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FAQ: What is three-way matching?

Three-Way Matching is an accounts payable process that adds an extra layer of validation compared to two-way matching. In Zudello, it involves automatically comparing data between three documents:

  1. The Supplier Invoice: The bill received from the supplier.
  2. The Purchase Order (PO): The document your organisation issued to order the goods/services.
  3. The Goods Receipt (GR): The document created in Zudello (or synced from an ERP) confirming the actual receipt of goods/services.

The Goal:

The goal is to ensure that your organisation is only paying for goods or services that were ordered and actually received.

How it Works in Zudello:

  1. Linking: When an invoice arrives, Zudello links it to the relevant PO (based on PO number and supplier). It also identifies associated GR(s) linked to that same PO.
  2. Comparison: Zudello compares key details across the lines of all three documents:
    • Quantities: Does the quantity invoiced match the quantity received (on the GR) and the quantity ordered (on the PO), considering previous invoices/receipts?
    • Prices: Does the unit price on the invoice match the unit price on the PO? (Price is usually not on the GR).
    • (Optional) Item Codes/Descriptions: Do the item identifiers align across the documents?
  3. Status & Variance: Based on the comparison (usually quantity-based for 3-way matching), Zudello calculates:
    • Allocation Status: Indicates if the PO and GR lines are fully or partially matched by the invoice line(s).
    • Variance: Highlights differences in price (Invoice vs. PO) or quantity (Invoice vs. GR vs. PO).
  4. Automation: Configured Sentences use the Allocation Status and Variance information:
    • Invoices with a perfect three-way match might bypass standard approval.
    • Invoices with quantity discrepancies (billed more than received) or price variances might be routed for specific approval or investigation.

Benefits:

  • Provides stronger control over payments by verifying receipt.
  • Prevents payment for goods not received or services not rendered.
  • Helps identify shipping errors or discrepancies quickly.
  • Reduces risk of duplicate payments or overpayments.

Three-way matching is particularly important for businesses dealing with physical goods or inventory where confirming receipt before payment is crucial.

See also: Understanding Two-Way and Three-Way Matching.