Matching and exceptions

The three documents

Two-way matching compares only the invoice and the PO, so it checks price and ordered quantity but not delivery. It suits services, subscriptions and low-risk spend, where there is no physical receipt; the person who received the service confirms it instead. Three-way matching adds the receipt and suits inventory, materials and equipment. Four-way matching adds an inspection record for quality-critical goods.

How to run a three-way match

1. 1

   Find the purchase order

   Use the PO number on the invoice. If there is none, ask the requester before going further; a non-PO invoice goes to approval instead of matching.

2. 2

   Find the receiving record

   Pull the goods receipt or delivery note for the same PO. It tells you what actually arrived, line by line.

3. 3

   Check the header

   Vendor, PO number and currency must agree on all three documents.

4. 4

   Check quantities line by line

   The quantity invoiced should be no more than the quantity received.

5. 5

   Check unit prices line by line

   The invoice unit price should equal the PO price, within your price tolerance.

6. 6

   Check tax, freight and the total last

   Small tax rounding is the most common false alarm, which is why many teams set a separate tax tolerance.

7. 7

   Approve or raise an exception

   Approve lines that pass. For lines that fail, record the reason and send it to whoever can fix it.

8. 8

   Update the PO balance

   If the invoice covers only part of the order, reduce the open balance so the next invoice is matched against what is left.

Always match line by line. Matching only the invoice total to the PO total can hide a price increase on one line that happens to be offset by a short shipment on another.

Worked example: one clean match, two exceptions

In the price case, the buyer either confirms an agreed price change and updates the PO, or asks the supplier for a credit note. In the short-shipment case, the receiver either records the late delivery or the supplier reissues the invoice for 180 units.

Setting tolerances

A tolerance is the difference you accept without review. There is no universal standard. Most teams combine a small percentage with an absolute amount, because a percentage alone lets large invoices drift by large amounts and an absolute cap alone flags trivial differences on small invoices.

• Price tolerance: a small percentage and a dollar cap per line, to absorb rounding and currency differences.
• Quantity tolerance: often zero for counted items, higher for goods sold by weight or volume.
• Supplier overrides: tighter limits for suppliers with a history of billing errors.

Start tight, review a month of exceptions, and adjust. Tolerances are a control: document who set them and why, and do not let the person who approves invoices change them without sign-off.

Partial invoices

Suppliers often bill a PO in parts: a partial delivery, an installment, a milestone or one month of an annual service. A partial invoice is legitimate as long as everything billed against the PO so far stays within what was ordered and received.

The fix is a running balance. Keep the amount invoiced to date and the amount remaining on every PO, and per line. Match each new invoice against what is still open, not against the original order. Take a $60,000 PO billed in three parts: $24,000, then $21,000 (both fit the open balance), then $16,500. Only $15,000 is still open, so the third invoice is an exception. Without the running balance, the first two would have failed against the $60,000 total and the third, the smallest, might have been approved. (Illustrative numbers.)

Update the balance when an invoice clears, not when it is captured, and put the amount back if an invoice is later voided or credited.

Resolving exceptions

An exception is any invoice that needs someone to step in before it can be paid. Ardent Partners’ State of ePayables 2025 puts the average invoice exception rate at 18.4%, and 11.1% for its Best-in-Class group. Send each exception to the person who can fix the cause:

Tag every exception with one primary cause. After a month you will know which fix removes the most exceptions. Module 7 shows how to turn this into an exception rate you can track.