Understanding Two Way Matching and Its Contribution to Businesses

Two-way matching is an accounts payable process that compares a purchase order with the corresponding invoice to ensure alignment. It checks details such as quantity, price, and item descriptions before approving payment. This powerful method helps prevent errors and fraud.

For businesses, two-way matching improves financial accuracy, speeds up invoice processing, and reduces the risk of overpayments. Automating through accounting software eliminates manual checks and ensures only verified invoices move forward to payment, saving time and resources.

Understanding how two-way matching works is essential to strengthening financial control and streamlining operations. Explore how two-way matching functions, their benefits, and accounting tools can simplify the process. Ituloy ang pagbabasa para malaman mo!

What is Two Way Matching?

Two-way matching, also known as invoice matching, purchase order matching, or line item matching, is a process for comparing the details between purchase orders (POs) and invoices.

The goal is to identify item, quantity, or price discrepancies before an invoice is approved and paid. This verification step ensures that the invoice aligns with the original purchase agreement.

The process is typically automated, allowing businesses to streamline invoice approvals and reduce the time spent on manual checks. If inconsistencies are found between the PO and the invoice, the invoice is put on hold until the errors are resolved or corrected.

Why Does Two-Way Matching in Accounts Payable Matter?

Two-way matching ensures financial accuracy and prevents overpayments, duplicate charges, or invoice fraud. Since accounts payable affects both cash flow and vendor trust, even minor errors can lead to significant issues.

This process ensures vendors are paid only for what was correctly ordered and priced by verifying that invoice details match the original purchase order. It strengthens accountability and supports financial control, especially in high-volume transactions.

How Does 2 Way Matching Work?

To fully understand the value of two-way matching, it’s essential to see how the two way match process unfolds in practice. Below is a step-by-step breakdown that explains how this method works within the accounts payable workflow, from receiving an invoice to completing payment.

1. Step 1: Invoice receipt
   The process begins when a vendor sends an invoice for goods or services the company orders through a purchase order (PO).
2. Step 2: Invoice entry and PO matching
   The company’s accounts payable team records the invoice and matches it against the corresponding PO to verify consistency in details such as price, quantity, and item descriptions.
3. Step 3: Tolerance evaluation
   The accounting system checks whether the invoice and PO match within predefined tolerance limits. These tolerances determine how much variance is acceptable before action is needed.
4. Step 4: Decision based on tolerance
   If the invoice meets the tolerance, the system automatically approves it and schedules it for payment. If the invoice does not meet the tolerance, the system flags it and places it on hold for manual review.
5. Step 5: Manual resolution or reprocessing
   An accounts payable manager manually resolves the discrepancy. Once corrected, the invoice is either approved or reprocessed through the matching system.
6. Step 6: Payment and completion
   After final approval, the invoice is paid, and the transaction between the company and the vendor is completed and recorded.
7. Optional next step: Advanced matching methods
   If additional security is needed, businesses can adopt more thorough methods like three-way or four-way matching, which add verification through delivery receipts or inspection reports.

Benefits of Two Way Matching

Having understood the importance of two-way matching and how it prevents costly errors in real-world scenarios, it’s clear that this process plays a vital role in strengthening financial operations. Below are the key benefits businesses can gain from implementing this practice.

1. Prevents overpayments and fraud: Flags discrepancies early, ensuring businesses don’t pay more than they should.
2. Improves accuracy in financial records: Matches key invoice and PO data, reducing the risk of errors caused by manual entry.
3. Speeds up invoice processing: Automation tools can streamline approvals, making the AP process faster and more efficient.
4. Reduces administrative burden: Minimizes the need for manual checks, allowing finance teams to focus on higher-value tasks.
5. Supports better vendor management: The system holds vendors accountable to agreed-upon terms, fostering trust and clarity.
6. Enhances audit readiness: Maintains a transparent and traceable verification trail, helping companies comply with financial regulations.

Challenges in Implementing 2 Way Matching

Implementing two-way matching can greatly enhance accuracy in accounts payable, but it’s not without challenges. Here are common obstacles businesses face, along with practical solutions in a compact format.

