Understanding the Purchase Order Matching Process

The most common approaches to purchase order matching are Two-Way and Three-Way Purchase Order Matching. Let’s explain them in a few words.

Two-Way Purchase Order Matching

For this process, the accounts payable compares information found on two documents:

• purchase order and
• the invoice.

The two-way purchase order matching process checks that the billed quantities are less than or equal to the ordered quantities and that invoice price is smaller or equal with the purchase price.

Usually, the following steps are performed in the following order:

• purchaser identifies a need and fills a purchase order
• the purchase order is approved (depending on the organization and the size of the purchase this can be a one-step or a multiple step activity)
• the purchase order is sent to the vendor.
• the vendor delivers the goods/services and sends the invoice
• the invoice is created in the accounts payable system
• the quantities and the amounts on the invoice are checked against the ones on the purchase order. Sometimes it is not mandatory to have a perfect match. It could acceptable to have a small threshold like 2-3% or even 5%.
• If the quantities and amounts on the invoice do not exceed the ones on the purchase order, the invoice is approved and the supplier receives the payment.
• If the PO does not match the invoice, the payment is put on hold until the issue is resolved.

Three-Way PO Matching

For this process, the accounts payable compares information found on three documents:

• the purchase order,
• the invoice and
• the delivery receipt.

The three-way PO process checks that the invoice price is no greater than the purchase price. It also compares the billed quantity against the ordered quantity and the received quantity.

Usually, the following steps are performed as follows:

• purchaser identifies a need and fills a purchase order
• the purchase order is approved (depending on the organization and the size of the purchase this can be a one-step or a multiple step activity)
• the purchase order is sent to the vendor.
• the goods/services are delivered
• the purchaser checks the goods/services against the PO. At this moment the receiving receipt is created. This operation can be performed either by the purchasing department or by a dedicated business unit within the purchaser organization.
• the vendor sends the invoice
• the purchaser creates the invoice in the accounts payable system
• the quantities and the amounts from the purchase are compared against the quantities and amounts found in the invoice and in the receiving receipt. These should not be greater than the thresholds set by the accounts payable.
• if the values found in PO, invoice and receiving receipt match the payment is approved. If there are discrepancies, then a hold is placed until the payment is approved.

Difference Between 2-way and 3-way Purchase Order Matching

As you can see there are important differences between two-way and three-way purchase order matching. For the latter, the process is more complex and it involves matching information found in three documents:

• purchase order
• invoice
• receiving the receipt

This method is considered as the most reliable and its results are remarkable in terms of avoiding paying for fraudulent or incorrect invoices. Due to its complexity, in most cases, 3-way purchase order matching is a good fit for medium and large organizations, with a dedicated business unit/department.