What is Three-Way Matching?
A control that verifies a supplier invoice against the purchase order and the goods receipt before payment.
Definition
Three-way matching is an accounts payable control that compares three documents, the purchase order, the goods or services receipt, and the supplier invoice, to confirm that the company is paying only for what it ordered and actually received, at the agreed price. The quantities and amounts on all three must agree within tolerance before the invoice is approved for payment. This prevents overbilling, duplicate invoices, and payment for undelivered goods, and it is a cornerstone of spend control and fraud prevention. A two-way match, by contrast, compares only the invoice and the purchase order.
How Three-Way Matching Works in ERP
An ERP performs three-way matching automatically by linking the invoice to its purchase order and the recorded goods receipt, then checking quantity and price against configured tolerances. Invoices that match are approved for payment without manual intervention, while exceptions are routed to a buyer or approver for resolution. Tolerance settings let minor differences pass while flagging significant ones, balancing control with efficiency.
ERP Vendors with Strong Three-Way Matching
Oracle NetSuite
The original cloud ERP — built for fast-growing companies
SAP S/4HANA Public Cloud
Standardised cloud ERP with quarterly auto-upgrades and low TCO
Microsoft Dynamics 365
Modular ERP + CRM tightly integrated with Microsoft 365
Infor CloudSuite
Industry-specific cloud ERP suites on AWS
Frequently Asked Questions
What is the difference between two-way and three-way matching?
Two-way matching compares the supplier invoice to the purchase order, checking that the price and quantity billed match what was ordered. Three-way matching adds the goods receipt, confirming that the items were actually received before payment. Three-way matching is stronger because it prevents paying for goods that never arrived. Some organisations add inspection to make it a four-way match for quality-sensitive items.
What is a matching tolerance?
A matching tolerance is the allowable difference between the documents that the ERP will accept without flagging an exception, for example a small price variance or rounding difference. Setting reasonable tolerances avoids holding up large numbers of invoices for trivial discrepancies. Anything outside the tolerance is routed for human review. Tuning tolerances is a balance between tight control and AP processing efficiency.