On this page
- The documents involved
- What a goods receipt note is
- What a three-way match is
- Two-way and four-way matching
- A worked example
- How invoice approval works end to end
- Tolerances
- Typical exceptions and what to do
- Why matching fails in practice
- A weekly routine for accounts payable exceptions
- Controls that complement the match
- Manual or automated
- Invoice approval for services and subscriptions
- A short glossary
- Related reading
- Frequently asked questions
Key takeaways
- A goods receipt note (GRN) records what was actually received against a purchase order.
- Three-way matching compares the purchase order, the GRN and the invoice before payment.
- Two-way matching skips the receipt and fits services or low-risk spend.
- Exceptions such as price or quantity differences need an owner and a deadline, or invoices pile up.
- Tolerances let small differences pass automatically so people focus on real problems.
A supplier invoices for 100 units. Your warehouse received 96. The purchase order said 100. If nobody compares the three records, you pay for four units that never arrived.
Multiply that by a few thousand invoices a year and you can see why every finance team cares about invoice approval.
The documents involved
| Document | Created by | Shows |
|---|---|---|
| Purchase order (PO) | Buyer | What was ordered, at what price and quantity |
| Goods receipt note (GRN) | Warehouse or receiving team | What was actually delivered and in what condition |
| Invoice | Supplier | What the supplier is asking to be paid |
Details on the first are in our purchase order guide.
What a goods receipt note is
A goods receipt note, often called a GRN, is an internal record created when goods arrive. It states which purchase order the delivery belongs to, the quantity received, the date and the condition. It may also record who received it and any damage.
A goods receipt note is a document that confirms what was delivered against a purchase order, so that payment can be matched to real receipt.
For services, the equivalent is a service receipt or completion sign-off from the person who requested the work. The principle is identical: someone confirms the thing happened.
What a three-way match is
In a three-way match, accounts payable compares three documents before approving payment: the purchase order, the goods receipt and the supplier invoice. They should agree on supplier, items, quantities and prices, within defined tolerances.
| Check | Compare | Catches |
|---|---|---|
| Price | Invoice price against PO price | Overcharging, price changes without agreement |
| Quantity ordered | Invoice quantity against PO quantity | Billing for more than ordered |
| Quantity received | Invoice quantity against GRN quantity | Billing for goods not delivered |
| Supplier | Invoice supplier against PO supplier | Fraud, mistaken payee |
| Totals and tax | Calculated totals against the invoice | Arithmetic and tax errors |
Two-way and four-way matching
- Two-way match. Compares the PO and the invoice only. Suited to services, subscriptions and low value spend where a receipt adds little.
- Three-way match. Adds the goods receipt. The standard for physical goods.
- Four-way match. Adds an inspection record for quality. Used where quality acceptance matters, as in manufacturing or construction.
A worked example
Purchase order: 100 units at 12.00 dollars each, total 1,200 dollars.
GRN: 96 units received, 4 back-ordered.
Invoice: 100 units at 12.00 dollars each, total 1,200 dollars.
The invoice quantity (100) does not match the GRN quantity (96). The system flags an exception. Accounts payable asks the supplier for a corrected invoice for 96 units at 1,152 dollars. The remaining 4 units are invoiced when delivered. The check prevented an overpayment of 48 dollars.
How invoice approval works end to end
- Receive. The invoice arrives and its data is captured: supplier, number, date, lines, tax and total.
- Validate. Check it is not a duplicate and that the supplier is active.
- Match. Compare it to the PO and GRN.
- Resolve exceptions. Investigate and fix differences.
- Approve. Route to the right approver if the match requires judgment or the amount crosses a threshold.
- Schedule payment. Pay according to the agreed terms.
- Post and archive. Record in the ledger and keep the documents.
This is the back half of the procure to pay process. Our invoice approval workflow page shows how to set the routing.
Tolerances
Requiring exact matches on every line creates a flood of exceptions over trivial differences. Set tolerances so that small, harmless variances pass automatically.
- A price tolerance, for example up to 2 percent or a small amount.
- A quantity tolerance for bulk goods that vary in weight or count.
- A rule for freight and tax differences.
- Zero tolerance for supplier mismatch and duplicate invoices.
