2-Way & 3-Way Matching in Accounts Payable Explained

By Annapoorna

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Updated on: Jul 2nd, 2025

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18 min read

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2-way and 3-way matching in accounts payable are critical control mechanisms that protect businesses from financial losses, fraud, and operational inefficiencies. While 2-way matching works for low-risk transactions, 3-way matching helps in comprehensive verification. These verification processes ensure payment accuracy by systematically comparing purchase orders, supplier invoices, and delivery receipts before authorising payments. Choosing the right matching approach helps avoid fraudulent notices and directly impacts your organisation's financial health and operational efficiency. This guide explores both methodologies, helping you determine when to implement each approach for optimal results.

What is 2-way and 3-way matching in Accounts Payable?

2-way matching in accounts payable

In a 2-way matching system, the accounts payable team verifies the information on the purchase order with the invoice to check if the tolerance levels are met. 

3-way matching in accounts payable

In a 3-way matching system, the accounts payable team verifies that the information on the purchase order, invoice, and goods receipt note (GRN in case of goods, SRN in case of services) are the same. If they match, the supplier’s invoice will be approved for payment. It also helps decide if an invoice has to be paid partly or in full.

Documents involved in 2-way and 3-way matching

The documents involved in 2-way and 3-way matching are:

  1. Purchase order
  2. Invoice
  3. Goods Receipt Note (GRN)
  4. Service receipt note or service entry sheet

Benefits of 2-way and 3-way matching

  1. It avoids overpayment: The matching process eliminates the risk of overpaying a vendor and protects businesses from unnecessary expenses. It also ensures the maintenance of accurate data. This ultimately saves a lot of time and money.
  2. It's a foolproof and secure payment process: A 2-way and 3-way matching is performed before making payment to a supplier to reduce the risk of payments against unauthorised purchases.
  3. It helps in audits: The matching process makes auditing and bookkeeping easier. Complete documentation helps to keep the purchasing process transparent.
  4. It builds strong supplier relations: The matching process helps to strengthen supplier relations by making payments on time.

Process of 2-way and 3-way matching

2-way matching process

The process of 2-way matching is as follows:

1. The buyer places an order with the supplier by sending a purchase order. 

2. The supplier sends an invoice to the buyer against the sale of goods or services ordered through a purchase order.

3. The invoice is matched with the purchase order by the accounts payable module. During this process, the invoice quantity, invoice value, item code, HSN code, tax amount, etc., are matched with the purchase order details to ensure accuracy. The following two conditions are checked to ensure that the tolerance limits are met:

4. In case of any mismatch between the purchase order and invoice, the payment against the invoice is kept on hold until the discrepancies are resolved.

Example of 2-way matching in accounts payable

A car manufacturer wanted to a order 200 lithium-ion batteries and have them delivered to his plant. The manufacturer shared a purchase order for 200 batteries at a cost of Rs.7,250. The shipment arrived in three weeks time and the vendor shared an invoice for Rs.15,04,000. The accounts payable team conducted 2-way matching before inputting the invoice into the system to notice a difference of Rs.54,000. The invoice was to be raised for Rs.14,50,000 instead of Rs.15,04,000. On analysis of the results, the AP team noticed that due to a transposition error, the price of the batteries was entered as Rs.7,520 instead of Rs.7,250 in the invoice. The AP team reached out to the vendor, who after realising their mistake, re-shared the correct invoice with the manufacturer.

The invoice was entered into the system once the tolerance levels were met.

3-way matching process

The process of 3-way matching is as follows:

1. The goods ordered through a purchase order are received by the appropriate authority such as stores personnel, inventory manager, or warehouse gate-keeper, who issues a GRN or Goods Received Note.

2. The delivery of goods (item quantity, item rate and amount) is entered into the system basis the GRN.

3. A 3-way match is performed to ensure that the details mentioned in the invoice, purchase order and sales receipt are the same. An additional condition is added to the 2-way matching criteria to ensure that the tolerance limits are met:

4. In case of discrepancies, the payment against the invoice is kept on hold. If the details are accurate in a 3-way match, the invoice is approved, and the payment is released.

Example of 3-way matching in accounts payable

A stationary shop requested to order 400 books from a publication house. They sent a purchase order for the 400 books, priced at Rs.100 per book. The books were delivered to the shop and the stores manager counted the books at the time of delivery to notice that only 380 books had been received. He accounted for the same in the Goods Received Note (GRN).

