3-Way Matching in Accounts Payable: How It Works, With Example

3-way matching in accounts payable is a control that compares three documents before a supplier invoice is paid: the purchase order (what you agreed to buy, at what price), the goods received note (what actually arrived), and the supplier's invoice (what you are being charged). If quantities and prices agree within your set tolerances, the invoice is approved for payment; if they do not, it is held as an exception until someone resolves the difference.

The three documents and what each proves

• Purchase order (PO) — raised by your business before the purchase. It proves the spend was authorised and fixes the agreed items, quantities, unit prices and terms.
• Goods received note (GRN) — created by whoever receives the delivery. It proves what physically arrived, in what quantity and condition. It is your own record, not the supplier's packing slip.
• Supplier invoice — sent by the supplier. It is the claim for payment.

Each document comes from a different person: a buyer, a receiver and the supplier. That separation is the point. No single person can order, confirm receipt of and approve payment for something that never existed.

What gets compared

• Supplier — the invoice is from the vendor named on the PO.
• Items — each invoice line maps to a PO line.
• Quantity — invoiced quantity does not exceed quantity received on the GRN.
• Unit price — invoiced price agrees with the PO price.
• Line and total amounts — extensions and totals add up.
• Tax and extra charges — tax is calculated correctly and charges such as delivery were agreed on the PO.

Quantity is checked against the GRN; price is checked against the PO. That is why it needs three documents: a two-way match (PO against invoice) can confirm the price but cannot tell you whether the goods arrived.

Tolerances: how much difference is acceptable

Requiring exact matches on every line creates a queue of trivial exceptions — a few pence of rounding, a small price change the buyer already agreed. Tolerances let small differences pass automatically and send larger ones for review. Common types:

• Unit price tolerance — a percentage, such as 2%, above the PO price.
• Line or total amount tolerance — a percentage, a fixed amount, or both (for example, the lower of 2% or £20).
• Quantity tolerance — often zero for over-invoicing (you should never pay for more than you received), sometimes with a small allowance for goods sold by weight or volume.

Set tolerances by category, not one rule for everything. A 2% price tolerance is reasonable for paper stock that moves with commodity prices; it may be too loose for high-value equipment. Apply tolerances upwards only — if the supplier charges less than the PO, that is good news, though still worth a check that nothing is missing.

Worked example: a print shop's paper and ink order

A hypothetical commercial print shop in Manchester orders supplies from its regular wholesaler. Its policy: unit price variance up to 2% passes automatically, quantity invoiced must not exceed quantity received, and any charge not on the PO goes to the buyer for approval. VAT is left out for clarity.

Step 1: The purchase order

• Line 1: 200 reams of 120gsm paper at £4.60 = £920.00
• Line 2: 12 ink cartridges at £38.00 = £456.00
• PO total: £1,376.00

Step 2: The goods received note

The warehouse lead counts the delivery and records 200 reams and 10 cartridges. Two cartridges are back-ordered.

e-invoice< / a > ">Step 3: The invoice

• Line 1: 200 reams at £4.68 = £936.00
• Line 2: 12 cartridges at £38.00 = £456.00
• Delivery charge: £15.00
• Invoice total: £1,407.00

Step 4: Matching line by line

1. Paper — quantity: invoiced 200, received 200. Pass.
2. Paper — price: £4.68 against £4.60 is £0.08 more, or 0.08 ÷ 4.60 = 1.74%. Within the 2% tolerance. Pass, with £16.00 recorded as a price variance.
3. Cartridges — price: £38.00 against £38.00. Pass.
4. Cartridges — quantity: invoiced 12, received 10. Fail. Only 10 × £38.00 = £380.00 can be approved; the remaining 2 × £38.00 = £76.00 waits for the back-ordered delivery and its own GRN.
5. Delivery charge: not on the PO. Sent to the buyer, who checks whether the wholesaler's terms allow it.

Step 5: The outcome

£936.00 + £380.00 = £1,316.00 is approved for payment on the due date. £76.00 + £15.00 = £91.00 is on hold. Together they account for the full £1,407.00 invoice. When the last two cartridges arrive and are received, £76.00 is released; if the buyer accepts the delivery charge, so is the £15.00. Without the match, the shop would have paid £91.00 it did not yet owe — and on a busy month, nobody would have noticed.

Resolving exceptions without slowing payments

An exception is a question, not a verdict. Most have one of a handful of answers, and a clear owner for each keeps invoices from sitting in a queue past their due date:

• Goods arrived but no GRN — the receiver records the receipt; the invoice re-matches.
• Short delivery — pay what was received and hold the rest, or ask the supplier for a credit note if the balance will not be delivered.
• Price higher than the PO — the buyer confirms whether a new price was agreed. If yes, amend the PO; if not, request a corrected invoice or credit note.
• Charges not on the PO — the buyer approves or disputes them against the supplier's terms.

Track how long exceptions stay open and which suppliers cause the most. A supplier that triggers repeated price exceptions needs a conversation, not more approvals.

2-way, 3-way and 4-way matching

• 2-way match — PO against invoice. Suits services and low-risk items where there is no physical receipt.
• 3-way match — PO, GRN and invoice. The standard for physical goods.
• 4-way match — adds an inspection or quality check. Used where goods must pass testing before acceptance, such as components or regulated materials.

Many businesses use more than one: 3-way for stock and equipment, 2-way for subscriptions and professional services, with a manager's confirmation that the service was delivered.

Common mistakes with 3-way matching

• AP staff creating the GRN. If the person paying invoices also records receipts, you have lost the separation the control depends on. The receiver records receipts.
• GRNs entered late. Invoices sit as exceptions not because anything is wrong but because the receipt was never recorded. Make receiving same-day.
• Tolerances set too wide. A 10% blanket tolerance can quietly approve significant overcharges across many invoices.
• Purchase orders raised after the invoice. A PO created to match an invoice that already arrived proves nothing. Treat after-the-fact POs as exceptions and report them.
• Agreed price changes not updated on the PO. If the buyer negotiated a new price, amend the PO so the match reflects reality instead of creating a permanent exception.
• Ignoring duplicates. A match does not catch the same invoice entered twice against an open PO. Check supplier and invoice number for duplicates as well.

hellobooks< / a > -runs-3-way-matching">How HelloBooks runs 3-way matching

HelloBooks supports the whole chain: you raise purchase orders, record goods receipt notes when deliveries arrive, and enter supplier bills — or drop the invoice PDF and let document extraction read the vendor, amounts, tax and line items. The 3-way match compares the PO, GRN and bill, and variances go through a variance approval step so a person decides on each exception. Approved bills follow your approval workflow and can be scheduled to pay on the due date, while the audit trail records who approved what and user roles keep ordering, receiving and paying with different people.