Synced to Xero
The short answer
Three-way match is an accounts payable check that compares three documents before a supplier invoice is paid: the purchase order, the goods receipt and the invoice. If the items, quantities and prices agree, within any tolerance you set, the invoice can go to approval and payment. If they don’t, it’s held until someone resolves the difference.
It stops you paying for goods that were never ordered, never delivered or billed at the wrong price. Two-way match checks the invoice against the purchase order only, and suits services and subscriptions where there is nothing to receive.
How three-way match works
Three documents, three questions. Each one confirms a different part of the purchase.
| Document | Who creates it | What it confirms |
|---|---|---|
| Purchase order | Your team, when the purchase is approved | What you agreed to buy, how many and at what price |
| Goods receipt | Whoever takes delivery | What actually arrived, and how many |
| Supplier invoice | The supplier | What you’re being asked to pay |
Raise and approve the purchase order
The purchase order sets the expected items, quantities, prices and delivery terms. It’s the reference every later check compares against.
Record what arrives
When goods arrive, the person who receives them records what came in, often as a goods received note. Partial deliveries are recorded as they happen.
Match the invoice
When the invoice arrives, accounts payable compares it line by line: the invoiced quantity against the quantity received, and the invoiced price against the price on the order.
Approve, hold or query
If the documents agree, the invoice moves on to approval and payment. If they don’t, it’s held while someone checks with the supplier or the person who received the goods.
A worked example
A group orders 200 office chairs at $150 each for a new site, so the purchase order is for $30,000. The site team records 160 chairs received, with 40 on back order. The supplier invoices for all 200.
Two-way match would pass this invoice, because it agrees with the order. Only the goods receipt shows that 40 chairs haven’t arrived.
With three-way match, accounts payable approves $24,000 for the 160 chairs received and holds the rest until the back order is delivered and recorded.
Two-way, three-way and four-way match
Most teams use more than one level of matching, chosen by what’s being bought.
| Match | Documents compared | Best for |
|---|---|---|
| Two-way | Invoice and purchase order | Services, subscriptions and recurring costs with nothing to receive |
| Three-way | Invoice, purchase order and goods receipt | Physical goods, stock and equipment |
| Four-way | Adds an inspection or quality record | Goods that must pass a quality check before you pay |
A common setup is three-way match for goods and two-way match for services, with a value threshold below which invoices skip matching altogether.
Set tolerances so small differences don’t stop everything
Rounding, freight and small quantity changes mean invoices rarely match to the cent. A tolerance lets small differences through and holds the rest.
Quantity tolerance
With a 5% tolerance on an order for 100 units, an invoice for 103 units passes and an invoice for 115 is held for review.
Price tolerance
Set a percentage, a dollar amount or both, so a few cents of rounding doesn’t need a person while a real price change does.
Keep tolerances tight where it matters
Use tighter tolerances on high-value or high-risk spend, and record who approved each exception so the decision can be checked later.
Why matching gets harder across entities
Three-way match is simple when one team orders, receives and pays in one system. Groups rarely work that way.
Orders and receipts live in different places
Each entity raises its own purchase orders, often in its own accounting file, and goods are received at different sites. Accounts payable has to find the right order and receipt for every invoice.
Invoices arrive at the wrong entity
A supplier that works with several entities can bill the wrong one, so the matching purchase order sits in another file.
Goods received but not invoiced are hard to see
Goods that have arrived but haven’t been billed are still money the group owes. When each entity tracks them on its own, the group-wide figure needs a spreadsheet.
Three-way match across the group with Derive
Derive brings purchase orders, receipts and supplier invoices for every entity into one place. Purchase orders are approved before money moves and sync with Xero.
When an invoice arrives, Derive matches it against the purchase order and what was received, and the AP Agent prepares the bill for your team to review. Any difference shows up in review, and Budget Insight shows where the budget stands. Your team approves the bill, and nothing is paid without them.
Read more about procurement and accounts payable.
