Optimising Business Processes with 3-Way Matching in Dynamics 365 F&O

In the fast-paced world of finance, ensuring that all transactions between a business and its vendors are accurate is crucial. Dynamics 365 Finance and Operations (D365 F&O) offers a comprehensive solution in 3-way matching, a mechanism designed to safeguard against discrepancies in vendor invoicing and payment processes. This article explains the detailed workings of 3-way matching, including total invoice and line-level matching policies, illustrating the potential for discrepancies when this system is not correctly configured. We will also navigate the setup process in D365 F&O and discuss challenges and resolutions to provide a holistic understanding of its impact on Business as Usual (BAU).

Understanding 3-Way Matching

3-way matching in D365 F&O involves verifying three critical documents before processing a vendor invoice:

Purchase Order (PO):

The official order placed by a company for goods or services.

Product Receipt:

Documentation that the goods have been received or services rendered, matching the order's specifications.

Vendor Invoice:

The final bill from the vendor should correspond with the PO and Product receipt.

This process ensures that payments are made only for ordered and received items, thus preventing overpayments or payments for non-delivered items.

Implementing 3-Way Matching in Dynamics 365 Finance and Operations

Step-by-Step Process and Navigation

Step 1: Configuring 3-Way Matching Settings

• Navigate to: Modules > Accounts payable > Setup > Accounts payable parameters.
• In the Tax Invoice validation tab, set the Matching policy to include both line-level and total invoice matching.
• This configuration is crucial for businesses that deal with complex orders where items may be billed separately.

Step 2: Purchase Order Creation

• Go to: Procurement and sourcing > Purchase orders > All purchase orders > New.
• Fill in the necessary details such as Vendor, quantities, and prices, then confirm the purchase order. This serves as the baseline document for future matches.

 Step 3: Recording Product Receipt

• Once goods are received, update the receipt by navigating to the corresponding PO and recording the receipt of goods under Product receipt.
• Accuracy here is vital to ensure that what was ordered has indeed been received as per the PO terms.

Step 4: Invoice Processing

• Vendor invoices should be entered at: Accounts payable > Invoices > Invoice journal.
• The details entered here will automatically be checked against the corresponding PO and Product Receipt.

Practical Example: Manufacturing Firm

Consider a manufacturing firm that orders 100 steel tubes at $10 each. The PO and Product Receipt confirm the order and receipt of these tubes. However, an invoice is received for $12 per tube, totalling $1,200 instead of the expected $1,000.

Discrepancies Identified:

• If only total invoice matching is enabled, discrepancies at the line level, such as per-unit cost, might be overlooked, potentially resulting in overpayment.

Resolution:

• With line-level matching enabled, D365 F&O flags the unit price discrepancy. The accounts payable team would then verify the agreed price per the PO, engage with the vendor to correct the invoice, and ensure alignment across all documents.

Impact on Business As Usual (BAU) and Challenges

Benefits:

• Financial Accuracy: Ensures that payments reflect the actual goods received or services rendered.
• Compliance and Audit Readiness: Facilitates easier audits by ensuring all transactions are validated and documented.

Challenges:

• Complex Setup: Configuring matching policies in D365 F&O can be complex and requires understanding specific business needs.
• User Training: Employees must be trained not only in software use but also in understanding the importance of each step in the 3-way matching process.

Resolutions:

• Regular Review and Testing: Regularly review the matching settings to ensure they meet the changing needs of the business.
• Focused Training Sessions: Implement targeted training sessions that address specific aspects of the 3-way matching process, highlighting the importance of accuracy and compliance.

Conclusion

Introducing a 3-way matching system in Dynamics 365 Finance and Operations is more than just adopting new technology; it’s about making this technology a core part of your business routines to boost effectiveness and ensure accurate financial records. Proper setup and maintenance of this system can greatly decrease the likelihood of financial errors, making your business operations more reliable. This strategic alignment helps enhance the smooth running of your operations and strengthens the trustworthiness of your financial transactions. By doing so, you not only prevent costly mistakes but also build a stronger, more resilient transactional structure. This proactive approach is essential for maintaining financial health and operational stability in any forward-thinking business.