Introduction
How many times have you paid your suppliers late? or paid the wrong amount? Or lost the order confirmation?
The construction industry is notorious for not completing tasks on time, on budget, or to the correct specifications. Mckinsey found that an average of 80% of projects have an overrun of 30% and are at least 40% late.
One thing your business can do to improve this is by implementing 3-Way Matching. As a contractor in the Canadian construction industry, you should want a lean accounting process. This is a key concept for your accounting process and can give you a competitive advantage in terms of your supplier relations IF done right.
In this Post, we will define 3-Way Matching and why it is important, and provide 3 tips for how you can successfully implement it in your company.
Table of Contents
What is 3-Way Matching?
3-Way Matching is the best way of ensuring that payables processes can happen quickly. Here, the supplier invoice gets matched to the company purchase order, and as a final step, to the packing slip. This system triple checks delivery dates and quantities. it’s the final gatekeeper that determines whether the transaction is accurate and complete.
Why is 3-Way Matching Important?
As the buying company, you need to maintain accurate records for bookkeeping and accounting purposes. If not, you may be susceptible to audits.
3-Way matching also prevents a lack of validation. This confirmation ensures that Purchase orders that have no invoices or that are unauthorized cannot be approved and paid out.
You will quickly see if purchase orders have manager approval; if not, it could be that an employee has ordered an item for personal use on the company dime.
This process triple checks delivery dates and quantities, which helps accounting know when onsite workers schedule delivery, when the items are received, and when Accounts Payable can pay the supplier.
Storytime:
The superintendent, Ronnie, needed some lumber on-site asap. In the morning, Ronnie called her lumber supplier, confirmed the order, and the supplier delivered the lumber in the afternoon. The following day, however, the supplier reached out to Ronnie’s accounting department: He still hadn’t gotten the purchase order documents. The PO was issued that afternoon, 24 hours after the items had already arrived at the site.
There are 3 Problems in this scenario:
- The approval process was so lengthy that Ronnie wouldn’t have gotten the lumber on time.
- The order of invoice -> PO -> Packing slip was not honoured.
- The process is not rigid, so Ronnie and her supplier were able to work around it.
So what should your company be doing differently from Ronnie’s?
3 Tips for efficient 3-Way Matching
1. Confirm pricing with the supplier
A purchase that does not have pricing confirmation from a supplier should NOT be paid out.
The first step of 3-way matching is confirming pricing with the supplier, either via quote or verbally. A purchase that does not have pricing confirmation from a supplier should NOT be paid out.
This information is then used to create an accurate PO, and pay the supplier. Without getting an accurate price from your supplier, your company might end up overpaying for incorrect items or for the wrong quantity. Substantial time then gets lost making change orders due to ill-defined expectations between suppliers and contractors.
You want your supplier to get in the habit of sending you official quotes by email. Trust me, your accounting department will love you for it.
2. Have a Strict Purchase Order Approval Process
Make sure that high dollar purchases follow an approval process so that your company has a papertrail that is easy to track to ensure 3-way matching.
You need to limit the number of people on a Jobsite that can commit a purchase and have an efficient and rigid process for on-site personnel to request a PO. With a strict approval process, you will always have confirmed supplier pricing attached to your PO and then to the invoice, making it easy for your accounting team to pay the supplier, making you a champion at 3-way matching.
Have your onsite personnel send their requested order for approval to their superior. THEN, once the order is approved, release the Purchase order number.
This way, no approval = no PO #
3. Use an automated purchasing system
Purchase document accuracy is challenging if your company still does everything manually. In general, we found that electronic POs cost half as much as handwritten POs because of efficient approval processes.
In Ronnies Story, pricing was confirmed, the order was approved, and yet still, the PO took forever.
You want to eliminate the need for rework due to inaccurate invoices, late payments, and wrong orders, all of which can lead suppliers to charge you more. And you can do this with a fully automated purchasing solution.
This way, documents can be retrieved and reviewed within seconds, and all transactions can be fully accessible, making account consolidation a breeze.
Conclusion
3–Way matching is a heroic concept in construction accounting, however, it requires rigid accounting practices to succeed, which can take time and manpower. Your company needs to discover the right tools to be able to efficiently match up an invoice, purchase order, and packing slip, which will make your accounting practices more efficient and … to be honest … indestructible.
Are you ready to help your business have the most efficient PO process? Purchase orders issued from QuoteToMe are timely, accurate, and fast – all with minimal effort from the user!
Note about the Author
Natasha Mager is a Customer Success Specialist at QuoteToMe. She is passionate about inbound marketing and organic growth. Her goal is to help the construction industry learn how they can optimize their purchasing processes. You can find Natasha on Linkedin.