Three-way matching means checking three documents against each other before you pay a supplier:
- The purchase order: what you ordered, how many, at what rate.
- The goods received record: what arrived, and what was rejected.
- The supplier's bill: what the supplier is asking you to pay.
If all three agree, you pay. If they do not, you find out why before the money leaves.
It sounds like something for large companies with accounts departments. It is just as useful for a 15-person workshop, because small businesses lose money in exactly the places three-way matching checks.
01What it catches
| Problem | How it shows up |
|---|---|
| Billed at a higher rate | Bill rate ₹58 a kg, PO rate ₹54 a kg |
| Billed for more than delivered | Bill for 500 pieces, 480 received |
| Billed for rejected goods | 30 rejected at the gate, billed anyway |
| Billed twice | Same goods on two bills, or the same bill entered twice |
| Billed for something never ordered | No PO behind the bill |
| Wrong tax | IGST charged by a supplier in your own state |
02A worked example
A Ludhiana auto parts maker orders 2,000 steel mounting brackets from a supplier at ₹185 each plus GST at 18 percent.
- PO
- 2,000 brackets at ₹185, total ₹3,70,000 plus GST.
- Goods received
- 2,000 arrived, 60 rejected for dents. Accepted: 1,940.
- Supplier bill
- 2,000 brackets at ₹190, ₹3,80,000 plus GST of ₹68,400, total ₹4,48,400.
Matching shows two problems: a rate ₹5 higher than agreed and 60 rejected pieces billed. The correct amount is 1,940 × ₹185 = ₹3,58,900 plus GST of ₹64,602, total ₹4,23,502. The difference is ₹24,898 on one bill.
The supplier may have a reason, such as a rate increase they believe you agreed to on the phone. Matching turns that into a conversation before payment. Without it, the same point becomes an argument after the money has gone.
03How to do it
1. Make sure each purchase has a PO
Without a PO there is nothing to match against. See purchase order basics.
2. Record goods received at the gate
When goods arrive, the person receiving them records, line by line, the quantity received and the quantity rejected, with a reason. Record it against the PO. The supplier's challan is useful, but it is the supplier's document. The challan says what the supplier sent. Your record says what you accepted.
3. Match when the bill arrives
For each line on the bill, check:
- Item
- same as the PO.
- Quantity
- no more than accepted on the goods received record.
- Rate
- same as the PO.
- Tax
- right rate, and right type (CGST and SGST for a supplier in your state, IGST for one outside).
- Totals
- add up correctly.
4. Decide on differences
Set a small tolerance so you are not chasing paise. Many businesses accept differences under ₹100 or 0.5 percent of the bill, whichever is lower. Anything larger goes to the person who approved the PO.
Options for a difference:
- Ask for a credit note
- from the supplier for the excess.
- Pay only the matched amount
- and tell the supplier why.
- Approve the difference
- with a written reason, such as an agreed rate change, and update the PO.
5. Pay the matched bill
Pay against the bill once it matches, and record the payment against the supplier. Keep the PO, goods received record and bill together. If someone asks about the payment a year later, everything is in one place.
04Common mismatches and what usually causes them
- Rate higher than the PO
- the supplier's billing team used a new price list. Ask for a credit note, and agree any increase in writing for future orders.
- Quantity higher than received
- the bill was raised from the dispatch plan before loading, or part of the lot was rejected. Pay for what was accepted.
- Tax type wrong
- the supplier billed from a branch in another state. Check that the GSTIN on the bill matches the supplier on the PO.
- Bill with no PO
- an urgent purchase made by phone. Raise the PO after the fact with approval, and make it the exception.
Keep a short log of mismatches by supplier. Patterns show up within a few months.
05Who does what
Separate the roles where you can:
- The person who orders
- should not be the only person who checks goods in.
- The person who receives
- should not approve payment.
- The person who pays
- should see that all three documents agree.
In a family business, this might be the owner ordering, the godown manager receiving and the accountant paying. Even in a five-person shop, having two people involved catches most errors.
06Services and job work
Three-way matching works for services too. For a transporter, the PO is the agreed rate per trip, the "goods received" is the trip log or LR, and the bill is the transporter's invoice. For job work, match the job worker's bill against the PO and the quantity of finished goods received back.
07For larger businesses
When a company processes 500 supplier bills a month, matching by hand takes days. Set the tolerance rules, let clean matches go through for payment, and route only the exceptions to people. Report exceptions by supplier each month. A supplier with frequent mismatches is a supplier to review. See choosing suppliers.
In MatruOS, a supplier bill is matched to its purchase order and the goods received, line by line, before you pay the supplier.