What is 3-way matching and how do you do it correctly?

Three-way matching compares three independent records of the same purchase: the purchase order (PO), which records what was ordered and the agreed price; the goods receipt note (GRN), which records what was actually received; and the supplier's VAT invoice, which states what the supplier wants paid. AP aligns corresponding lines, identifies agreements and records any differences that need an explanation.

A PO shows the intention to buy; it does not prove delivery. A GRN confirms receipt but does not replace an agreed price. An invoice is a request for payment, not proof that all invoiced goods arrived. Comparing only the invoice with the PO can therefore miss goods not received. Conversely, goods in the warehouse without an invoice still need to be tracked so the liability does not disappear from view.

The number of ways describes the sources of evidence being compared, not how many times someone checks the file. Choose the approach for the purchase and the available receipt evidence rather than imposing one rule on every expense.

Before comparing money, confirm that the three lines refer to the same purchase. PO reference, item code, unit of measure, delivery batch and buying entity are useful matching keys. Then review these fields in an order that makes the source of a discrepancy easy to find:

• Quantity: Compare the invoiced quantity with the GRNs and the uninvoiced part of the PO. Separate ordered, received and returned quantities; a short delivery does not make the entire PO incorrect.
• Unit price: Compare each invoice line to the approved PO price and agreed terms. If units differ, document the conversion before calling it a price variance; do not silently amend the PO to match the invoice.
• Amount: Recalculate quantity times unit price, then check agreed discounts and additional charges. A correct invoice total can conceal offsetting mistakes on two different lines.
• Supplier tax code (MST): Check the invoice MST against the supplier record and PO. Matching trade names alone do not establish that two records belong to the same legal entity; clarify any difference before posting.
• Line items: Compare item codes, descriptions, specifications and units. An abbreviated description may be acceptable, but ask purchasing or the warehouse if you cannot identify the corresponding item.
• VAT rate: Read the rate and VAT amount for each invoice line rather than inferring them from the total. If the rate differs from the expected PO information, refer it to the tax owner instead of editing it yourself.

A tolerance threshold is the range of variation that a company routes through an agreed process. It is not permission to pay every difference without review. A threshold may be a percentage of the line value or an absolute amount; combining both can prevent a small proportional difference from becoming a large cash amount. Define quantity and price tolerances separately, since they can have different causes and approval owners.

Policies can vary by supplier, purchase category or transaction type. Goods weighed on arrival, for example, may need different handling from goods counted individually; freight charges need to follow contract terms. The chief accountant should document the calculation base, rounding convention, when payment is held, who approves an exception and where evidence is stored. Do not change a threshold after seeing an invoice merely to make an existing variance look acceptable.

Hypothetical example (round numbers, for illustration only): a PO orders 100 units at VND 100,000 each. The GRN shows 98 units received, and the invoice bills 98 units at VND 101,000 each. The invoiced goods amount is VND 9,898,000, while 98 units at the PO price cost VND 9,800,000. The price difference on the received units is VND 98,000. If internal policy sets a VND 100,000 price threshold for this line, the difference falls within that threshold; the two undelivered units remain open on the PO and do not become part of this invoice's payable. If policy requires approval even within tolerance, AP must still seek it and retain the reason.

When the figures disagree, do not change source records simply to make three documents match. Mark the item pending, establish the cause and ask the appropriate owner for confirmation before posting or payment. The following situations distinguish likely causes, checks and suggested approval roles; the final authority always follows the company's own delegation policy.

Excel can support this process when the data is not connected automatically, provided entry rules and versions are controlled. Keep separate PO, GRN, invoice and exception sheets, and use a stable reference key rather than searching only by supplier name. These steps assume AP has obtained the document versions approved for internal use.

1. Collect approved POs, GRNs and VAT invoices for the review period. Save a link or archive reference to each original; do not paste numbers into a sheet and discard the source.
2. Standardise columns for PO ID, line ID, MST, item code, unit, quantity, unit price, VAT rate and document date. Retain original values in separate columns when converting units.
3. Attach every invoice line to the correct PO line. Where the reference is unclear, shortlist possible matches and ask purchasing to confirm rather than choosing the closest amount.
4. Aggregate the GRNs tied to a PO line, subtract returns and identify received quantities not already matched to another invoice. Flag deliveries in stages separately.
5. Add checks for quantity, unit price, amount, MST, line detail and VAT rate. A formula should identify a difference; acceptance depends on the approved tolerance policy.
6. Create an exception register with issue type, difference, suspected cause, owner and status. Hold invoices lacking a GRN or suspected of duplication.
7. Send each exception to warehouse, purchasing or the tax owner as appropriate. Capture their response, further evidence, approver and approval date in the register.
8. Lock the approved matching file and store its version with the three records and decision log. Reconcile the approved-for-payment list to AP balances before passing it to payment processing.

An electronic invoice contains XML data from which systems can read fields such as MST, invoice number, date, line items, unit prices and VAT rates without retyping a PDF. This makes duplicate checks, PO candidate matching and arithmetic checks easier. Machine-readable data does not, however, prove that goods were delivered; receipt evidence and exception decisions still come from the company's own process.

When the XML and PO differ, check units and descriptions, preserve the original and refer unresolved cases to the owner. For input invoice validation requirements, read the GDT e-invoice validation guide.

When the document flow becomes hard to track in spreadsheets, an automated process can collect invoices, compare their lines with POs and GRNs, and route differences to responsible people. BancoOS describes this matching and exception flow as part of finance automation; accountants still define tolerances and decide which cases require approval.

Before closing a period, review both matched invoices and the pending queue. The aim is not to make every exception disappear at any cost, but to know which payables have enough evidence and which require follow-up under internal accounting policy.

• Every posted invoice has the correct approved PO or purchasing basis.
• Related GRNs are complete, dated and confirmed by the receiving owner.
• Staged deliveries distinguish received goods from the remaining open PO quantity.
• MST, invoice series and number have been checked for duplicates across intake channels.
• Quantity, unit price, amount and item detail were compared by line.
• The tax owner reviewed mismatched VAT rates and VAT amounts.
• Every variance has an applicable threshold, evidence and the appropriate approver.
• Invoices without GRNs or received before goods retain a clear pending status.
• Adjusted or replacement invoices link back to originals and related balances.
• The approved-for-payment list reconciles to AP records after matching.

Archive the summary and exception log together so the next period's handover explains every outstanding item. If you are considering how to remove repetitive copying, use the linked resources to assess possible changes. finance workflow automation, accounts payable glossary, compare manual and automated workflows.

Want to see how BancoOS supports matching invoices to POs and GRNs in your team's process? Book a conversation to review a document flow and the exceptions that still need an accountable decision. Book a demo.