What is four-way matching in accounts payable, and which four documents are matched?

Which four documents are compared, and which one is added?

AccountingTools defines four-way matching as a comparison of the purchase order, receiving report, supplier invoice, and inspection or quality approval before payment is authorized. Oracle's documentation for Fusion Cloud Procurement shows where the extra leg sits: its three-way level requires purchase order, receipt and invoice quantities to match within tolerance before the invoice can be paid, and its four-way level adds accepted quantities from inspection.

Each document comes from a different place and proves a different thing:

The added document is the acceptance record. A frequent error is to reach four by counting the vendor's packing slip and your receiving report separately. They are one leg: both describe what arrived and neither says whether it conforms, so that count yields four pieces of paper but only three independent checks.

What does acceptance verify that receiving cannot?

Receiving confirms the right item, the right count and no visible damage. It cannot tell whether a machined part holds its tolerances, whether a batch passes its test or whether installed equipment works. The Federal Acquisition Regulation, which governs U.S. federal purchasing, draws the line plainly: acceptance is acknowledgment that the supplies or services conform with applicable contract quality and quantity requirements.

Under the uniform text of Uniform Commercial Code section 2-606, as enacted in your state, goods are accepted if you fail to make an effective rejection after a reasonable opportunity to inspect them. Record the decision promptly, and send any rejection to the vendor in writing, not just to your own files.

In what order do the documents arise, and who acts at each step?

The documents usually arise in this order:

1. Purchase order. Purchasing issues it and marks the line for four-way matching. The Research Foundation for SUNY's procedure defaults to two-way matching; where three- or four-way matching is required, it must be set on the purchase order when the order is created.
2. Receiving report. Whoever takes delivery records the quantity received against the purchase order.
3. Acceptance record. The inspector or designated acceptor checks the goods against the specification. The Research Foundation's procedure records inspection information, such as quantity accepted or rejected, as a separate step after the receipt is entered.
4. Invoice match. The vendor's invoice, which may arrive before acceptance, waits in accounts payable until all four documents agree.

The acceptance is worth something only as an independent judgment. Georgia's State Accounting Office, in its statewide internal-control guidance, separates authorizing, recording, reviewing and asset-handling duties so that no one individual controls all key aspects of a transaction. Here that means the acceptor is neither the person who signed for the delivery nor the clerk who enters and pays the invoice.

Which fields are compared at each leg?

The Research Foundation's procedure matches the invoice to the purchase order for quantity and amount, and to receiving and inspection information. Laid out by leg:

The third row is the check three-way matching cannot make: the vendor is not paid for more units than passed, beyond whatever tolerance you allow. Under the same procedure, an invoice outside tolerance is placed on hold, and payment cannot be made until the hold is resolved or manually released. Any quantity tolerance on the acceptance leg is the number of rejected units you are prepared to pay for; set it to zero if you mean to pay only for accepted units.

Which purchases warrant the fourth leg?

Ramp's guidance is to reserve four-way matching for purchases where quality verification justifies the extra time and resources. Decide by purchase class when the purchase order is raised, not invoice by invoice:

Applying the fourth leg to everything is the opposite mistake: every invoice waits on an inspection, while the added assurance comes only from the narrow class where conformance is actually in doubt.

What must the acceptance record show for goods made to a specification?

For custom or specification-bearing goods, "accepted" means nothing unless the record says against what. A rejected custom part usually cannot be restocked or used elsewhere, so the loss has to be recovered from the vendor through the invoice. The record should show:

• The purchase order and line, and the drawing or specification number with its revision
• The characteristics checked, whether every unit or a sample was inspected, and the results
• The quantity accepted and the quantity rejected, with the reason for each rejection
• The acceptor's name and the date of the decision

What is the counterpart for services and project work?

Nothing arrives at a dock, but the leg still exists: the Research Foundation's matching procedure covers services ordered through a purchase order as well as goods. The counterpart document is written approval, by the person who requested and supervises the work, that the work billed meets the statement of work or milestone. A vendor's timesheet or completion notice is the vendor's claim, not your acceptance.

What does the extra leg cost?