Within a week, an invoice was dispatched by the seller requesting payment for Rs.40,000 for the 400 books sold. The AP team conducted 3-way matching before entering the invoice into the ERP to observe that the purchase order and invoice matched, however, the GRN stated that only 380 books had been received. On intimating the vendor about the same, a revised invoice was shared. Once the tolerance levels were met, the payment was released to the vendor.

Some enterprises, especially larger ones, also follow the 4-way matching process for invoices.

How to select between 2-way vs 3-way matching?

Selecting the appropriate matching method depends on several critical factors, including transaction value, risk tolerance, supplier relationships, and operational complexity. Here's a strategic framework to guide your decision:

Opting for 2-way matching:

Low-risk scenarios
  • Working with trusted, long-term suppliers with proven track records
  • Processing recurring transactions like software subscriptions, utilities, or monthly services
  • Handling digital services where physical delivery verification isn't applicable
  • Managing internal transactions between subsidiaries or departments
  • Processing low-value purchases below your organisation's risk threshold
Operational efficiency priorities
  • High-volume, routine transactions requiring fast processing
  • Situations where delivery confirmation adds minimal value
  • When staff resources are limited and processing speed is critical
Example use cases
  • Monthly SaaS subscriptions (MS Office, Creative Suite)
  • Utility bills and telecommunications services
  • Professional services with fixed monthly retainers
  • Internal company transfers and allocations

Opting for 3-way matching:

Higher risk scenarios
  • Dealing with new or unverified suppliers
  • Processing high-value transactions that could significantly impact cash flow
  • Handling physical goods where delivery confirmation is essential
  • Operating in regulated industries requiring comprehensive audit trails
Quality control requirements
  • Industries where goods must meet specific standards (automotive, aerospace, pharmaceuticals)
  • Inventory-based purchases requiring quantity and condition verification
  • Capital equipment purchases require inspection before payment
  • International transactions with complex shipping and customs processes
Fraud prevention priorities
  • Organisations experiencing high fraud risk or previous incidents
  • Companies with limited supplier relationship history
  • Businesses handling sensitive or high-value materials
Example use cases
  • Raw material purchases for manufacturing
  • Construction materials and equipment
  • IT hardware and electronics
  • Medical supplies and pharmaceuticals

Decision matrix for 2-way and 3-way matching

This decision matrix gives a snapshot on 2-way and 3-way matching and helps you decide on approach:

Factor2-way matching 3-way matching 
Processing speedFaster (30-50% quicker)Slower but more thorough
Fraud protectionModerateHigh (70% fewer discrepancies)
Resource requirementsLowerHigher
Audit complianceBasicComprehensive
Supplier trust levelHigh trust requiredWorks with any supplier
Transaction valueLow to medium Medium to high 

Difference between 2-way and 3-way matching in accounts payable

Here’s the difference between 2-way and 3-way matching in accounts payable: 

Matching Type

Definition

Documents

Conditions

Challenges

2-way matching

Process of matching the information on the invoice with the purchase order

  • Invoice
  • Purchase order

 

  • Is the billed quantity ≤ ordered quantity
  • Is the invoiced price ≤ purchase order price

May not detect discrepancies in quality and quantity 

3-way matching

The process of matching the information on the invoice with the purchase order and goods received note

  • Invoice
  • Purchase order
  • Goods received note

 

  • Is the billed quantity ≤ ordered quantity
  • Is the invoiced price ≤ purchase order price
  • Is the billed quantity ≤ received quantity 

May not verify the quality of the products

 

 

 

Is 3-way matching better than 2-way matching?

While three-way and two-way matching both have their set pros and cons, choice depends on what is being evaluated and results expected out of such evaluation. So, one can state that 2-way is better over 3-way or vice versa, depending on the size of organisation, situation/risks, the costs and benefits. 

If one wants to detect any suspicious fraud, then going for 3-way matching helps, especially in large sized organisations. However, it needs deployment of additional resources but ensures greater security. Whereas, 2-way matching would be sufficient in smaller organisations with transactions posing a low risk/complexity.

Hybrid approach strategy

Many organisations implement a risk-based matching strategy:

  • 2-way matching for transactions under a specified limit (assume 50,000) with trusted suppliers
  • 3-way matching for transactions over a specified limit or with new suppliers
  • Automated tolerance levels to handle minor discrepancies without manual intervention

This approach optimises efficiency and control, allowing organisations to process routine transactions quickly while maintaining rigorous oversight on higher-risk purchases.

