is escalated for further review and resolution.
- Step 6: Assuming there are no issues — or they have been resolved — your business submits payment to the vendor
An example of 2-way matching in action
The jewel of Cheyenne, Wyoming, ‘Murica Fireworks Emporium conducts the majority of its business during June, July, and December, with the remainder of the year featuring rather anemic sales. So rather than paying for extended warehousing costs, the business ramps up its inventory within the six weeks before a high sales period.
Beginning in early May, ‘Murica Fireworks ordered new mortars, aerial shells, and finale batteries from Duck ‘n Cover Manufacturing. In more detail, the company submitted a purchase order for 150 Sonic Boom mortar shots for $75 each, 75 Friendly Fire aerial shells for $45 each, and 200 Oh God! I Think The House Is On Fire! finale batteries for $125 each. The shipment arrived two weeks later, and at the end of May, Duck ‘n Cover submitted an invoice for $42,956.50.
As ‘Murica Fireworks proceeded through its A/P efforts, the business engaged in 2-way matching, comparing the details between a copy of the original purchase order and the new invoice. And ‘Murica quickly identified a problem. According to the figures on the PO, the pre-tax subtotal for the order should be $39,625. However, the invoice featured a subtotal of $40,525.
Concerned about the discrepancy, ‘Murica Fireworks contacted Duck and Cover to investigate. And after reviewing its records, Duck and Cover realized that there had been a transcription error in their billing system when an employee had transposed two numbers in the order subtotal for the Sonic Boom mortars — inputting $12,150 instead of the appropriate $11,250. After realizing its mistake, Duck and Cover submitted a new invoice for the appropriate total, which ‘Murica Fireworks promptly paid.
Is 3-Way (or 4-Way) Matching Better Than 2-Way Matching?
The answer depends on what your business is looking for. Admittedly, both 3-way matching and 4-way matching will provide you with more data to confirm the legitimacy of a payment. And typically, more data yields smarter, better decisions. So if you are constantly working with new suppliers or operating in an industry subject to increased fraud attempts, one of these more complex matching strategies might be the best choice for your company.
However, as with any business decision, a cost-benefit ratio must be considered. And while adding more documents to your invoice matching will help better protect against fraud, it will also increase the amount of time, energy, and labor you need to dedicate to this verification step. In addition, each new document type will lead to further costs as you must capture, store, and manage this corresponding data.
If your organization has a limited number of A/P staff in place to handle verifications, or if the nature of your business tends toward a conspicuously high volume of supplier purchases, 2-way matching might be the right choice.
Further, depending on the size of your business — or your suppliers — you may not be provided with or have access to receiving information, making more complex invoice-matching efforts impossible. And if you rely on your warehouse staff to inspect materials before accepting the delivery, you may not be generating or capturing inspection data.
Invoice Matching Terms You Should Know
The following terms can be helpful to know as you start investigating the 2-way matching process.
Goods received note (GRN): a document that confirms the acceptance of products or services by a customer from a seller
Invoice: a formal request for payment for a delivered good or service
Invoice hold: occurs when invoices are flagged and set aside for further evaluation due to a matching error between relevant documents
Non-PO matching: a validation process that covers transactions where an initial purchase order was never submitted (e.g., phone orders, reoccurring software subscriptions)
Price deviation: an incident where the indicated price varies across the documents being matched, typically resulting in an invoice hold
Purchase order (PO): a documented request to an outside supplier or vendor for a specific good or service
Quantity deviation: an incident where the indicated amount of goods delivered varies across the documents being matched, typically resulting in an invoice hold
Terms of sale: the details captured on the submitted invoice, such as total cost, payment due date, quantity and quality of goods, invoice number, delivery date, accepted payment methods
Tolerance: a pre-set requirement that must be fulfilled during the matching process to avoid an invoice hold (e.g., a match between recorded total cost on the PO and invoice)
Touchless processing: a fully-automated solution that handles invoice submission, validation, and approval without human intervention
Making Your 2-Way Matching More Efficient with Automation
When it comes to smart accounts payable processing, invoice matching should be a critical part of your payment validation efforts. But as previously discussed, one of the major restrictions that can limit the complexity and overall nature of your matching operations is the associated time and labor costs.
By leveraging technology — particularly automation tools — your business can offset the needed manpower while accelerating payment timelines.
In particular, by choosing an A/P automation platform that features invoice-matching software capabilities, you can perform this validation step as quickly as the underlying hardware can handle — all while freeing up the staff previously dedicated toward this task to instead focus on more strategic efforts, like strengthening supplier relationships.
Accounts payable workflow automation can also help with the detection of errors and fraud. Rather than relying on human eyes and attention spans to notice the difference between documents, the automated system can readily, consistently, and more accurately find these discrepancies.
Invoiced: Automated 2-Way Matching Made Easy
No one wants to overpay. With a little preparation, you can limit the potential for common errors or shady actors to separate your business from its money unnecessarily. Even better, this preparatory workload can evaporate thanks to automation, requiring your direct intervention only when abnormalities or process complexities arise.
Schedule a demo today if you’d like to learn more about how the Invoiced Accounts Payable Automation Software can help protect your A/P efforts against heightened labor demands, fraud, costly errors, and unnecessary delays.