What is three-way matching?

Three-way matching puts three documents side by side before money moves: the PO (what you ordered and at what price), the receiving record (what actually arrived), and the supplier's invoice (what they're charging). If all three agree, the invoice is safe to pay. If they don't, somebody investigates before approving, not after. The mismatches it catches are mundane and constant: the invoice bills 50 units when receiving counted 48, the unit price crept up from the PO's quoted $12.40 to $13.10, freight appears that was never quoted, or an invoice arrives for a PO nobody can find. Without matching, these leak through accounts payable a few percent at a time. With it, each becomes a flagged exception with a paper trail. The operational prerequisite is the middle document. Most small businesses have POs and invoices but no real receiving record, just a signature on a packing slip that nobody reconciled against the PO. That makes matching two-way at best, and it means short-ships get paid in full. The fix is a receiving workflow that counts against the PO line by line and records the variance at the dock. Tolerance rules keep matching from becoming a bottleneck: auto-approve matches within, say, 1% or $25, and route only true exceptions to a human.