Key takeaways
- 2-way matching checks whether a vendor invoice matches the purchase order.
- 3-way matching adds a goods receipt (or service confirmation) before payment is approved.
- 2-way matching is faster and works well for low-risk, recurring, or service-based spend.
- 3-way matching gives stronger control for physical goods, inventory, and high-value purchases.
- Automation and ERP integration make both approaches scalable without burying finance teams in manual checks.
Why invoice matching matters more than it looks
Most finance leaders don’t wake up excited about invoice matching.
But they do care about:
- Not overpaying vendors
- Not paying for goods that never arrived
- Keeping auditors comfortable
- Avoiding awkward conversations with Procurement or the CEO
That’s exactly what 2-way and 3-way matching in accounts payable are designed to solve.
Matching is simply a structured way to ask:
“Are we paying the right vendor, the right amount, for the right thing — and did we actually get what we ordered?”
The more your business spends, the more important that question becomes.
First, a quick look at the documents involved
Before we get into 2-way vs. 3-way matching, let’s align on the core documents in most procure-to-pay (P2P) flows:
- Purchase Order (PO) – What you agreed to buy (item, quantity, price, terms).
- Vendor Invoice – What the vendor says you need to pay.
- Goods Receipt / GRN – Confirmation of what your team actually received (for services, this may be a delivery or completion confirmation).
2-way and 3-way matching are really just different combinations of checks between these documents.
What is 2-way matching in accounts payable?
In 2-way matching, the accounts payable (AP) team compares:
Purchase Order (PO) ↔ Vendor Invoice
The idea is simple: if the invoice matches the PO, the payment can move ahead.
Typically, AP will verify:
- Vendor name – Same as on the PO
- Item / service description – Matches what was ordered
- Quantity – Invoice quantity is equal to or less than PO quantity
- Rate / price – Invoice rate matches the PO rate
- Taxes / discounts – As agreed on the PO
If everything lines up (within tolerances), the invoice is approved. If not, it’s flagged for review.
When 2-way matching is a good fit
2-way matching works well when:
- You’re dealing with services or subscriptions (e.g., SaaS, retainers, consulting)
- There are recurring, predictable purchases
- The risk of receiving “wrong goods” is low
- You want faster processing and fewer steps
Example:
Your marketing team has a monthly retainer with an agency. You raise a PO for ₹5L per month. The invoice comes in for ₹5L, with the agreed tax split. AP compares the PO and invoice, they match, and payment moves ahead. No goods receipt is really needed here.
Pros of 2-way matching
- Faster approvals
- Less operational overhead
- Easy to automate
- Ideal for recurring or low-risk spend
Limitations of 2-way matching
- Assumes the goods or services were actually delivered as expected
- Not ideal for complex deliveries or high-value inventory
- Can miss issues where quantity delivered doesn’t match quantity ordered
This is where 3-way matching comes into play.
What is 3-way matching in accounts payable?
In 3-way matching, AP checks:
Purchase Order (PO) ↔ Vendor Invoice ↔ Goods Receipt (GRN)
Here, a payment is released only when:
- The invoice matches the PO and
- The goods or services have been confirmed as received
AP verifies that:
- The quantity on the invoice = quantity on the GRN (or service confirmation)
- The quantity on the GRN is within the quantity on the PO
- Rates and line items on the invoice match the PO
This extra step significantly reduces the risk of paying for items that were short-delivered, damaged, or never delivered at all.
When 3-way matching is a better choice
3-way matching is ideal when:
- You purchase physical goods or inventory
- Shipments are partial, staggered, or large
- You handle CAPEX or high-value items (machines, equipment, IT hardware)
- You have strict internal controls or audit expectations
Example:
Your company orders 1,000 POS terminals from a vendor. The PO is raised with quantities and unit price. When the shipment arrives, your warehouse team records a GRN for 980 terminals (20 were damaged). The vendor invoice is for 1,000. With 3-way matching, AP sees the mismatch between invoice and GRN, flags it, and ensures you pay only for 980 units — not 1,000.
Pros of 3-way matching
- Much stronger control over physical goods
- Reduces overpayment and fraud risk
- Supports compliance and audit requirements
- Improves confidence in inventory and COGS numbers
Challenges of 3-way matching
- Slightly slower than 2-way matching
- Requires proper GRN or service confirmation processes
- Can create bottlenecks if done manually or only at month-end
2-way vs. 3-way matching: how to choose
There’s no one-size-fits-all answer, but a simple way to think about it:
| Question | If “Yes” → Lean Toward |
| Is this a recurring, low-risk service or subscription? | 2-way matching |
| Are we dealing with physical goods or inventory? | 3-way matching |
| Is the spend high-value or critical to operations? | 3-way matching |
| Do we have strong vendor trust and simple contracts? | 2-way matching |
| Are we under tighter audit / compliance scrutiny? | 3-way matching |
Many mature AP teams use both:
- 2-way matching for low-risk, recurring, service-based spend
- 3-way matching for physical goods, inventory, CAPEX, or large one-time purchases
You don’t have to over-engineer the entire AP process from day one. But you do want a clear policy on which matching method applies to which category of spend.
Why manual matching doesn’t scale
On paper, matching sounds simple. In practice, AP teams often struggle because:
- POs live inside the ERP
- Invoices come via email or PDFs
- GRNs sit in warehouse tools or Excel
- Approvals happen over chat or email
The more vendors, entities, and tools you have, the harder it becomes to maintain a clean, consistent matching process.
Symptoms of this:
- Month-end reconciliation drags out
- Teams spend hours hunting for POs or GRNs
- Duplicate or incorrect payments get noticed only later
- Auditors ask for trails that are painful to reconstruct
This is exactly where automation and integration start to pay off.
How automation makes 2-way and 3-way matching easier
With an AP automation platform, the same controls become far more manageable:
- Invoices are digitised and structured automatically (no manual keying)
- POs, invoices, and GRNs are linked based on rules and references
- Matching happens continuously, not just at period-end
- Only exceptions (mismatches, missing docs, out-of-tolerance cases) land on the AP team’s plate
Instead of checking everything, finance focuses on what’s wrong — not what’s already fine.
How OPEN helps finance teams get matching right
This is where Open’s Accounts Payable automation can quietly transform your 2-way and 3-way matching.
With Open, finance teams can:
- Configure 2-way or 3-way matching policies by vendor, category, or transaction type
- Automatically match vendor invoices with POs and GRNs
- Flag quantity, rate, or tax mismatches before payment is triggered
- Route exceptions to the right stakeholders (Procurement, Warehouse, Finance)
- Maintain an audit-ready trail for every matched and mismatched invoice
And because Open integrates with widely-used ERPs and accounting tools like Tally, Zoho Books, Microsoft Dynamics, SAP, and Oracle, matching doesn’t happen in a disconnected tool. It works with your existing finance stack, not against it.
The result:
- Fewer disputes
- Cleaner books
- Faster, more confident approvals
- An AP function that supports growth instead of slowing it down
Final word: choose control, then scale with systems
Choosing between 2-way and 3-way matching isn’t about picking a “better” method — it’s about choosing the right control for the right kind of spend, and then supporting it with tools that can scale.
Start simple.
Use 2-way where it’s enough.
Use 3-way where it’s necessary.
Let automation handle the grunt work.
That’s how accounts payable grows with the business, without becoming a bottleneck.
