As a business owner, you know how important it is to keep on top of your finances. One easy and effective way you can do this is by implementing a three-way matching system to control the amount of money your company spends and to avoid taking serious financial risks. So what exactly is three-way matching and how can it help you improve your accounts payable system?
Three-way Matching Explained
Three-way matching is a system for processing invoices that ensures that all payments are timely, accurate and complete. The aim of the process is to alert you of any errors or mismatches in three important documents:
This is your official order confirmation. The purchaser sends this document to the vendor, who authorizes the purchase. The information contained on the order will include the company’s name and mailing address, the goods or services purchased, the date, and details of the invoice address and purchase order number.
This document is a request for payment for a purchase. It includes the same info as the purchase order with the addition of an invoice number, the vendor’s details and the total amount due to be paid as well as the payment schedule.
This document is proof that the order has been delivered and paid for. It will include the same information as the invoice with the addition of the payment method.
Cross-matching these documents will save your company from overspending or paying for an order that has not yet been received. You accounts payable department reviews the documents and checks them against each other to make sure that they are all correct and the order has been delivered and paid for. If any issues are found, such as an error in quantities, incorrect pricing, damaged goods, or anything else, payment will be withheld until the issues are rectified.
Automating your Accounts Payable
Automating your accounts payable has seven main benefits:
1. It is environmentally friendly
By eliminating paper, it helps the environment and cuts down on waste and unnecessary expense. Everything is totally customizable so you can run your business exactly the way you wish to.
2. It will streamline your processes
All documents are scanned so that going paperless is simple and efficient. This means all your information is safe, no more lost documents. Everything is quickly and cleanly indexed, filed and validated. You can set your own rules about which documents need to be destroyed or retained. Each member of your staff receives total training for every stage of the process.
3. It frees up your staff
Now they don’t have to do these task manually, your accounts payable staff have time to focus on value-added tasks like analytics and reporting, extending communication with clients and arranging early-pay discounts. It also prevents workflow bottlenecks.
4. It means fewer errors
Humans are not perfect. With the best of intentions, mistakes are sometimes made. Unfortunately, this is a common problem within accounts payable departments. Automated systems have built-in error-checking functions.
5. It increases your visibility
Automated accounts payable processing lets you know immediately how close a process is to completion, who is handling it and how it has been dealt with. You can also find out how long the process is taking and when it should be finished.
6. It integrates seamlessly
You’ll have no problem integrating automated accounts payable to your other services. You probably use a number of connected platforms for your daily business operations. For example, email software, cloud storage, a CRM solution and whichever accounting system you use. Automate accounts payable solutions utilize intelligent integrations to merge seamlessly with your current system.
7. It produces accurate financial reports
If you are still processing your invoices and orders manually, it will take you quite some time if you’re asked to produce a financial report of a specific transaction. Yet with an automated accounts payable system, you could do it with just a few clicks of your mouse. Whichever type of report you require. You’ll have instant access to the data you need, including lead time, transaction dates, purchase orders, total amounts paid, any discounts, and fulfillment times.
If you haven’t already, it really is worth your time to consider automating your accounts payable. Not only with it save you money, it will streamline your process and prevent future errors.
By Keira Hodgson
Keira Hodgson, a financial consultant for small businesses, loves to help startups grow strong. She also enjoys sharing her experiences and insights on a number of business websites.