Still Relying on 2-Way and 3-Way Matching? Get AI for Multi-Way Matching in Accounts Payable

Are you still dealing manually with purchase order and invoice mismatches? Here’s how you can eliminate inefficiencies and expedite invoice processing. 

As you know, accuracy and efficiency in accounts payable (AP) are critical to ensuring smooth vendor relationships and timely payments. But how do you make sure that all the details in your transactions are aligned correctly? 

In the past, matching purchase orders, invoices, and goods receipts was the answer—an essential practice to prevent discrepancies. 

With the advent of AI-powered AP automation, the process of document matching has evolved. AI-powered technology has replaced traditional methods, such as 2-way and 3-way matching, making the entire workflow faster, more accurate, and less prone to human error. With automation, the entire AP cycle becomes more reliable, minimizing the risks of errors or fraud while maintaining regulatory compliance. 

In this refresher, we'll explore how AI-driven tools like multi-way matching, optical character recognition (OCR), and automated reconciliation can optimize your AP processes. These tools improve efficiency and strengthen supplier relationships, all while reducing the manual effort previously required. 

What is 2-Way Matching? 

You’re likely familiar with 2-way matching, a method that compares the purchase order (PO) with the vendor’s invoice. The goal is simple: verify that the details on the invoice—specifically the quantities and prices—align with what’s outlined in the PO. 

Here's a quick recap: 

1. Purchase Order (PO): Specifies the items or services requested, including their prices and delivery terms. 

2. Invoice: Represents the vendor's payment request, listing the goods or services provided, and the total amount due. 

This method ensures that you're paying the right amount for the correct items or services. By focusing on price and quantity, it helps avoid overpayment or receiving the wrong items. While 2-way matching is faster and more straightforward, it has its limitations. It doesn’t address whether the goods or services were actually received. That verification only becomes apparent after delivery or service completion. 

What is 3-Way Matching? 

Taking it a step further, 3-way matching adds a third document into the mix: the goods receipt (or packing slip). This extra layer of validation, in addition to invoice and purchase order alignment, ensures that the actual goods or services are delivered as expected. 

For a quick refresher: 

1. Purchase Order (PO): Same as in 2-way matching. 

2. Goods Receipt/Receipt Note: Confirms that the ordered goods or services have been received, in full and in good condition. 

3. Invoice: Matches the other two, ensuring that payment is aligned with the actual receipt of goods or services. 

By cross-checking these three documents, 3-way matching offers a more comprehensive view of the transaction. It adds an additional layer of protection against paying for items that were never delivered or paying for incorrect quantities. While it significantly reduces the risk of errors and fraud, it does require more time and resources. In lower-risk scenarios, such as when deliveries are consistently timely and accurate, 2-way matching may be more efficient. 

2-Way Vs. 3-Way Matching: Pros and Cons 

Each method has its advantages and drawbacks. Choosing the best approach depends on factors like transaction volume, risk, and available resources. Let’s compare them side by side: 

2-Way Matching 

Pros 

• Faster: With only two documents to compare, this method is much quicker. 

• Simpler: Less paperwork and fewer steps in the review process. 

• Cost-effective: Perfect for small to medium businesses or low-risk transactions where goods are reliably delivered as ordered. 

Cons 

• Limited accuracy: Doesn’t address discrepancies in the actual receipt of goods or services. 

• Higher risk of fraud: Without receipt verification, there's a greater chance of paying for undelivered items. 

• Not suitable for complex transactions: In industries with large or complicated orders, 2-way matching may not be sufficient. 

3-Way Matching 

Pros 

• Greater accuracy: With the extra verification step, it ensures the buyer receives exactly what was ordered, which reduces the chance of overpayment. 

• Improved fraud prevention: Helps eliminate the risk of paying for goods or services that were never delivered. 

• Ideal for high-value transactions: Particularly useful for industries where order fulfillment is critical and discrepancies can be costly. 

Cons 

• Slower: The process takes longer as it requires comparing three documents. 

• More complex: Involves coordination between procurement, warehouse, and AP teams. 

• Higher administrative costs: It can be more time-consuming for staff, especially when handling large volumes of invoices and receipts. 

Also Read: AI-Powered Vendor Invoice Management: Workflow & Benefits 

Automating the Matching Process with AI 

AI-powered invoice management brings several key advantages to the table: 

Speed and accuracy: 

AI can automatically extract data from invoices, purchase orders, and receipts with high precision, eliminating manual entry errors and ensuring faster processing. 

Multi-way matching: 

AI can intelligently match documents not only between purchase orders, invoices, and receipts, but across multiple formats and documents. This makes the entire matching process seamless and efficient. 

Real-time insights: 

AI-powered dashboards provide real-time data on your AP processes, helping track payments and approvals as they happen.

Fraud detection: 

AI systems can spot unusual patterns or discrepancies in invoice data, flagging potential fraud or errors before they lead to overpayments. 

Supplier relationship management: 

AI enhances communication with suppliers through natural language processing (NLP) and intelligent chatbots, offering a self-service platform to check invoice statuses and resolve issues quickly. 

To Sum Up 

By integrating AI into your accounts payable process, both 2-way and 3-way matching become faster, more accurate, and less resource-intensive. AI automation ensures compliance and provides an auditable trail of all transactions, improving transparency and reducing the risk of errors. 

Explore GEPs AI powered accounts payable software.