Stock and manufacturing glossary
Three-way matching
Three-way matching is the check you run before paying a vendor: the bill is compared with the purchase order (what you agreed to buy, at what price) and the goods receipt note (what actually arrived). You pay only for goods that were ordered, received and billed at the agreed rate.
Why it matters to your business
Overpayments rarely come from fraud. They come from bills paid without checking: a rate a little higher than agreed, a full quantity billed when part was short, the same bill entered twice. Each is small, but across hundreds of bills a year they add up. Three-way matching catches them before the money leaves, when they are easy to fix, rather than after, when you have to chase a refund.
How it works
| Purchase order | Goods receipt | Vendor’s bill | Pay | |
|---|---|---|---|---|
| Quantity | 200 units | 190 units | 200 units | 190 units |
| Rate | ₹250 | ₹260 | ₹250 | |
| Value before GST | ₹50,000 | ₹52,000 | ₹47,500 |
Two differences show up. Only 190 units arrived, so you pay for 190, not 200. The bill’s rate of ₹260 is higher than the ₹250 agreed, so you pay at ₹250 until the vendor justifies the change. Before GST, the bill says ₹52,000 and the matched amount is ₹47,500: a ₹4,500 difference, which the vendor should correct with a credit note, or which you record as a debit note against their bill.
Common mistakes
- Skipping the goods receipt. Without a record of what arrived, you are only matching what you ordered with what the vendor says it sent.
- Checking quantity but not rate. Rate differences are the most common overbilling, and the easiest to miss.
- Paying the bill and fixing it later. Once paid, a difference becomes a refund you must chase. Hold the disputed part instead.
- No record of what was agreed. Matching needs a written purchase order. An order placed on the phone leaves nothing to match against.
Questions about Three-way matching
What is the difference between two-way, three-way and four-way matching?
Two-way matching compares the bill with the purchase order. Three-way adds the goods receipt. Four-way adds a quality inspection, so you pay only for goods that passed it.
What is a tolerance in three-way matching?
An agreed margin within which small differences are accepted without query, such as a few rupees of rounding or a small quantity variation for goods sold by weight. Anything outside it is held for review.
What should I do when the bill does not match?
Pay only what matches. Ask the vendor for a corrected bill or a credit note for the difference, or record a debit note against their bill if you have already booked it.
Is three-way matching the same as GSTR-2B matching?
No. Three-way matching checks what you should pay. GSTR-2B matching checks that the vendor has reported the bill to GST so you can claim the input tax credit. Both are worth doing.
Updated .