2-Way Matching in Accounts Payable: A Comprehensive Guide

The matching process in accounts payable is when invoices are matched with other supporting documents to verify their validity and payability. Two-way matching is the most basic invoice-matching process. This process can protect you from fraud and potential leakages and help you save money. 

What Is Two-Way Matching?

The two-way matching process ensures your invoices are valid and payable. Two-way matching works by matching invoices with their relevant purchase order before processing them for payment. This ensures you’re invoiced for goods or services you’ve ordered. With internal and invoice fraud rampant within the business atmosphere, two-way matching is an important security measure. Businesses lose millions of dollars yearly to invoice frauds and duplicate or overpayments. Two-way matching can safeguard you from these.

Documents Involved In Two-Way Matching

Two-way matching involves matching two documents: an invoice and a purchase order.

What are purchase orders?

Purchase orders are delivery requests made by companies to their vendors. Purchase orders contain information about the type and quantity of goods or services required. Occasionally, they also collect information about the agreed-upon price and discounts. 

Why matching invoices with purchase orders is important

Purchase orders are proof of purchase, stating the quantity and type of goods you ordered. Matching invoices with purchase orders creates a paper trail of the entire procure-to-pay purchase, helping analyze a particular department's purchasing habits and identify why the purchase had been made. Business approvers also often approve invoices without proper insight into the purchase. Performing two-way matching can act as a bridge between the procurement department and the accounts payable department. 

Two-Way Invoice Matching Process

The two-way invoice matching process starts with purchase order generation. Here are the steps involved:

PO generation

When goods need to be procured, a purchase order is generated after the vendor is decided and sent to the vendor. The purchase order states the date, PO number, quantity, and type of items required. It also says when the delivery is expected and any terms decided between the vendor and the company. 

Goods/services delivery

The vendor delivers goods or supplies services on credit. The invoice is generally generated after the delivery, though the payment might precede goods delivery in the case of a new or irregular vendor. The vendor might also issue a receiving report or packing slip in case the goods are delivered by a third party. 

Invoice generation

After the goods or services are supplied, an invoice is generated and sent to the company by mail or email. The invoice contains payment amount details, payment terms, due date and line item description, and occasionally bank account details. The payment terms or due dates dictate how and when an invoice will be paid. 

Two-way invoice matching

Once the AP team receives an invoice, they enter it into their accounting system and assign cost centers and GL codes before purchase order matching is done. 

Two-way matching can be performed by manually matching the invoice to the purchase order or by an automated invoice matching software. 

The invoice usually contains the PO number. This is used to match the invoice with its correct purchase order.

Correcting discrepancies

The issue is immediately raised to the relevant business departments if discrepancies are found between the purchase order and the invoice. If the purchase order is correct, the problem is communicated to the vendor for correction. The vendor sends a corrected invoice with updated payment terms and/or discounts, which is processed. 

Payment processing

After the invoice is matched and approved by the business and payment approvers, the payment is sent to the vendor. 

Three-Way and Four-Way Invoice Matching

As their names indicate, three-way and four-way invoice matching involves matching invoices matching invoices with two and three other documents, respectively. 

What is three-way matching?

Three-way matching involves matching the invoice to the purchase order and a receiving report. A receiving report is generated by the vendor indicating the quantity of goods that have been delivered. It is an extra security measure to two-way matching by ensuring the amount and type of goods supplied are being billed for. This helps, primarily when a vendor cannot fulfill the entire order but bills for more than what is delivered. 

What is four-way matching?

Four-way matching involves matching invoices with their relevant purchase orders and receiving reports and inspection slips. An inspection slip is generated by the customer after the goods are delivered. It mentions the quantity of goods that meet the company's quality requirements and need to be paid for. The rest of the items are either replaced or returned to the vendor. Matching invoices with inspection slips is essential because it ensures you are being billed for usable goods. 

Is two-way matching enough?

Three-way matching and four-way matching are stricter checks than a two-way match. However, selecting the correct matching technique for your company depends on various factors. Two-way matching is typically a more time and cost-effective solution if the risk trade is practical. For low-risk or low-value purchases, performing a two-way matching will suffice. Also, in the case of service-related purchases where quantity and quality are not in question, two-way matching is used instead of three-way matching. 

If you maintain a good relationship with your vendors and your purchases are typically low value and low risk, performing a two-way matching might work for your company. 

Automation In Two-Way Matching

Though easier to perform than three-way or four-way matching, two-way matching is still very cumbersome. Without automation, accountants might spend days tracking purchase orders and matching them to their invoices. Most AP automation vendors completely digitize your invoice data entry process, with vendors like ClearTech providing 100% accurate invoice data capture with a combination of OCR and managed services, reducing manual errors to a minimum. This frees up your accountants’ time for more productive tasks. With ClearTech, you can directly communicate with your vendors and business approvers on a single platform, allowing effective communication. 

Conclusion

Two-way matching in accounts payable involves matching invoices with their respective purchase orders. This ensures the invoice is not fraudulent or duplicated, and you’re not charged for goods or services you haven’t requested. A three-way matching process involves matching invoices with purchase orders and receiving reports, whereas a four-way match involves an inspection slip. Though two-way matching is more lenient than a three or four-way match, it is preferred when low-risk or low-value invoices are considered since it is more cost and time-efficient. Two-way matching is also used in the case of a service invoice. Two-way matching is a cumbersome and time-consuming process. Involving automation in invoice matching makes it less manual, speeding up invoice processing and also making it error-free.