Three-way matching means checking a supplier invoice against two other records before you pay it: the purchase order (what you agreed to buy, at what price) and the goods receipt (what actually turned up). If all three agree on item, quantity and price, the invoice is approved for payment. If they don't, someone works out why before the money goes. The idea is simple. In practice the three documents rarely line up on the first try, because they are created by different people, at different times, often in different systems.
This guide explains what three-way matching is, why POs, deliveries and invoices disagree, and what an automated accounts payable process does with the mismatches. It's written for owners and finance managers, not software buyers.
What is three-way matching?
The three documents are:
- The purchase order (PO). Raised by whoever needs the goods or service, and approved before ordering. It sets the items, quantities and agreed prices.
- The goods receipt. The record that the goods arrived, often called a goods received note (GRN). It usually comes from the delivery docket or packing slip, checked by the person who unloaded the truck or signed for it on site.
- The supplier invoice. What the supplier says you owe.
Purchase order matching on its own is two-way matching: the invoice is checked against the PO, but nobody confirms the goods arrived. Three-way matching adds the receipt, so you only pay for what you ordered and received. Some businesses add a fourth check, an inspection or quality sign-off, before paying for parts that must meet a specification.
Three-way matching sits right next to GRNI (goods received not invoiced). GRNI is the value of receipts still waiting for an invoice. Three-way matching is the step that clears them. If your GRNI balance keeps growing, the matching step is usually where the problem is.
Why POs, deliveries and supplier invoices don't line up
Most mismatches are not fraud or carelessness. They come from ordinary business:
- Part deliveries. You order 200 units, 120 arrive this week and 80 next month, but the supplier invoices the full order.
- Price changes. The PO used last quarter's price list; the invoice uses this quarter's.
- Freight, fuel levies and surcharges. The invoice adds lines that were never on the PO.
- Units of measure. The PO says 10 boxes, the docket says 10 boxes, and the invoice says 240 each.
- Substitutions. The supplier sent an equivalent product under a different code.
- POs raised after the fact. Someone ordered by phone and raised the PO when the invoice arrived, so the PO simply copies the invoice.
- Receipts nobody entered. The goods were signed for on site or at the dock, but the docket sat in a ute or a tray and the receipt was never recorded.
- Invoices with the wrong PO number, or none at all.
- Credit notes and returns that arrive weeks after the goods went back.
Then there is where each record lives. In many growing businesses the PO is raised in a job, stock or purchasing system, the receipt is recorded in a warehouse app or on paper, and the invoice is keyed into the accounting software. Three systems, three sets of codes, and nothing that ties them together. That's what people mean by information stuck in separate systems. The person in accounts payable becomes the link, chasing the warehouse for a docket and the buyer for a price, and re-typing the same details into the accounts. That's double data entry: the same information typed into two systems.
What an automated accounts payable process looks like
Invoice matching automation doesn't remove the checks. It does the routine ones and leaves a person with the exceptions. A working setup usually has five parts.
1. Invoices come in one way
Supplier invoices arrive in one mailbox or supplier portal, not scattered across people's inboxes. Software reads each invoice (supplier, invoice number, PO number, lines, totals, GST) so nobody types it in. Modern invoice reading, including AI, does this well on clear invoices and needs a person to check the unclear ones.
2. Every invoice line is matched to a PO line and a receipt
The system looks up the PO and the receipts against it, and matches line by line, not just on the invoice total. A match on totals can hide a short delivery offset by a price rise.
3. Tolerances are agreed in advance
You decide what counts as a match. For example, if your policy is that a small rounding difference or a freight line under an agreed amount can go through, the system applies that rule every time. Anything outside it is an exception. The tolerances are a finance decision, written down, not something the software decides.
4. Exceptions go to the right person, with the evidence
A price difference goes to the buyer who raised the PO. A quantity difference goes to whoever received the goods. Each exception arrives with the PO, the receipt and the invoice side by side, so the decision takes a minute, not a morning of searching.
5. Matched invoices post to the accounts once
Matched and approved invoices go to the accounting software as bills, coded to the right job, cost centre or stock item, and the receipt's GRNI amount is cleared at the same time. No re-keying.
When it's working, it looks like this: on Monday morning the accounts payable list shows only the invoices that need a decision, each with the reason it didn't match. Everything else is already approved, coded and waiting for the payment run, and the GRNI report agrees with the accounts.
Where finance automation and AI help, and where they don't
Finance automation is good at the repetitive parts: reading invoices, looking up POs and receipts, applying the tolerance rules, routing exceptions and posting bills. AI is useful for the first pass on messy invoices, such as suggesting which PO a vague invoice belongs to, or spotting that "freight & handling" on one invoice is the same as "delivery charge" on another. A person should still approve anything the system isn't sure of. That's the approach in our Back-office AI Pilot: one task, done by software first and checked by a person.
Automation can't fix missing records. If receipts are never entered, or POs are raised after the invoice arrives, no software can do a real three-way match. So the first step is usually the process, not the tool: agree when a PO must be raised, who records a receipt and when, and what happens to a docket that arrives without a PO. Our post on purchase order approvals across systems covers the approval side, and the procure to pay process shows how the whole chain fits together.
How to start
- Pull one month of supplier invoices and sort them: matched first time, mismatched (and why), and no PO at all. The reasons tell you whether the fix is process, data or systems.
- Fix the receipt step first. Three-way matching depends on receipts being recorded on the day, against the PO.
- Agree tolerances and owners for each type of exception.
- Then connect the systems so the PO, receipt and invoice share one reference and the bill posts once. Our invoice processing automation service does this with the purchasing and accounting software you already use.
Frequently asked questions
What is the difference between two-way and three-way matching?
Two-way matching checks the invoice against the purchase order only. Three-way matching also checks it against the goods receipt, so you confirm the goods actually arrived before you pay.
Can three-way matching be done in accounting software alone?
Sometimes. Some accounting and inventory systems can match bills to POs and receipts if all three are raised in the same system. It gets harder when the PO is raised in a job or stock system and the receipt is recorded somewhere else. Then the systems need to be connected, or the matching happens by hand.
What should the tolerance be for invoice matching?
That's a decision for your finance team and accountant, based on your suppliers and how much checking you can afford to do. The important part is that it's written down and applied the same way every time.
Does three-way matching apply to services as well as goods?
Yes, with a different "receipt". For services, the receipt is usually a sign-off that the work was done, such as an approved timesheet, a completed job card or a supervisor's confirmation.
How does three-way matching relate to GRNI?
Every receipt that hasn't been matched to an invoice yet sits in GRNI. When the invoice is matched, the GRNI amount is cleared. If matching is slow or patchy, the GRNI balance grows and stops making sense. See our GRNI explainer.
Next step
If your accounts payable team spends its days chasing dockets and prices between systems, book a free initial chat and we'll talk through where your matching breaks down. If you want the whole process mapped first, our $5,000 Process & Systems Audit maps purchasing, receiving and accounts payable across your systems and gives you a written report on what to fix first.