What 3 way matching in accounts payable amounts to is easiest to see on an invoice that does not match, because the ones that do are uneventful by definition. The concept is that a supplier invoice is checked against the purchase order that authorised the spend and the goods receipt that records what arrived, and paid only if all three agree on supplier, quantity and price within a tolerance you set. This page walks a single invoice through that check, shows the difference it exposes, and follows the decision that has to be made, which is the part descriptions usually stop short of.
The three documents, and what the check compares
The order says what was authorised, at a price. The receipt says what arrived, in a quantity. The invoice claims payment. The comparison is supplier, quantity and price, and a tolerance decides how much disagreement passes without a person looking.
The invoice that fails, and what the difference means
Say the order was for a hundred units at an agreed price, the receipt records ninety, and the invoice bills for a hundred. The check stops it. The difference is not an accounting problem; it is a question about whether ten units are coming, were never sent, or were rejected on delivery.
The decision, which is where the control earns its keep
Somebody has to answer that question, and it is not finance: it is whoever received the goods, and then whoever committed the spend. Routing the exception to them rather than holding it in payables is the difference between a control and a backlog.
Questions people ask about what is 3 way matching in accounts payable
What happens if we just pay it?
You pay for ten units you may not have. Individually small; repeated across a year and a supplier who notices, not small at all. This is precisely the leakage the check exists to prevent.
Who sets the tolerance?
Finance proposes and the budget holder agrees, because a tolerance decides how much money passes unexamined. Review it once you have a month of exception counts.
Does this work without purchase orders?
No. Without an order there is nothing to match against and the control is approval by whoever committed the spend, which is a different and weaker check.