Three-way match explained: purchase order, receipt and invoice
Three-way match compares three documents before a supplier invoice is paid: the purchase order (what you ordered, at what price), the receiving record (what actually arrived) and the invoice (what the supplier bills). If quantities and prices agree within your tolerance, you pay. If not, you query it first. Small firms most often skip the receipt.
General information for bookkeepers, not accounting, tax or legal advice. Rules and software screens differ by country and change over time.
The three documents
Each document answers a different question. Link all three by the PO number, so that any one of them leads you straight to the other two.
- Purchase order (PO). What did we agree to buy, in what quantity and at what price?
- Receipt. A goods received note, a signed delivery note or a dated sign-off. What arrived, and in what condition?
- Invoice. What does the supplier say we owe?
The match runs line by line: the same item, an invoiced quantity no higher than the quantity received, and a price equal to the PO price within tolerance. Totals, tax and freight come last.
How much matching is enough
| Level | Documents compared | What it catches | Typical use |
|---|---|---|---|
| No match | The invoice alone, approved by someone | Obvious errors, if the approver knows the order | Rent, utilities, subscriptions |
| Two-way | PO and invoice | Price and quantity that differ from the order | Services, standing orders |
| Three-way | PO, receipt and invoice | Billing for goods never delivered, short shipments, price changes | Stock, materials, equipment |
| Sign-off stand-in | Invoice plus a dated note from whoever received the work | Billing for work or goods not received, if the approver checked | Small firms with no receiving desk |
A worked example
You order 100 units at 4.20, a PO value of 420.00. Eighty arrive. The invoice bills 100 units at 4.45, which is 445.00.
- Quantity. 100 invoiced against 80 received. The extra 20 units are not yours to pay for yet.
- Price. 4.45 against 4.20 is 0.25 a unit, about 6% above the order.
- What the match supports. 80 × 4.20 = 336.00, against an invoice of 445.00, a gap of 109.00.
That gap is your query to the supplier: a credit note, a corrected invoice, or confirmation that the new price was agreed.
A light version for a small firm
-
Decide what needs a PO
Set a rule, such as every goods order above an amount you choose and every new supplier. Fixed recurring bills can use two-way match or a simple approval.
-
Log the POs
Use purchase orders in your accounting software if your plan has them, or a shared sheet with PO number, supplier, items, quantities and agreed prices.
-
Record receipts the day they arrive
Initial and date the delivery note, or photograph it and file it under the PO number. Note short or damaged items on the spot.
-
Match when the invoice arrives
Compare item, quantity received, unit price and totals line by line, and check that the PO number on the invoice is one you issued.
-
Apply a tolerance
Write down the difference you will accept, as a percentage or a fixed amount. Anything above it goes to the approver.
-
Post, pay and close the PO
Enter the bill against the PO, pay it, and close the PO so it cannot match a second invoice.
Where small firms skip it
- No PO. The order was a call or an email. A standing rule that an emailed order counts, filed under a number, fixes most of this.
- No receipt. Nobody logs deliveries, so the invoice is matched to the PO alone. A photo of the delivery note closes the gap.
- The person who ordered approves the invoice without comparing it to anything.
- Services leave nothing to receive, so a dated approval has to stand in.
- Software gaps. As of general knowledge, QuickBooks Online and Xero offer purchase orders on some plans and can turn a PO into a bill, but neither has a goods-received step in its standard bill flow. Check your plan.
None of these is a reason to drop the control. Each has a lighter version, and a light check applied every time beats a perfect one applied when someone remembers.
What goes wrong
Partial deliveries
The invoice bills the full order and half arrived. Match against the quantity received, not the quantity ordered.
Price drift
The agreed price creeps up after a supplier's price list update. Without a tolerance rule, small increases pass unnoticed.
Unit-of-measure mismatches
Ordered by the case, billed by the each. The line total looks wildly off, or worse, looks right.
Surcharges that were never on the PO
Freight, fuel and handling lines appear at invoice time. Decide in advance which are allowed.
How BillToCSV helps
BillToCSV does not see your purchase orders or receiving records, so it cannot do the match. It does read the PO number printed on a bill into the Memo column of the QuickBooks file (as PO followed by the number) and into a PO column of the review CSV, so you can find the PO quickly, and it proves the invoice's own arithmetic first. Try the converter. Free: 1 file per day, up to 10 pages, no account. See pricing.
Questions people ask
What is the difference between two-way and three-way match?
Two-way compares the purchase order with the invoice. Three-way adds the receiving record, so you also confirm the goods or services arrived before you pay.
Do small businesses need three-way match?
Not for every bill. It earns its keep on goods, higher values and new suppliers. For rent, utilities and subscriptions, an approval is usually enough. Choose a rule that fits your risk and your time.
What counts as a receiving record?
A signed or initialled delivery note, a packing slip logged against the PO, a photo of the delivery, or a line in a receiving sheet. For services, a dated approval from whoever received the work.
What tolerance should I use?
That is a policy choice for your firm, not a fixed rule. Many set a small percentage or a fixed amount, tighter for quantity than for price. Write it down so it is applied the same way each time.
Can QuickBooks Online or Xero do three-way match?
As of general knowledge, both can create purchase orders on some plans and convert them to bills, but neither has a built-in receiving step in the standard bill flow. Many firms use a spreadsheet or an add-on for receipts.
What if the invoice arrives before the goods?
Log it, hold payment and match it when the goods arrive. Ask your accountant how your books should treat it at month-end, which depends on your accounting basis.