What Is Three-Way Matching In Inventory Counting?

As a business owner, you know that keeping track of inventory is crucial for the success of your company. But did you know that implementing a three-way matching process can greatly improve your inventory counting accuracy and efficiency?

In this article, we'll dive into what three-way matching is and why it's important for inventory counting.

What Is Three-Way Matching?

The Basics of Three-Way Matching

Three-way matching is a process used in accounting and inventory management to ensure that the quantities and prices on a purchase order, receiving report, and vendor invoice all match.

The three documents involved in this process are:

• Purchase Order (PO): A document that outlines the details of a purchase, including the quantity, price, and terms of the order.
• Receiving Report (RR): A document that confirms the receipt of goods or services and includes details such as the quantity received and any discrepancies.
• Vendor Invoice (VI): A document sent by the vendor that outlines the items purchased, their prices, and any applicable taxes or discounts.

The goal of three-way matching is to verify that all three documents match and to identify any discrepancies that may exist. This process helps to ensure that the company is paying the correct amount for the goods or services received and that the counting during the inventory audit leads to accurate results.

The Process of Three-Way Matching

The three-way matching process typically involves the following steps:

1. The purchase order is created and sent to the vendor.
2. The vendor ships the goods or provides the services and sends a receiving report to the company.
3. The company receives the goods or services and compares the receiving report to the purchase order to ensure that the quantities and items match.
4. The company then compares the vendor invoice to the receiving report and purchase order to ensure that all three documents match.
5. If there are any discrepancies, the company will investigate and resolve them before processing payment to the vendor.

Why Is Three-Way Matching Important for Inventory Counting?

Ensures Accuracy of Inventory Count

One of the main reasons why three-way matching is important for inventory counting is that it helps to ensure the accuracy of the inventory count, a key aspect of effective inventory control.

By verifying that the quantities on the receiving report and vendor invoice match the purchase order, companies can be confident that the inventory count is correct, which is crucial for understanding inventory turnover ratio.

This is especially important for companies that deal with a large volume of inventory or have multiple locations. Without three-way matching, it can be challenging to keep track of all the items received and ensure that the inventory count is accurate.

Identifies Discrepancies and Errors

Another crucial aspect of three-way matching is that it helps to identify any discrepancies or errors in the purchasing process, leading to better management of inventory variance.

By comparing all three documents, companies can quickly spot any discrepancies in quantities, prices, or items ordered.

For example, if the receiving report shows that only 90 units were received, but the vendor invoice and purchase order both show 100 units, this could indicate an error or potential fraud. By catching these discrepancies early on, companies can avoid overpaying for goods or services and ensure that their inventory count is accurate.

Streamlines the Reconciliation Process

Three-way matching also helps to streamline the vendor reconciliation process. By ensuring that all three documents match, companies can quickly and easily reconcile their accounts payable and accounts receivable.

Without three-way matching, the reconciliation process can be time-consuming and prone to errors. By implementing this process, companies can save time and resources and ensure that their financial records are accurate.

How to Implement Three-Way Matching for Inventory Counting

Utilize Technology

One of the best ways to implement three-way matching for inventory counting is by utilizing technology. There are many software solutions available that can automate the three-way matching process, making it faster and more efficient.

These software solutions can integrate with your existing inventory management system and automatically compare the purchase order, receiving report, and vendor invoice to ensure that all three documents match. This can save your company time and resources and reduce the risk of human error.

Train Employees on the Three-Way Matching Process

Another crucial aspect of implementing three-way matching for inventory counting is to train your employees on the process. This includes educating them on the importance of three-way matching, how to compare the documents, and what to do if there are any discrepancies.

By training your employees, you can ensure that everyone is on the same page and that the process is followed consistently. This can help to prevent errors and ensure that your inventory count is accurate.

Regularly Review and Update the Process

As with any process, it's essential to regularly review and update the three-way matching process for inventory counting. This includes reviewing the software and technology used, training materials, and any other aspects of the process.

By regularly reviewing and updating the process, you can ensure that it remains effective and efficient. This can also help to identify any areas for improvement and make adjustments as needed.

Real-World Examples of Three-Way Matching in Action

Amazon

Amazon is a prime example of a company that utilizes three-way matching for inventory counting. As one of the largest e-commerce companies in the world, Amazon deals with a massive volume of inventory and purchases.

To ensure the accuracy of their inventory count, Amazon uses a sophisticated software system that automates the three-way matching process. This allows them to quickly and efficiently verify that all three documents match and identify any discrepancies.

Walmart

Walmart is another company that utilizes three-way matching for inventory counting. With over 11,000 stores worldwide, Walmart deals with a vast amount of inventory and purchases.

To ensure the accuracy of their inventory count, Walmart uses a combination of technology and employee training. They have implemented a software system that automates the three-way matching process, and they also train their employees on how to compare the documents and identify any discrepancies.

Who Is Responsible for Three-Way Matching?

In most companies, the responsibility for three-way matching involves multiple departments, each playing a crucial role:

• Accounting or Finance Department: Primarily responsible for creating and sending the purchase order, receiving the goods or services, and ensuring that the documents involved in the process match accurately. They verify the accuracy of financial transactions and maintain proper financial records.
• Purchasing Department: Responsible for negotiating terms and placing orders, ensuring that the purchase orders reflect accurate and agreed-upon information.
• Inventory Management: Crucial in verifying the physical receipt of goods and ensuring that the details align with both the purchase order and the vendor invoice.
• Operations and Logistics Departments: In some organizations, especially where goods receipt and verification are complex, these departments play a vital role in the three-way matching process, ensuring it encompasses the entire supply chain.

By involving multiple departments in the three-way matching process, companies can foster a culture of accountability and accuracy, essential for effective financial management and inventory control.

Conclusion

In conclusion, three-way matching is a crucial process for inventory counting that helps to ensure the accuracy of the inventory count and identify any discrepancies or errors. Utilizing inventory counting software, alongside technology, training employees, and regularly reviewing and updating the process, companies can streamline their inventory counting and enhance overall efficiency and accuracy.

Implementing three-way matching with the aid of inventory counting software can greatly benefit your company and help you achieve your inventory management goals.

So why wait? Start implementing this process and software today to see the positive impact it can have on your business.