Every four-way invoice waits for one more document. Ramp notes that waiting for inspection reports may push payments past due dates, and AccountingTools warns that matching delays can prevent a business from taking early payment discounts. Two practices limit the cost:

• Set an inspection turnaround for four-way purchases that is shorter than the vendor's payment terms and any discount window.
• Agree with the vendor at order time that payment terms run from acceptance, and write that on the purchase order.

How do you route an item that was received but not accepted?

Units received but not accepted are not payable until a path is chosen, and each path changes what you may pay:

Under Uniform Commercial Code section 2-606(2), accepting part of a commercial unit accepts the entire unit, so split a partial acceptance only between whole units.

The concession row needs care. Section 2-607 of the Uniform Commercial Code says an acceptance made with knowledge of a non-conformity cannot be revoked because of it, unless it rested on a reasonable assumption that the defect would be cured in time. Settle the price before signing. If you accept without a settled price, the same section says acceptance does not of itself impair your other remedies, but you must notify the vendor of the breach within a reasonable time after you discover it or should have, or be barred from any remedy. The journal entries for each path are a separate question.

How do you evidence acceptance without an inspection department?

Name an acceptor for each purchase class in advance:

• Specification goods. The acceptor is the person who wrote or owns the specification, such as an engineer, a production lead or the owner.
• Services and project work. The acceptor is the person who requested and supervises the work.
• Equipment. The acceptor is the member of your own staff who commissions or first uses it, not the vendor's installer and not the person who signed for the delivery.

Keeping the acceptor apart from receiving and payables is not always possible in a small office. The Georgia State Accounting Office's answer is that where segregation of duties is not practical because of limited personnel, management designs alternative control activities. Here, that means the owner either performs acceptance or reviews each acceptance record before payment is released.

The record need not be a separate form. The Federal Acquisition Regulation says acceptance is ordinarily evidenced by an acceptance certificate on an inspection or receiving report form or a commercial shipping document or packing list. A signed and dated acceptance block on the receiving copy works, provided the acceptor, not the receiver, completes it after checking.

Does your system hold an acceptance state, and what if it does not?

A system supports four-way matching only if it records accepted and rejected quantities separately from the quantity received and holds the invoice against the accepted figure. Oracle Fusion Cloud Procurement 26C's four-way match approval level requires purchase order, receipt, accepted-from-inspection and invoice quantities to match within tolerance before the invoice can be paid. To check your own system, look for an inspect, accept or reject step in receiving and a matching setting tied to accepted quantity.

If neither exists, run the leg by hand:

1. Mark four-way purchase orders when they are created, by class, vendor or a memo field.
2. Have the acceptor complete an acceptance record for each delivery. Use the fields in the acceptance-record checklist above, which include the purchase order and line.
3. Have accounts payable approve the bill only when the acceptance record is attached, and only for the accepted quantity.
4. Review open four-way purchase orders weekly for anything received but not yet accepted or rejected.

If you use QuickBooks Bill Pay Elite, Intuit's help describes a Bill Multi-Condition Approval workflow that makes a bill require approval before it is recorded and paid, triggered by amount, vendor or location. Making the acceptor the approver for designated vendors means no bill from them is recorded or paid until the acceptor approves it. The workflow does not compare billed and accepted quantities, so the acceptor must still approve only the accepted quantity.

How does one specification order move through all four documents?

A machine shop orders 200 aluminum brackets machined to drawing BR-104, revision C, at 18.50 each, on a purchase order marked for four-way matching. The four documents record:

The match runs leg by leg:

A three-way match would have paid 3,700.00, including 222.00 for parts the shop cannot use. Instead, the shop sends the vendor the rejection in writing the same day, returns the 12 brackets, and receives a credit memo for 12 × 18.50 = 222.00. Accounts payable releases 3,700.00 − 222.00 = 3,478.00, which is the 188 accepted brackets at 18.50. The dock records the 12 returned brackets as a return to vendor against the original receipt, so received quantity falls to 188 before the replacements arrive. The 12 replacements arrive on a new receiving report, go through acceptance, and are paid on their own invoice once accepted.