 

How can automation help achieve maximum matching efficiency?

Automating the entire matching process in the accounts payable process helps save a lot of time, money and effort, as follows-

  • It helps in processing invoices faster and more accurately, freeing up your staff for more value-added activities, thus boosting their productivity.
  • It can improve data visibility, making reporting, analysis, and forecasting easier. 
  • It can help eliminate human errors discrepancies and improve data quality and accuracy. 
  • It helps improve supplier relationships by facilitating quick communication, ensuring timely and accurate payments, and faster dispute resolution.
  • It helps prevent overpayments, penalties, and fraud. 
  • It gives businesses the opportunity to take advantage of early payment discounts due to faster invoice matching and approvals.  

The Clear AP solution enables the automation of accounts payable processes by providing an efficient invoice validation and management system to ensure compliance, increased savings and stronger engagement with all your suppliers. 

Manually matching the invoices is a tedious process since the AP team must verify documents across disparate systems. Clear AP helps businesses set up invoice matching rules tolerance limits and configure exception approval workflows. It increases operational efficiency by speeding up everyone’s work and helping them save precious man-hours for invoice data entry. The Clear AP solution can help:

  1. Pull the purchase orders from the system once they are created
  2. Convert and digitise any unstructured invoice data
  3. Automatically match the purchase orders with the incoming invoices
  4. Recommend actions (approve, reject, hold) that needs to be taken on invoices

Also Read
4-Way Matching in Accounts Payable

Frequently Asked Questions

What is 2-way matching in accounts payable?

Two-way matching refers to a process where the invoice details are verified against the corresponding purchase order for price and quantity. It helps avoid discrepancies and verifies if payments are made only for goods or services actually ordered.

What is an example of a 2-way match?

A company receives an invoice from a supplier and checks that the quantities and prices on the invoice match those listed on the corresponding purchase order. 

What are the benefits of 2-way matching?

Benefits of 2-way matching include avoiding overpayment and to maintain a strong supplier relation.

What is 3-way matching in accounts payable?

Three-way matching refers to a process of comparing the purchase order, the invoice, and the receiving report or goods receipt notes. It ensures consistency across all documents before processing a payment. This matching helps in preventing frauds or errors as it confirms that what was ordered, was both delivered and billed correctly.

What is an example of a 3-way match?

When a company receives an invoice and checks it against the corresponding purchase order and the GRN/receiving report to cross check that the quantities, prices, and condition of goods received are same as agreed before making payment. 

What are the benefits of 3-way matching?

Three-way matching in accounts payable enables enhanced accuracy in financial transactions. It ensures that only accurate and authorised payments are cleared, reducing the risk of fraud and overpayments.

What is the difference between 2-way and 3-way matching?

The primary difference between the two are in 2-way matching, there are two documents matched whereas in the 3-way matching, there are three documents matched with each other.

How do you resolve discrepancy invoices?

If discrepancies are found in invoices after carrying out the two-way or three-way matching, first identify the source of the discrepancy. Thereafter, communicate this with the vendor to correct any errors or mismatches before payment processing. It ensures accuracy and maintains good vendor relationships.

How do you handle discrepancies between purchase orders invoices and receipts?

Discrepancies between purchase orders, invoices, and goods receipt notes, are found after reviewing and comparing the documents. Pinpoint the mismatch, then communicate with the vendor and internal teams to rectify any errors or update records before finalising the payment. It ensures all transactions are accurate and accounted for.

When should you use 2-way vs 3-way matching?
  • Use 2-way matching for:
    - Low-risk, recurring transactions with trusted suppliers
    - Digital services and subscriptions
    - Transactions under your organization's risk threshold
    - High-volume, routine purchases requiring fast processing
  • Use 3-way matching for:
    - New or unverified suppliers
    - High-value transactions
    - Physical goods requiring delivery confirmation
    - Regulated industries with strict compliance requirements
    - Organisations prioritising fraud prevention

The choice depends on the risk tolerance, transaction value, supplier relationships, and operational efficiency.

What are the tolerance levels in invoice matching?

Tolerance levels are acceptable variance limits (typically 5-10% for price differences) that allow automatic approval of invoices with minor discrepancies. This prevents unnecessary delays while maintaining control over significant variations.

About the Author
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Annapoorna

Assistant Manager - Content
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I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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