Invoice matching is one of the most important controls in the procure to pay cycle. It protects companies from overbilling, incorrect deliveries, and unnecessary spend. Yet many teams still struggle to decide whether they should rely on two way matching, three way matching, or a mix of both.

This guide breaks it down in simple terms. It explains how each method works, what makes them different, and which one is better for your organisation.

What is invoice matching in procurement?

Invoice matching is the process of verifying a supplier invoice against other procurement documents before it is approved for payment. The goal is simple: pay only for what was ordered and received, at the right price and quantity.

It is one of the most important controls in the procure to pay cycle and helps finance teams avoid overpayments, errors, and supplier disputes.

Importance of  invoice matching

Invoice matching protects cash and removes errors early in the process. It helps organisations:

• Prevent overbilling and duplicate payments
• Catch delivery shortages or incorrect items
• Stop unauthorised purchases
• Improve financial accuracy
• Reduce supplier disputes
• Streamline the approval workflow
• Strengthen audit and compliance readiness

Without invoice matching, finance teams spend more time chasing documents, resolving errors, and correcting mistakes after payment.

Types of invoice matching

Invoice matching typically follows three models:

• Two way matching: Compares the purchase order with the supplier invoice.
• Three way matching: Compares the purchase order, goods receipt, and invoice.
• Four way matching: In addition to the three-way match, it adds an inspection or quality approval document, usually for critical or regulated goods.

How invoice matching works?

Invoice matching can be done manually or through an automated system, but the flow stays the same.  Here is the step by step process:

1. Purchase order is created and approved
   • Procurement raises a PO with item descriptions, quantities, prices, tax, and delivery terms.
   • The PO is approved according to internal rules and stored in the system or shared repository.
     
2. Goods or services are delivered
   • For physical goods, the warehouse or requester receives the items.
   • A goods receipt, GRN, or delivery note is created to confirm what actually arrived.
   • For services or subscriptions, the user may simply confirm that the service has been delivered or is active.
3. Supplier sends the invoice
   • The invoice arrives by email, portal, EDI, or post.
   • Accounts Payable (AP) captures the invoice in the system or logs it manually, including supplier details, invoice number, date, PO number, and amounts.
4. PO is retrieved for comparison
   • The AP team or system links the invoice to the correct PO using the PO number on the invoice.
   • If the PO number is missing or wrong, the invoice is parked or sent back for clarification.
5. Matching level is applied
   • Depending on the organisation’s policy and the type of spend, one of these is used:
     • Two way matching: PO vs Invoice
     • Three way matching: PO vs Goods Receipt vs Invoice
     • Four way matching: PO vs Goods Receipt vs Inspection vs Invoice
6. Key fields are compared
   • Manually or automatically, the following are checked line by line: Item descriptions, Quantities, Unit prices, Discounts and tax, Total and currency, and Delivery or service dates
   • If everything matches within allowed tolerances, the invoice is ready to move forward.
7. Exceptions are flagged and reviewed
   • If there is a mismatch, the invoice goes into an exception queue instead of straight to payment. Common issues include:
     • Quantity invoiced is higher than quantity received
     • Price on invoice does not match the PO
     • Extra line items that were not ordered
     • Duplicate invoice number
   • AP or procurement investigates, speaks to the requester or supplier, and either corrects the data, gets a credit note, or rejects the invoice.
8. Approval and workflow
   • Clean, matched invoices are routed to the right approver based on value, cost center, or category.
   • In automated systems, low value, fully matched invoices may be auto approved according to preset rules.
   • In more manual setups, approvers review via email or shared tools and sign off.
9. Invoice is posted and paid
   • Once approved, the invoice is posted to the finance system.
   • Payment is scheduled according to agreed terms (for example, 30 days from invoice date).
   • The status is updated so procurement, finance, and suppliers have visibility.
10. Audit trail and reporting
    • All documents and approvals are stored together: PO, goods receipt, invoice, and workflow history.
    • This creates a clear audit trail, supports compliance, and feeds reports on spend, supplier performance, and processing efficiency.

What is three way matching?

Three-way matching is a standard control step in procurement. It checks three documents against each other before a supplier gets paid.

• The purchase order
• The goods receipt or delivery note
• The supplier invoice

The system compares quantities, prices, and line items. If everything aligns, the invoice gets approved. If not, it gets flagged.

It prevents overbilling, duplicate payments, and incorrect deliveries. It also keeps procurement, finance, and suppliers on the same page without extra back and forth.

Where three way matching works best

Three way matching is best for purchases where physical receipt matters and the risk of delivery issues or incorrect billing is higher. It is typically used for:

• Inventory and stock items

• Raw materials

• Machinery and equipment

• Office and warehouse supplies that require receiving

• High value goods

• Items delivered in multiple or partial shipments

• Categories where shortages, damages, or quality issues are common

These purchases need a formal goods receipt because the organisation must confirm that the right items arrived in the right quantity before approving the supplier’s invoice.

What is two way matching?

Two way matching is a basic invoice verification method used in the procure to pay process. It compares two documents before approving a supplier invoice:

• The purchase order
• The supplier invoice

If the quantity, price, and line items match, the invoice is cleared for payment. If there is a mismatch, the system flags it for review.

Limitations of 2-way matching

While efficient, two way matching has clear limitations:

• It cannot confirm whether goods were actually received

• It offers limited protection against short deliveries

• It is weaker for high value or physical inventory

• It cannot detect duplicate invoices tied to delivery discrepancies

This is why high value or critical spend categories usually require three way matching.

When two-way matching isused

Two way matching is most effective for low risk purchases where goods are not physically received or where delivery issues are minimal. Common examples include:

• Software subscriptions

• Marketing or professional services

• Utility bills

• Office supplies

• Recurring monthly expenses

These categories do not require a formal goods receipt, so adding extra checks would only slow the process down.

What is 4-way matching?

Four way matching is a stronger control step in procurement. It checks four documents against each other before a supplier gets paid.

• The purchase order

• The goods receipt or delivery note

• The inspection or quality approval

• The supplier invoice

The system verifies quantities, prices, delivered items, and quality standards. If all four align, the invoice gets approved. If anything is off, it is flagged for review.

Four way matching prevents overbilling, poor quality deliveries, and compliance issues. It gives procurement and finance complete visibility and reduces the risk of paying for items that are damaged, non compliant, or not up to specification.

When four way matching is used

Four way matching is used for purchases that require an additional quality or inspection check before payment can be approved. It adds an inspection or quality verification document to the standard three way match. It is typically used for:

• Manufacturing materials that need quality inspection

• Raw materials with strict specifications

• Safety critical items

• Pharmaceutical or medical supplies

• Engineering components or spare parts

• High value equipment with performance or compliance checks

• Any category where quality, safety, or regulatory standards must be confirmed

These purchases require a formal inspection step because the organisation must verify not only what was delivered, but also whether it meets required standards before paying the supplier.

Comparison: Two Way vs Three Way vs Four Way Matching