Streamlining Procurement Processes with Three-Way Matching

5 min read
Author: Katya Lopez-Nichols
delivery person scanning receipt with mobile phone inside her vehicle

A Guide to Efficient Purchase Order, Invoice, and Bill of Lading Matching

Have you ever wondered how companies ensure they receive the correct goods on time and pay the right price? They use a process called “three-way matching” to verify that the purchase order, bill of lading, and invoice information all match. This process is commonly used in accounting and procurement to minimize errors and discrepancies in the procurement and payment process.

The three documents involved in three-way matching are the purchase order (PO), bill of lading, and invoice. The PO specifies the goods or services ordered, their quantity, price, and delivery date. The bill of lading serves as a contract between the shipper and carrier, providing details on the transported goods, origin, destination, and other vital information. Finally, the invoice shows billing information, including the total amount due, payment terms, and applicable taxes.

By comparing all three documents, companies can ensure they receive the right goods at the right time and pay the correct price for them.

The Importance of Three-Way Matching in Procurement and Payment Processes

Overall, three-way matching is a critical process that helps companies avoid costly errors and disputes in the procurement and payment process. By using this approach, companies can maintain high levels of efficiency and accuracy in their operations, ensuring that they receive the goods and services they need to operate effectively.

How do companies ensure that they’re paying the right price for the goods and services they purchase? Well, companies can’t afford to take that approach, especially when it comes to large purchases. That’s why many of them use a process called “three-way matching” to ensure that they only pay for goods and services that were actually received, at the agreed-upon price and terms.

The three-way matching process involves comparing the information on three critical documents: the purchase order, the receiving report, and the supplier’s invoice. Each document contains important information about the goods or services being purchased, such as the quantity, price, and delivery date. When these documents are compared, any discrepancies or errors are identified and must be resolved before payment can be made.

This may sound like a tedious and time-consuming process, but it’s essential for ensuring that the organization only pays for what it actually received and accepted. After all, why pay for something that you didn’t get or pay more than the agreed-upon price? By using three-way matching, companies can avoid costly mistakes and disputes, and maintain strong relationships with their suppliers.

The three-way matching process is a crucial part of the procurement and payment process for many organizations. Though it may not be the most exciting aspect of running a business, it is vital for ensuring accuracy and fairness in financial transactions.

Three-way matching is critical for several reasons:

  1. Accuracy: By comparing the details of the purchase order, receiving report, and invoice, organizations can ensure that the information on each document is precise and consistent. This reduces errors and discrepancies in the procurement and payment process.
  2. Control: Three-way matching provides an effective control mechanism to prevent fraudulent activities such as double billing, overbilling, or invoicing for goods or services that were not received or accepted.
  3. Compliance: Many organizations must comply with regulatory standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Three-way matching helps ensure compliance by providing an auditable trail of the procurement and payment process.
  4. Cost Savings: By ensuring that invoices match the purchase order and receiving report, organizations can identify and correct errors or discrepancies early in the process. This prevents unnecessary delays and costs associated with rework or disputes.

In conclusion, three-way matching is critical for ensuring the accuracy, control, compliance, and cost-effectiveness of the procurement and payment process. It helps organizations to operate more efficiently and effectively while minimizing the risk of errors, fraud, or non-compliance.

Strategies and Tools Used by Shipping Companies to Minimize Errors in the Procurement and Payment Process

Shipping companies rely on various strategies and tools to minimize errors during the procurement and payment process. One of the primary approaches is implementing standardized processes, which can include using standard forms or templates, clear guidelines for data entry, and established communication protocols. These measures help to reduce the risk of errors or discrepancies in the procurement and payment process, ensuring that the right goods are delivered to the right location at the right time. Standardization also facilitates communication and collaboration between different departments and suppliers involved in the shipping process.

Another approach is the use of automated systems such as electronic data interchange (EDI) or enterprise resource planning (ERP) software to manage the procurement and payment process. These systems can help to minimize errors by reducing the need for manual data entry and providing real-time tracking and reporting capabilities. They can also help to streamline processes and increase efficiency, reducing the risk of delays or errors in the shipping process. Moreover, by using automated systems, shipping companies can improve transparency and visibility throughout the supply chain, allowing for better tracking and analysis of performance metrics.

In addition to implementing standardized processes and automated systems, shipping companies also use quality control checks to ensure that goods are delivered to the right location at the right time and in the right condition. Quality control checks may include physical inspections, barcode scanning, or electronic signature verification, among others. These measures help to ensure that suppliers are meeting specific performance standards and that the shipping company is receiving high-quality goods. By using these approaches, shipping companies can minimize the risk of errors and discrepancies in the procurement and payment process, ensuring that the right goods are delivered to the right location at the right time while maintaining high levels of efficiency and quality.

Challenges of Three-Way Matching in Financial Operations

Although three-way matching is an essential process for ensuring accuracy and compliance in the procurement and payment process, it can also present challenges. Some of the most common challenges include:

  1. Complexity: Comparing information across three different documents can be time-consuming and complex, requiring attention to detail and the ability to navigate multiple systems and processes.
  2. Data discrepancies: Errors in data entry or other factors such as shipping delays, incorrect quantities or pricing, or missing or damaged goods can result in data discrepancies between the purchase order, receiving report, and invoice.
  3. System integration: Proper integration between procurement, accounting, and inventory management systems is necessary for effective three-way matching, which can be challenging and require additional resources or expertise.
  4. Exceptions handling: When errors or discrepancies are identified, a time-consuming exceptions handling process must be initiated to resolve them before payment can be made.
  5. Supplier relations: Discrepancies or delays in payment can impact supplier relations, potentially causing disruptions in the supply chain or negative impacts on the organization’s reputation.

While three-way matching is a crucial process, organizations must be aware of these challenges and prepared to manage them to ensure its effectiveness.

Future of Three-Way Matching

As businesses continue to adopt digital solutions, the future of three-way matching is likely to involve increased automation and integration with other systems. This could include the use of artificial intelligence (AI) and machine learning algorithms to automatically match and approve invoices, reducing the need for manual intervention. By leveraging AI, organizations can improve the speed and accuracy of the matching process, while reducing the risk of errors and fraud.

Overall, the future of three-way matching is likely to involve increased efficiency and accuracy through the use of digital technologies.

Veryfi’s automated document processing technology makes it easier to manage and transform the information contained in unstructured documents (such as bills of lading) received from service providers, vendors and partners. This is done with AI-driven optical character recognition (OCR) that transforms these documents into structured data (for importation into databases). Automating bill of lading processing helps eliminate expensive processing bottlenecks, maximize processing efficiency and ensures reliable results.

Veryfi doesn’t use humans to process documents, instead using cutting-edge AI. With AI, you can eliminate the human involvement in data collection, which lowers costs and reduces errors. It also prevents sensitive data from being distributed to unauthorized personnel. Adhering to compliance laws also becomes much easier.

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