Short answer: three-way matching is a check before you pay a supplier. You compare three documents: the purchase order (what you ordered), the goods received note or delivery note (what arrived), and the supplier invoice (what you're being charged). You pay only when all three agree.
How three-way matching works
- Purchase order. The buyer orders 100 boxes at €4.20 each, PO 2291.
- Goods received. The warehouse records what actually arrived: 96 boxes.
- Invoice. The supplier invoices 100 boxes at €4.30.
- Match. Line by line, quantity and price are compared across all three.
- Approve or hold. If everything agrees, within any tolerance you set, the invoice goes to payment. If not, it's held as an exception.
In this example two things fail: quantity (100 invoiced, 96 received) and price (€4.30 invoiced, €4.20 ordered).
| Purchase order | Received | Invoice | Result | |
|---|---|---|---|---|
| Quantity | 100 | 96 | 100 | Mismatch: 4 boxes not received |
| Unit price | €4.20 | €4.30 | Mismatch: €0.10 over | |
| Line total | €420.00 | €430.00 | Hold |
Two-way, three-way and four-way matching
| Type | Documents compared | Catches |
|---|---|---|
| Two-way | PO and invoice | Price and quantity different from what was ordered |
| Three-way | PO, goods received note, invoice | All of the above, plus goods that never arrived |
| Four-way | PO, receipt, inspection, invoice | All of the above, plus goods that arrived but failed inspection |
More documents means more control and more work. Pick the level per type of spend, not one rule for everything.
What to do when the documents don't match
- Short delivery: pay for what arrived, or wait for the rest. Ask the supplier for a credit note or a corrected invoice.
- Price difference: check whether the price changed legitimately (a new price list, a surcharge) or the invoice is wrong.
- Tolerances: many businesses set a small tolerance, for example 2% or €10, so rounding differences don't block payment. Anything above it needs a person.
- Typing errors: if your own team keyed the invoice in, the "mismatch" may be yours. Reading invoices automatically, line by line, removes most of these.
Does a small business need three-way matching?
Often not for everything. Three-way matching needs purchase orders and goods receipts, and most small-business spend has neither: services, software subscriptions, utilities, rent, professional fees. For those, a simpler setup works:
- One approver who knows the cost confirms the business owes it.
- A duplicate check, so the same invoice isn't paid twice. See the quiet cost of duplicates.
- Line-level data, so you can see what was charged, not just the total.
Use three-way matching where it pays off: stock, materials and anything delivered against a purchase order.
Where Invoreg fits
Invoreg doesn't hold purchase orders or goods receipts. If you match every invoice against POs, a purchase-to-pay suite is the better fit, as our AP automation guide explains.
What Invoreg does is the part every matching method depends on: reading each supplier invoice line by line (quantity, unit price, VAT and total), flagging duplicates, routing it for approval, and registering it in your accounting software. For most small businesses and the accounting firms that serve them, that covers the controls they actually use. Try it on your own invoices. The first 20 are free.