Invoice Matching Guide: Two-Way vs Three-Way

Contents

1. Why matching matters
2. The three ways to match
3. Itemised and blanket purchase orders
4. Tolerances
5. Handling exceptions
6. The numbers worth tracking

1. Why matching matters

Every supplier invoice asks you to agree to three things: you ordered it, you received it, and the price is right. Invoice matching is how you check all three before the money goes.

Skip the check and the problems are predictable. You pay for goods that never arrived. You pay last year’s price, or a price nobody agreed. You pay the same invoice twice because it came in once by email and once by post. And now and then, you pay a fraudster who sent a convincing invoice for something you never ordered.

Matching isn’t complicated. Doing it consistently, at volume, with half the information in someone else’s inbox, is the hard part.

2. The three ways to match

Type	Compares	Catches	Best for
No match	Invoice and approver judgement	Very little on its own	Utilities, rent, subscriptions
Two-way	Invoice and PO	Wrong price, wrong items, no PO	Services and fixed fees
Three-way	Invoice, PO and goods receipt	All of the above, plus goods not received or short deliveries	Physical goods and materials

No match is fine for regular bills where a PO adds admin and no control, but it still needs an approver who knows what the bill should be. Two-way suits services, where there’s no delivery to confirm. Three-way is the standard for physical goods, because it’s the only one that proves the goods arrived. Some businesses add a fourth check, inspection, for goods that need testing. For most finance teams, three-way is the ceiling.

3. Itemised and blanket purchase orders

How you match depends on what kind of PO you raised.

Itemised POs

An itemised PO lists each line: product, quantity, unit price. Matching happens line by line, and it handles real life well:

Partial deliveries. 100 ordered, 60 delivered. The invoice for 60 matches; the PO stays open for the other 40.
Several invoices per PO. Each one draws down against what’s left.
Price changes. A line at the wrong price stands out on its own instead of hiding in a total.

Blanket POs

A blanket PO commits a value with a supplier over a period, without listing every item: cleaning at £1,500 a month for a year, or stationery up to £5,000 a quarter. Invoices are matched against the supplier, the category and the balance left. Blanket POs save a lot of admin, but they need watching:

Track the balance. Know what’s left before the next invoice arrives, not after it’s gone over.
Set an end date. An open-ended blanket PO is a standing approval nobody remembers giving.
Don’t let them become a workaround. If a blanket PO is being used to avoid approving individual purchases, it’s doing the wrong job.

4. Tolerances: close enough is good enough

Insist on an exact match and every penny of rounding becomes an exception. Allow too much and you’ve stopped checking. Tolerances set the line.

Price tolerance: how far the invoice price can differ from the PO price before it’s flagged.
Quantity tolerance: how far the invoiced quantity can differ from what was received. Useful for goods sold by weight or length.

Setting them

Start tight. You can loosen a tolerance once you’ve seen the exceptions. Tightening one after a problem is harder.
Use “whichever is lower”. A percentage alone lets big invoices through with big differences. For example, 2% or £50, whichever is lower.
Vary by category. Fuel and raw materials move in price. Software licences shouldn’t.
Treat delivery charges separately. Decide up front whether they need a PO line or sit inside a tolerance.
Review quarterly. If one supplier is always just inside tolerance, look closer.

5. Handling exceptions

Most invoices match. The ones that don’t take most of the time. The fix is rarely working harder in AP: it’s getting each exception to the person who can actually resolve it.

Exception	Likely cause	Who fixes it	What to do
Price mismatch	Old price list, missed discount, supplier error	Buyer	Check the contract price, then credit note or PO update
Quantity mismatch	Short delivery or invoicing ahead	Receiver	Confirm what arrived; pay for that
No goods receipt	Goods arrived, nobody booked them in	Receiver	Book in, or chase the supplier
No PO	Bought outside the process	Budget holder	Retrospective approval, logged as an exception
Duplicate invoice	Same invoice sent twice, or resent with a new number	AP	Reject and tell the supplier
Partial delivery	Rest of the order still to come	AP	Pay what matches; keep the PO open
New bank details	Genuine change, or fraud	AP and supplier manager	Verify by phone on a known number before paying

Four rules for an exception process that works

Route, don’t chase. Send the exception to the owner with the problem already described.
Set a deadline. An exception with no deadline becomes a late payment.
Record the reason. Use a short list of reason codes, so you can count them.
Fix the cause, not just the invoice. If one supplier causes a third of your price mismatches, update the price list or talk to the supplier.

Keep the 3-way match exceptions cheat sheet to hand, and check new bank details against the supplier bank detail fraud checklist.

6. The numbers worth tracking

Measure	Why it matters
First-time match rate	The share of invoices that match with no human touch. Your headline number
Exceptions by reason	Tells you where to fix the process
Time to resolve an exception	Shows whether routing works
Invoices paid late because of exceptions	The cost to supplier relationships and any late-payment charges
Duplicates caught	Proof the controls are working

Quick check: how does your matching hold up?

We know which spend needs a PO and which doesn’t
Goods receipts are recorded when goods arrive, not when the invoice turns up
Tolerances are written down and reviewed
Blanket POs have end dates and tracked balances
Exceptions go to the person who can fix them, with a deadline
We count exceptions by reason every month
We’d catch an invoice for something never ordered

For a fuller picture of control from request to payment, try the Purchase-to-Payment Control Score, or read From purchase to payment.

With Webexpenses Accounts Payable, invoices are read to line level as they arrive, matched two- or three-way to the order and receipt, and exceptions go straight to the right person.