Three-Way Match

Three-way matching is an AP control process that validates a supplier invoice against two other documents: the purchase order that authorised the expenditure, and the goods receipt note (GRN) that confirms delivery was received. An invoice passes three-way matching when the supplier, quantity, unit price, and total amount on the invoice are consistent with the PO and the GRN within defined tolerances. An invoice that fails three-way matching on any element is held for investigation before payment.

Two-way matching validates the invoice only against the purchase order, without confirming physical receipt. Three-way matching adds the goods receipt confirmation as a third check. The additional step matters because a two-way match can be satisfied by a fraudulent invoice that matches a real PO for goods that were never delivered -- the invoice references the correct PO number and amount, and both match, but no delivery occurred. The GRN confirmation breaks this fraud pattern.

The elements checked in three-way matching

The PO match confirms that the supplier invoicing is the same supplier on the approved PO, the items invoiced are the items ordered, the quantity invoiced does not exceed the quantity ordered (subject to tolerance), and the unit price matches the agreed PO price. A PO match failure on supplier identity or unit price requires immediate investigation; a quantity match failure may be a partial delivery and can often be resolved by the AP team against delivery documentation.

The GRN match confirms that the goods or services invoiced have been physically received and accepted. The GRN is typically created by a warehouse manager, site supervisor, or operational staff member who confirms receipt -- someone separate from the AP team and from the person who raised the original PO. This three-party involvement (purchasing creates PO, operations confirms GRN, finance processes invoice) is the segregation of duties control that makes three-way matching effective at preventing fraud.

Tolerances are configured thresholds within which minor variances between documents are acceptable without manual review -- commonly 0.5 to 2 percent on amounts, or a small fixed dollar value for rounding. Tolerances prevent the matching process from generating exceptions for trivial discrepancies (currency rounding, unit of measure conversions) while still flagging meaningful variances that require human judgment.

Three-way match for services

Three-way matching is straightforward for goods purchases where a physical delivery occurs. For services, the equivalent of the GRN is a service acceptance or completion certificate: a document signed by the business confirming that the service described has been performed to satisfaction. Construction businesses use site sign-offs on progress milestones; professional services businesses use project completion confirmations; recurring service businesses use service delivery logs. The principle is the same as goods receipt -- a confirmation from someone with operational authority that the service was actually delivered before the invoice is approved for payment.