How do you know whether the supplier invoices you’re paying are accurate — either accidentally or on purpose? The answer is the 3-way match system. Here’s how it works.
Step 1: Purchase Order
Make it a rule that your business does not buy anything without having a purchase order prepared in advance and entered into your accounting records. No more spur-of-the-moment store runs when you suddenly find yourself short of materials!
Once counter-signed by the supplier, the purchase order is a legally binding document. It should specify:
• Names and quantities of items to be bought
• Price of items
• Delivery date
Step 2: Receiving Report
All supplies you purchase are checked into inventory and a form filled out by the receiving staff. This report is entered into the accounting software, or otherwise made available to Accounts Payable personnel.
A typical receiving report includes:
• Date and time of delivery
• Purchase order number
• Name of vendor and/or shipping company
• Description of each item received
• Quantity of each item received
• Condition of items received (necessary for returning damaged goods)
Step 3: Supplier Invoice
The bill sent by the vendor should match both the purchase order and receiving a report in item names, quantities, and prices. It is the responsibility of Accounts Payable to make sure these three documents match — and if they don’t, find out why not.
Discrepancies may be resolved by having the supplier issue a revised invoice, or in some cases a credit memo.
Benefits and Drawbacks
The benefits of 3-way matching are obvious: the prevention of human error or fraud which could result in financial losses for your business.
On the drawback side, the 3-way match process can be time-consuming for Accounts Payable. This could lead to delays in payment, resulting in late fees and disqualification for early payment discounts. Consider these accounting tips to make it more efficient:
• Software which automates the generation of purchase orders and receiving reports, and integrates them with Accounts Payable
• Not requiring the 3-way match for recurring or small-dollar invoices
• Allowing Accounts Payable staff to approve invoices if the amounts on the purchase order and the invoice are within a few percentage points of matching
Some of these solutions may be beyond the budget of most small businesses, but not when you have Xendoo at your service. Our state-of-the-art accounting software gives you enterprise-level capabilities at an affordable monthly fee. It’s just one of the ways we relieve small business owners from the work and worries of bookkeeping and free their minds to focus on doing what they love.