Three-Way Matching

The AP control process of matching a purchase order, receiving report, and vendor invoice before approving payment.

What Is Three-Way Matching?

Three-way matching is an accounts payable control process that requires three documents to agree before a vendor invoice is approved for payment:

1. Purchase Order (PO) — what the buyer authorized to purchase

2. Receiving report (or packing slip) — what was actually received

3. Vendor invoice — what the supplier is charging

All three must agree on item descriptions, quantities, and prices. Discrepancies trigger a hold for human review rather than allowing payment to proceed automatically.

Why It Matters

Three-way matching prevents two categories of problems:

Fraud: Without matching, a vendor could invoice for goods never ordered or never delivered. Matching ensures payment only flows when a purchase was authorized and fulfilled.

Errors: Invoices sometimes contain billing mistakes — wrong quantities, stale prices from old contracts, or duplicate invoices for the same delivery. Matching catches these before payment rather than after.

For businesses with significant AP volume, these controls can prevent meaningful losses. Studies on AP fraud consistently identify invoice manipulation as one of the most common schemes against small businesses.

How It Works in QBO and Xero

QuickBooks Online supports a version of PO matching: you can link an open PO to a vendor bill, and QBO will flag if the billed amounts differ from the PO amounts. Full 3-way matching (including receiving reports) is more native to mid-market ERPs like NetSuite or Sage Intacct.

Xero handles POs as purchase orders that can be converted to bills, but formal 3-way matching typically requires an add-on like ApprovalMax, which adds a receiving step and configurable matching rules.

Role of Invoice Data Extraction

Automated invoice data extraction enables faster 3-way matching by eliminating the manual keying step. When invoice data — including PO number, line item quantities, and prices — is extracted automatically with high accuracy, the matching logic can run programmatically rather than requiring a human to manually compare documents.

Limitations for Small Businesses

Many small businesses and their bookkeepers operate without formal POs, making true 3-way matching impractical. In these cases, a simpler 2-way match (invoice vs. what was contracted) or manager approval workflow is more appropriate. Three-way matching is most valuable when purchase volumes are high enough to justify the administrative overhead.