A big thank you to all our readers. Yesterday we clocked the highest number of hits in a day from inception – 154. I hope you benefit from what I write.
Continuing on the post from Tuesday, let me also talk about two-way and three way match.
When an invoice is processed for payment, we need to verify if the goods or services were received / performed. A material received note or a sign-off on services performed normally gives the documentation for this. When the invoice the invoice is compared to this, it is called a two way match. It is important to do this comparison for validating whether the payment being made is for the value received.
When we compare the invoice to the goods received note and also the purchase order, we do a three way match.
Now, what are the key benefits and challenges of Purchase Order and non-Purchase Order based invoices?
Key benefits of Purchase Order based invoices can be listed as under:
- Invoices are pre-approved at the purchase order level
- They will normally have a well defined approval matrix
- This would be based on value or geographical or other considerations
- All approval matrices would be pre-approved by top / executive management
- A three way match adds to the genuineness of the transaction
Key challenges of Purchase Order based invoices can be listed as under:
- There is an added complexity level
- Quite often, the purchase order is supplied in parts, which will require additional tracking for satisfaction of the PO over a period of time.
- Reporting discrepancies of specifications might be required based on the PO specifications.
Key benefits of non-Purchase Order based invoices can be listed as under:
- Time to process is less.
- Complexity of part delivery and specification discrepancy do not arise.
- A two way match adds simplicity to the transaction
Key challenges of non-Purchase Order based invoices can be listed as under:
- Approvals are normally post delivery of materials.
- The purchases are not structured.
Read about leases on the IFRS Blog: