Three way matching in accounts payable is the comparison of the purchase order, the goods receipt and the supplier invoice before payment. It is the central routine control of the function, it is cheap when all three documents exist, and it cannot run at all when any of them is missing, which turns out to be the main thing to understand about it.
What is compared
Supplier identity, unit price, quantity and total, ideally line by line rather than on document totals. Line level matters because one ordered line often arrives in two deliveries and is invoiced separately, and comparing totals turns an entirely normal situation into an exception that a person has to clear.
What tolerance is for
Real invoices differ from real orders constantly through rounding, freight added at billing and part deliveries. Tolerance is how large a difference may pass unexamined. A percentage with an absolute cap is the usual shape, so a proportionally small difference on a large invoice does not slip through. Review it after a month against real exceptions.
Where it fails, and why that is not a matching problem
Most failures are absences rather than disagreements: no order raised, or no receipt recorded. Both are generated outside payables, by buying without an order and by deliveries nobody registers. Counting exceptions by reason usually puts these at the top, which points the improvement upstream rather than at the matching engine.
Questions people ask about three way matching in accounts payable
Who should record the goods receipt?
Whoever takes the delivery, at the time. Recording it later from memory or from paperwork in an office loses both accuracy and days.
Should we ever override a mismatch?
Within a defined tolerance and with the reason recorded. Unrecorded overrides turn the control into a formality nobody can audit.
How do we raise our clean match rate?
By raising purchase-order coverage and receipt timeliness. Those are the two inputs, and neither is a software setting.