Two way match is a decision, not a default
Three way matching is slower and catches what two way matching cannot. Deciding which spend gets which is a control design choice, not a system setting.
- Three way matching compares invoice, purchase order and goods receipt; two way matching drops the receipt.
- Removing the receipt removes the evidence that anything was actually delivered, which is the control most relevant to fraud and to overbilling.
- For services and for categories where receipting is unreliable, two way matching plus an approval may be the more honest control.
- The choice should be made by category with a stated rationale rather than by default settings inherited from an implementation.
- Where two way matching is used, the compensating control needs to be named and evidenced.
Matching configuration is usually decided during an ERP implementation, by people optimising for throughput, and never revisited afterwards.
The outcome is a set of rules that determine, for every invoice your company pays, what evidence has to exist before money leaves.
Three way matching requires a purchase order, a goods receipt and an invoice to agree. Two way matching drops the receipt, which speeds everything up and removes the only evidence that something arrived.
Neither is right for all spend. What matters is that the choice is made deliberately, by category, with the compensating controls named. Naming them is the step most often skipped, and an unnamed compensating control is not a control at all, which is the point made in the document you cannot find. The same applies to the tolerances applied within each match type, since a tolerance is a decision about what will not be examined, and those decisions age exactly as thresholds set years ago do. Both should be reviewed against the current spend distribution rather than inherited, which is the discipline measurement that changes behaviour depends on.
What each match actually proves
The purchase order proves that the purchase was authorised, by someone with the authority to commit the company, at an agreed price and quantity.
The goods receipt proves that something arrived. It is the only element of the three that connects the payment to a physical event rather than to a document.
The invoice proves that the supplier has asked to be paid, which is the weakest evidence of the three and the one that initiates the process.
Two way matching therefore verifies that an authorised order exists and that a supplier has billed for it, which is a real control and a different one from verifying delivery, as price comparison is again different.
Four categories and what fits
The right answer varies by category, which is precisely why a single default setting is a poor design.
The receipting problem behind the choice
Many companies operate three way matching nominally while receipting is performed unreliably, which produces the worst of both arrangements.
Where receipts are created in bulk to release invoices for payment, the control does not operate, and everyone involved knows it does not.
That is a more serious problem than a two way matching policy, because the control is documented as operating and is not, which is a control failure rather than a design choice.
The honest response is either to fix receipting for those categories or to move them to two way matching with a named compensating control.
Receipting to release payment is not receipting. A control that everyone works around is worse than one you did not claim.
Judge the match by what it prevents
Two-way matching is faster, and the saving is hard to measure. The cost of paying for goods never received is easy to count once it happens.
The AgentCFO podcast argued that efficiency is hard to measure directly, while outcomes are concrete enough to see and count.
Choose the match type by spend category, using three-way matching wherever receipt errors or partial deliveries have cost money before.
Comparing the two designs
The trade off is between speed and evidence, and it should be made per category.
| Aspect | Three way match | Two way match |
|---|---|---|
| What it proves | Authorised, delivered and billed. | Authorised and billed. |
| Main risk addressed | Payment for goods never received, including fictitious supplier schemes. | Unauthorised purchasing and price variance. |
| Practical cost | Exception volume where receipting is unreliable, and slower payment. | Faster processing, and reliance on a compensating approval. |
Matching configuration affects your control environment. Agree any change in approach with your auditors, particularly where it applies to material spend categories.
Dropping the receipt is a control decision. It is usually made as a configuration one.
ChatFinReviewing your configuration
Four steps, which most companies have not performed since their ERP was implemented.
List spend by category and match type
What is actually configured, against what people believe is configured, which frequently differ.
Test whether receipting is real
Look at the timing of receipts against invoice dates. Receipts created after the invoice arrives are the signal.
Decide by category with a rationale
Written down, so the design can be explained rather than inherited.
Name the compensating control
Where two way matching applies, what evidences delivery, and how that is retained, in the sense of the close that starts before the period ends.
Two configurations that cause harm
Both are common and both are visible in receipt timing data.
Three way everywhere
Applied to services and categories where receipting is impractical, which generates exception volume and encourages bulk receipting that hollows out the control.
Two way by default
Chosen for throughput at implementation and applied to goods categories where delivery evidence matters, which is where payment for undelivered goods becomes possible.
How ChatFin works with matching
We prepare the matching and the exceptions. The configuration and the control design remain yours.
Matching policy, tolerances and the decision about which categories require delivery evidence remain with your team and your auditors.
AI Cost Estimator for the CFO Office
Four inputs. A first year range, a timeline, and three delivery models compared. No login required.
Frequently Asked Questions
Is two way matching acceptable?
For categories where receipting is impractical or notional, such as many professional services, it can be the more honest design provided a substantive approval by the person who received the service is required and evidenced. For goods categories it removes the control most relevant to delivery risk.
What is the biggest risk with two way matching?
Payment for goods or services never received, since nothing in the process connects the payment to a delivery event. That risk is addressed by a compensating control, which has to be named, operated and evidenced rather than assumed.
How do we know whether receipting is real?
Look at the timing. Receipts created in bulk, or created after the invoice arrives, indicate that receipting is being performed to release payment rather than to record delivery. That is a control failure regardless of what the configuration says.
Should matching rules differ by category?
Yes. A single default across all spend either generates unmanageable exception volume in categories where receipting is impractical, or removes delivery evidence in categories where it matters. The design should be made by category with a written rationale.
The configuration is a control design, not a setting.
Listing spend by match type, testing whether receipting is real and naming the compensating control where two way matching applies is what turns an inherited configuration into a decision.
If you want a first year range for prepared matching and exception handling on your ERP, the estimator will produce one before any scoping.
Open the estimatorBook a Demo
See what this looks like in your ERP.
We will walk through the workflow behind this article on the system you already run, using your own data, and show what a first phase would actually cover.
This article is general information for finance and accounting teams. It is not legal, tax, accounting or investment advice. Dates and thresholds are given as published at the time of writing and several of these timelines have moved before, so confirm the current position with your advisers and with the relevant authority before acting.