1. Data entry errors & inconsistencies
   Firstly, manual data entry often causes discrepancies in invoices and purchase orders, like incorrect pricing and missing information. To mitigate these risks, businesses should automate data entry with OCR tools and set system validation rules to reduce errors and streamline processing.
2. Missing or incomplete purchase orders
   Secondly, missing essential details in purchase orders, like item descriptions or pricing, makes invoice verification difficult. Enforcing a strict PO policy, integrating procurement and invoice systems, and enabling real-time digital PO creation help ensure complete and accurate documentation.
3. Discrepancies in pricing or quantities
   Thirdly, supplier errors, price fluctuations, and communication gaps can lead to mismatches between POs and invoices. Businesses can minimize this by establishing clear pricing agreements, applying variance tolerances, and using accounting software for real-time verification.
4. Lack of integration between systems
   Fourthly, disconnected procurement, accounting, and invoice systems create data silos and inefficiencies. Integrated AP solutions or APIs enhance data flow and automate processing. Automating invoice approvals cuts processing time and manual coordination.
5. Delays in approvals & processing
   Lastly, slow, manual approval workflows can delay payments and harm vendor relationships. Businesses can resolve this by using digital approval workflows, auto-escalations, and value-based thresholds, which can speed up the process.

Two-Way Matching Example

Imagine a company placing an order for office supplies worth ₱170,000 and sending a purchase order (PO) to the vendor. After delivering the items, the vendor submits an invoice for ₱226,000, either due to a clerical error or, in some cases, intentional overbilling.

Without proper verification, the finance team might approve an inflated invoice, leading to a ₱56,000 overpayment. Two-way matching acts as a safeguard by comparing the invoice to the original PO. The system flags the invoice and delays payment until someone resolves the issue when discrepancies arise.

In another example, a business purchases office furniture for ₱570,000. The vendor completes the delivery but issues an invoice for ₱684,000. For companies processing numerous transactions each month, manually checking every invoice is inefficient and error-prone.

Two-way matching helps the company instantly detect the ₱114,000 discrepancy and prevent overpayment. This process not only protects the company from financial loss but also reinforces strong internal controls and accountability in the accounts payable workflow.

Explore the example above to see how two-way matching works in action. You can also download our pricing scheme to learn how automation tools can streamline your AP process.

Automate Two-Way Matching With HashMicro Accounting Software

At last, HashMicro Accounting System is the Philippines’ leading accounting software, serving over 2000 clients. It offers an extensive two-way matching solution and customization options that integrate seamlessly with other management software to meet specific business needs.

Here are the features of the HashMicro Accounting System that enhance the two-way matching process:

1. Integrated with AI: Hashy AI for Finance streamlines your finance operations by invoicing customers, tracking payments, and managing vendor interactions through a chat box. It automates payables and ensures timely collections and disbursements, keeping your cash flow in check with minimal effort.
2. Bank integrations: HashMicro Accounting Software integrates seamlessly with your bank accounts, automatically reconciling payments and bank transactions, ensuring accurate financial records and reducing manual effort.
3. Multi-level analytical: The software allows you to analyze and compare financial statements across different levels, such as projects or branches, providing detailed insights into financial performance and enhancing decision-making.
4. In-depth accounting reports: HashMicro provides comprehensive accounting reports that cover essential financial metrics like ratios, aging reports, tax summaries, and AR collection, offering a complete view of your financial status.
5. Debt collection management: The software streamlines debt collection by tracking outstanding payments, providing real-time visibility into accounts receivable, and improving the efficiency of collection management.
6. Deposit, prepayment, and journal entry reversal tracking: HashMicro allows businesses to easily track deposits, prepayments, and reversals, ensuring accurate financial records and preventing errors in transaction entries.

Conclusion

To conclude, two-way matching is a critical process that compares purchase orders and invoices to ensure payment accuracy. Verifying details before payment helps prevent errors, overcharges, and fraud in accounts payable.

HashMicro Accounting Software automates the two-way matching process, reducing manual work and increasing financial efficiency. It also streamlines invoice approvals with real-time validation and seamless PO integration.

Handa nang pahusayin ang iyong AP workflow? Try a free demo of HashMicro Accounting Software today and see how easy it is to manage payments accurately and controllably.

Frequently Asked Questions About Two Way Matching

• What does two-way matching mean?

  In two-way matching, the accounts payable team compares the purchase order directly with the supplier’s invoice, ignoring packing slips or receipts. This method ensures the company pays the correct amount for the goods or services as agreed upon in the contract.

• What is meant by three-way matching?

  Three-way matching verifies that the purchase order, invoice, and delivery receipt align before payment. This additional layer helps the company prevent payment errors and confirms that the vendor fulfilled the order as expected.

• How does four-way matching work?

  Four-way matching adds another step, which is matching the invoice, purchase order, goods received note (GRN), and inspection report. This process ensures that not only are the quantity and price correct, but also the product quality meets the agreed standards before payment is made.