A Comprehensive Guide to 2-Way, 3-Way, and 4-Way PO Matching

5 min

PO matching streamlines various aspects of your business operations. By using this practice, you actively mitigate the risks of incorrect or fraudulent invoices and ensure better cash flow. It's not just about avoiding problems; it's about setting your business up for success. 

PO matching makes it easy to comply with regulations and build more transparent and efficient supplier relationships. It also gives you improved cost controls and enhanced inventory management. Continue reading to discover the many advantages of using PO matching, such as:

  • More Cost Controls
  • Better Inventory Management
  • Stronger Supplier Relationships

In this blog, you’ll also get a detailed guide on PO matching, its process, benefits, and common challenges. Now let’s dive in!

What is PO Matching?

PO matching, or Purchase Order matching, is an important component of the accounts payable workflow that adds a layer of verification to your financial processes. At its core, it involves matching purchase orders, delivery receipts, and supplier invoices to confirm their consistency before making a payment. This safeguard not only minimizes the risk of fraudulent or incorrect invoices slipping through the cracks but also streamlines compliance and improves your relationship with suppliers.

2-Way vs. 3-Way vs. 4-Way PO Matching

Navigating the intricacies of Purchase Order (PO) matching can be daunting, especially when you encounter terms like 2-way, 3-way, and 4-way matching. Don't worry, we're here to break it down for you. Each method offers different levels of scrutiny, balancing ease of use against thoroughness. By understanding the key differences, you can choose the most effective approach for your business. Here's a detailed look at each different PO matching approach:

2-Way PO Matching

Supporting Documents

  • Purchase Order (PO)
  • Supplier's Invoice

Purpose

The goal is straightforward: match the supplier’s invoice to the original PO to ensure that quantities and prices align.

Benefits

  • Simplicity: Easy to execute and understand.
  • Quick Approval: Faster invoice processing.
  • Basic Error Catching: Good for identifying major discrepancies in pricing or quantity.

Limitations

  • Limited Scope: May miss delivery errors or quality issues.
  • Lower Control: Minimal checks beyond basic details.

3-Way PO Matching

Supporting Documents

  • Purchase Order (PO)
  • Supplier's Invoice
  • Delivery Receipt

Purpose

In addition to matching the invoice and PO, a delivery receipt is checked to confirm the receipt of the goods or services.

Benefits

  • Enhanced Accuracy: Confirms that you received the goods.
  • Better Compliance: Suitable for industries with strict receiving regulations.

Limitations

  • Time-Consuming: Requires additional steps for verification.
  • Moderate Complexity: Adds another layer to the matching process.

4-Way PO Matching

Supporting Documents

  • Purchase Order (PO)
  • Supplier's Invoice
  • Delivery Receipt
  • Inspection Report

Purpose

A comprehensive check, incorporating an inspection report, ensures the quality and quantity of goods or services meet predetermined standards.

Benefits

  • Highest Accuracy: Validates quality, quantity, and pricing.
  • Strong Control: Offers robust financial and operational controls.

Limitations

  • Complexity: Requires meticulous attention to detail.
  • Resource Intensive: May slow down invoice approval cycles.

While 2-way matching is faster and suitable for low-risk purchases, 3-way and 4-way PO matching adds layers of scrutiny and control. The extra matching is ideal for purchases where accuracy, completeness, and quality are paramount.

The PO Matching Process: A Well-Orchestrated Roller Coaster Ride 

The goal of any PO matching process is to ensure accuracy. Picture this: It's like a rollercoaster, with twists and turns, making sure you only pay for the ride you actually took! Here's a step-by-step process of PO matching, from creation to final reconciliation. 

1. The Grand Entrance: Creating Your PO

Your PO matching journey first kicks off with a Purchase Order (PO). This is your golden ticket, drafted by your purchasing department. It lists the details of what you want to buy and gives you permission to move forward, just like when you present your entry pass at an amusement park. 

2. The Handshake: Confirming with Vendors

This is the part where you and the vendor lock eyes and nod; it's a mutual agreement that the ride is about to start! You send the PO off to your supplier who gives it a thumbs up, ensuring that both parties agree on the terms and conditions.

3. The Arrival: Receiving Your Goods/Services

The moment of truth! The goods or services roll up like the rollercoaster and it’s time to buckle in. Here, the receiving team plays the all-important role of the safety inspector checking that your seat belt is fastened correctly. In real life, they’re confirming that the quantity is right, the quality is top-notch, and everything aligns with what was stated in the PO.

4. The Heart of the Matter: The Matching Process

Now, the accounts payable team, aka the rollercoaster operators, step in. They perform the core action of PO matching by verifying the necessary documents. Is it a 2-way match, like a simple loop-de-loop, checking just the PO and invoice? Or a 3-way match, adding a thrilling corkscrew with a receiving report? Maybe even a 4-way match, which throws in a breathtaking free-fall drop by incorporating quality control reports.

5. The Grand Finale: Invoice Verification

The last stretch! The supplier sends over an invoice, like a photo taken during the rollercoaster's wildest loop. Accounts payable staff now have to match this snapshot (the invoice) against the original ride plan (the PO) and the actual experience (the GRN).

Benefits of Effective PO Matching

Purchase order matching offers many advantages for businesses, including:

  • Fewer Errors: PO matching minimizes errors in your procurement and accounts payable departments, ensuring that you get exactly what you ordered. Gone are the days of tug-of-war disputes about quantities or pricing errors; you'll be saving time and resources like a pro. 
  • Stronger Supplier Relationships: When you show up as a reliable and accurate partner, suppliers are more likely to reciprocate with on-time deliveries, better negotiation terms, and maybe even a fruit basket during the holidays. It's a win-win situation!
  • Better Cost Controls: PO matching helps you stay within budget by preventing overpayments. Besides preventing you from overpaying, PO matching is like a guard dog for your budget, barking at unauthorized expenses. If it's not in the PO, it won't sneak past your accounts payable department.
  • Stronger Inventory Management: PO matching ensures your inventory levels are as you envisioned—no more, no less—cutting down on the costs of holding excess stock.
  • More Negotiation Leverage: Being spot-on with your PO matching gives you some hefty bargaining chips. This can translate to better terms and sweeter deals.

Common PO Matching Problems

To become a master in PO matching, you should also know the common challenges with this process. Some issues include:

Discrepancies in Quantity or Pricing

  • Issue: Receiving incorrect quantities or issues in pricing between the purchase order and invoice can lead to errors.
  • Solution: Implement a robust three-way matching process to ensure that the quantity, pricing, and item descriptions align.

Incomplete or Inaccurate Documentation

  • Issue: Missing or incomplete documentation, such as a lack of a goods receipt, can hinder accurate matching.
  • Solution: Encourage staff to document the receipt of goods or services using a standardized process. You can also implement electronic systems to automate documentation and track receipts.

Invoice Errors

  • Issue: Suppliers may send invoices with errors, such as incorrect calculations, missing details, or inconsistent item descriptions.
  • Solution: Verify invoices to catch and rectify any errors before processing payment.

Mastering PO Matching

Accurate PO matching is vital for your business as it’s a crucial step in preventing cash flow problems and avoiding inefficient paper trails. Purchase order matching helps ensure that the goods or services received align with what you ordered, reducing the likelihood of errors. 

PO matching is also fundamental for procurement and accounts payable, contributing to overall business success. Accounts payable automation tools can help improve the PO matching process, and save time for your team. 

Centime Accounts Payable automates all aspects of AP: processing, capturing and approving invoices, planning payment runs to preserve cash, and paying suppliers. Try the platform for free to see our top-rated AP automation tool in action.