Accounts Payable: Three-way matching

Three-way matching is a key internal control procedure in Accounts Payable (AP) to ensure that a company only pays for goods or services that were:

1. Properly ordered,

2. Actually received, and

3. Correctly billed by the supplier.

 

It involves matching three documents before approving a supplier invoice for payment:

Document	What it contains	Source
1. Purchase Order (PO)	What was ordered, quantity, agreed price, terms, delivery date	Created by Procurement / Purchasing department
2. Goods Receipt Note (GRN) or Receiving Report	What was actually delivered/received, quantity, condition, date	Created by Warehouse / Production / Quality team
3. Supplier Invoice	What the supplier is billing: quantity, price, total amount, taxes, invoice date	Sent by the supplier

 

 How Three-Way Matching Works (Step-by-Step)

1. Supplier sends invoice → AP department receives it.

2. AP clerk pulls the corresponding Purchase Order.

3. AP clerk pulls the Goods Receipt Note (proof that the items/services were received).

4. The clerk compares all three documents for:

   - Quantity matches (PO = GRN = Invoice)

   - Price matches (PO unit price = Invoice unit price)

   - Item description / part number matches

   - Calculations (total, tax, discounts) are correct

5. Only if all three match perfectly → invoice is approved for payment.

6. If there is any discrepancy → invoice is put on hold, and the issue is resolved (with procurement, warehouse, or supplier).

 

 Common Outcomes of Discrepancies

Discrepancy type	Typical resolution
Quantity on invoice > GRN	Pay only for received quantity or request credit note
Price higher than PO	Pay PO price or negotiate
Item not on PO at all	Reject invoice or create retroactive PO (if authorized)
Received but no PO (common for MRO)	Usually requires exception approval

 

 Why Glass Manufacturers Love Strict 3-Way Matching

- Raw materials (sand, soda ash, cullet) and packaging represent 60–75% of spend → high risk of overpayment.

- Prevents paying for short-shipments (very common with bulk sand/limestone deliveries).

- Stops suppliers from “up-charging” after verbal agreements.

- Required for SOX compliance and external audits in most listed glass companies (O-I, Ardagh, Verallia, etc.).

 

In short: Three-way matching is the #1 control that protects your company from paying for something you didn’t order or didn’t receive — and it’s non-negotiable best practice in modern procurement and AP departments.