2-Way, 3-Way and 4-Way PO-Matching

2-Way, 3-Way and 4-Way PO-Matching

  • One of the fundamental controls in Payables is the PO match. This simply means that the invoice you enter in the application is matched to the Purchase Order. If the match is not successful, the invoice is kept On-hold. On-Hold invoices cannot be paid. The hold has to be resolved before you can pay the Invoice.
  • The PO Match functionality ensures you only record and pay invoices that are eligible for payment. It is a very simple & powerful feature that prevents your organization from paying incorrect & fraudulent invoices.
  • Let’s look at the different methods of PO Match. Depending on your business requirement, you would perform a two-way, three-way or four-way matching.
  • Two-Way Match: In a two way match, you compare two attributes from your invoice with the Purchase Order. The invoices is considered to be successfully matched (matched within tolerances) when
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Ordered (on the Purchase order)
  • The Invoice Price is less than or equal to the Purchase order price.
  • Three-Way Match: In a three-way match, in addition to the two match conditions mentioned above, you also check the quantity received. So the three conditions that are checked are
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Ordered (on the Purchase order)
  • The Invoice Price is less than or equal to the Purchase order price.
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Received against the Purchase Order
  • Four-Way Match: In a four-way match, you add one more match condition to the three-way match. Not only do you check the quantity received, but you also check the quantity accepted. All the four conditions that are checked in the four-way match are
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Ordered (on the Purchase order)
  • The Invoice Price is less than or equal to the Purchase order price.
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Received against the Purchase Order
  • The Quantity Billed (on the Invoice) is less than or equal to the Quantity Accepted against the Purchase Order

   

In a tabular format, the match approval level options can be represented as follows

  • The quantity and price tolerances set up in your system also plays a major role in determining if it is a match or if the invoice should be put on hold. Note that the match has to be within the tolerances. For example if the ordered quantity is 100 units, tolerance is 5% and if you invoice 103 units, the system will accept it as a match because it is within the tolerance level.
  • Most organizations opt for a three way match. This also ensures that the quantity is received in the system before an Invoice is created and also helps ensures that the Open PO information is up-to date.
  • Some organizations get into the mistake of using 4 way matching where they need only 3-Way matching. ‘We inspect the materials before we receive the items into inventory’, they say. The issue in configuring matching option in ERP is not if you do a physical inspection (Everyone does a physical before receiving the material into inventory) but whether the payables accountant has to match Inspection Certificate before he makes payments to the supplier. Looking from that perspective, most of the organizations do not use 4-Way matching, but they have configured the same in ERP.
  • What is the issue of configuring 4-Way Matching?

If you use 4-Way matching, you have to have an additional step of ‘Inspection’ to be completed in the system before you complete the receipt process. This additional step can add up to a lot of wasted effort in the Organization.

Where to set up the PO-Matching option?

You setup the match approval levels in the

  • Purchasing Options
  • Supplier Level
  • Supplier Site Level
  • Purchase Order Shipment level

Purchase Order shipment level takes precedence over Supplier Site Level which takes precedence over Supplier level and so on.

Normally Matching Option goes along with another option in Oracle known as ‘Routing Method’. They go hand in hand.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s