Bramvia — Business Central Experts
Three-way matching checks a supplier invoice against the purchase order and the goods receipt before payment. What it is, how it differs from two-way and four-way matching, tolerances, a worked example, the errors it catches, and how AI now automates it.
Short answer: three-way match is an accounts payable control that compares three documents before paying a supplier: the purchase order (what you ordered), the goods receipt (what actually arrived — a GRN in the UK), and the supplier invoice (what you're being charged). If quantity and price agree within a tolerance, the invoice is approved; if not, it's held for review. It's the single most effective control against overpaying, paying for goods you never received, and paying the same invoice twice.
Two-way, three-way and four-way matching
| Type | Documents compared | Used for |
|---|---|---|
| Two-way | PO ↔ Invoice | Services, low-risk purchases with no physical receipt |
| Three-way | PO ↔ Receipt ↔ Invoice | Physical goods — the standard |
| Four-way | PO ↔ Receipt ↔ Inspection ↔ Invoice | Goods needing quality inspection before acceptance |
How it works, with an example
A manufacturer orders 500 units at $8.40.
| Purchase order | Goods receipt | Invoice | Result | |
|---|---|---|---|---|
| Quantity | 500 | 480 | 500 | ❌ Invoiced 20 units not received |
| Unit price | $8.40 | — | $8.90 | ❌ Price 6% above PO |
| Total | $4,200 | — | $4,450 | Hold for review |
Without the match, the company pays $4,450 for goods worth $4,032 (480 × $8.40) — $418 overpaid on one invoice. Across hundreds of invoices a month, that's a margin leak nobody sees.
Tolerances
Exact matching creates too many exceptions (rounding, freight, small price changes). Companies set tolerances:
Price tolerance: e.g. ±2% or ±$5 per line, whichever is lower
Quantity tolerance: e.g. ±1% (or zero for high-value items)
Match passes if |Invoice − PO| ≤ tolerance AND invoiced quantity ≤ received quantity
Tighter tolerances catch more; looser ones reduce manual work. Set them by value — tighter on expensive items.
What it catches
- Paying for goods not received — short deliveries invoiced in full.
- Price creep — invoice price above the agreed PO price.
- Duplicate invoices — the same invoice submitted twice.
- Wrong supplier or wrong PO — invoices posted to the wrong account.
- Fraud — fictitious invoices with no matching PO or receipt.
Why manual matching fails
Done by hand, three-way matching means an AP clerk opening three documents per invoice, comparing lines by eye, and chasing the warehouse when something doesn't agree. At 800 invoices a month that's most of a full-time job — and under pressure people approve without checking. What manual AP really costs.
How it's automated now
- Capture: the invoice arrives by email or electronic document and is read automatically.
- Match: the system compares it to the PO and receipt, line by line, within tolerance.
- Route: clean matches go straight to approval; exceptions go to a person with the specific mismatch flagged ("price on line 3 is $8.90, PO says $8.40").
- Post and pay on the due date.
In Business Central, the Payables Agent does steps 1-3: it reads incoming invoices, matches them to orders and receipts, drafts the purchase invoice, and queues it for a person to approve. How to set it up, and its limits.
The prerequisite everyone skips: three-way match only works if purchase orders exist in the system. If purchasing happens by phone, there's nothing to match against.
FAQ
Is three-way match required by law? No, but auditors expect it as an internal control, and it's standard in most mid-sized companies.
What's a GRN? Goods received note — the UK term for the receipt document.
What about services with no receipt? Use two-way matching, or record a "service receipt" when the work is confirmed.
What tolerance should I use? 1-2% on price is common; zero on quantity for high-value items.
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