Choose your numbers by reviewing a few months of exceptions and asking which would you have wanted to see. Tolerances are a policy decision.
Get the next guide in your inbox
We publish plain-language guides for people who buy and run procurement software. Leave your email and we send you new ones as they go live.
Typical exceptions and what to do
| Exception | Likely cause | Action |
|---|---|---|
| Price higher than PO | Price rise, wrong rate, missed discount | Check the contract, ask the supplier, correct either the PO or the invoice |
| Quantity higher than GRN | Partial delivery or receiving not recorded | Check with receiving, hold until confirmed |
| No GRN found | Goods not received or receipt not entered | Ask the requester to confirm receipt |
| No PO found | Purchase made outside process | Route for retrospective approval and flag it |
| Duplicate invoice | Resubmission or supplier error | Reject and tell the supplier |
| Wrong supplier or bank details | Error or fraud | Stop payment and verify through a known contact |
Why matching fails in practice
- Receipts are not recorded. The warehouse is busy, the receipt happens days late and invoices stall.
- POs are vague. Descriptions on the PO do not match the invoice wording.
- Purchases happen without POs. There is nothing to match to.
- Nobody owns exceptions. They sit in a shared inbox.
- Rules are too strict. Every small price difference becomes a ticket.
A weekly routine for accounts payable exceptions
- Monday: list all invoices on hold, sorted by age.
- Assign every held invoice to a named person with a due date.
- Call suppliers on any with price disputes. Do not rely on email alone.
- Chase receiving for missing GRNs older than three days.
- Report to the finance lead: number on hold, oldest, total value, top cause.
A recurring cause appearing in the report, such as a particular supplier with wrong prices, is a process problem to fix at source, not an exception to keep clearing.
Controls that complement the match
- Separate the people who create POs, receive goods and approve payment.
- Verify any change to supplier bank details by call back.
- Run duplicate checks on supplier, invoice number and amount.
- Report invoices paid without a PO.
- Review aged exceptions weekly.
Manual or automated
At a few dozen invoices a month, a spreadsheet and a careful person can do the match. At hundreds, invoice capture and automatic matching save hours and catch more. See accounts payable automation software and purchase order software.
- Invoice captured with supplier, number, date, lines and total.
- Duplicate check passed.
- PO found and matches supplier.
- Goods receipt or service sign-off recorded.
- Price and quantity within tolerance.
- Exceptions assigned to a named person.
- Approver matches the approval limit.
- Payment scheduled to agreed terms.
Invoice approval for services and subscriptions
Services have no warehouse receipt, so the check moves to people. The requester or budget owner confirms the work was done and the amount is right. For recurring subscriptions, a quick monthly confirmation is overkill, so many teams approve the rate once at contract start and review only when the amount changes.
Whatever your rule, write it down and keep the evidence. "The manager said it was fine" is not evidence. A recorded approval with a date is.
A short glossary
- Accounts payable (AP). The team that pays supplier invoices.
- Accrual. An expense recorded before the invoice arrives.
- Credit note. A document from the supplier reducing the amount owed, for returns or corrections.
- Early payment discount. A price reduction for paying before the due date.
- Remittance advice. A notice telling the supplier which invoices a payment covers.
- Tolerance. The allowed gap between invoice and order before a match fails.
Related reading
Return to the first half of the chain with the purchase order guide and the purchase requisition guide. For the whole picture, read the procure to pay process.
Frequently asked questions
What is a goods receipt note?
It is an internal document that records what was delivered against a purchase order, including quantity, date and condition, so payment can be matched to what actually arrived.
What is a three-way match?
It is a check comparing the purchase order, goods receipt and supplier invoice. If they agree within tolerance, the invoice is approved for payment.
What is the difference between two-way and three-way matching?
Two-way compares the PO and invoice. Three-way adds the goods receipt, which confirms the goods or services actually arrived.
What is a GRN used for?
It proves delivery, supports the three-way match, updates inventory and gives evidence in disputes with suppliers.
What happens when an invoice does not match?
It becomes an exception. Someone investigates, asks the supplier for a corrected invoice or confirms the receipt, and the invoice is held until resolved.