What is Invoice Reconciliation?
Sep 22, 2020
All the Basics You Should Know About Invoice Reconciliation
The invoice reconciliation process is a process of confirming and matching every piece of information in invoices. The process includes sorting each and every invoice to match with corresponding bank statements, so each account can be balanced.
In accounting terms, reconciliation means using more than one record to make sure that all figures are identical and are in agreement with each other. It can also mean that the organization is trying to confirm each account payable and the invoices within a given period, to reach a balance.
Reconciliation provides stability and accuracy to financial accounts and reports.
Difference Between Invoicing and Reconciliation
Invoicing is the process of curating a detailed bill for line items, products, and services sold or offered. It always includes price and tax charges, if applicable, terms and conditions, and requests for using appropriate links.
Reconciliation is the procedure of comparing more than one record to ensure the money received is balanced with money spent and that the accounts are matching after comparing them to prevent check fraud.
Why You Should Have Invoice Reconciliation?
Performing invoice reconciliation is mandatory for businesses regularly. This is the best suitable way for accountants to examine specific accounting records and bank statements. Based on their findings they need to update the status of invoice amount and transactions made for that particular period. The reconciliation procedure will help you up-to-date your bank statement and account operations so that you can keep track of each and every transaction on a regular basis.
How To Reconcile An Invoice?
Reconciliation of invoices is essential and needed for the sake of running the organization smoothly. It also helps the business owner keep tabs on fraud detections. Fraud prevention is equally important as running a business. In other words, you need to be very careful when it comes to hard-earned money.
Matching the exact figures stated in spreadsheets and accounts to the invoices outside and the ones received, and also to know the buyer who hasn’t paid and payments to be made are the reasons for reconciliation.
Here are super important tips that will help you reconcile invoices.
USE INVOICING SOLUTION
An invoicing solution will make the data simplified with less time to execute the task. Some business owners are always tied up with activities and may not focus on balancing figures and matching accounts. An online invoicing solution will help you reconcile your invoices within a given period you input into the system.
FIND THE RIGHT PROCESS
Accounting software will bear the strain during the invoice reconciliation process, but you have to organize the administrative procedure. Firstly, sort each and every invoice by month so that reports can be run to reflect each outstanding payment; this will provide you with a simple procedure.
Vendors often have their methods of naming and sorting invoices. Vendors make sure you can access invoice numbers, reference numbers, date of the amount due, alongside other data like accurate timing that results in getting organized the procedure.
CREATE A CHECKLIST
Prepare a checklist to help you through the procedure of reconciliation; it helps if you’re dealing with large figures.
Your checklist should be based on aspect like:
- Did any bank or financial institution charge you?
- Was there a time you issued a discount for early payment?
- Did the supplier charge you more than the actual price or less?
- Are you paying the overdue balance later?
- Was an amount rolled over without you noticing it?
Manual vs. Automated Invoice Reconciliation
In the past, businesses used to do manual billing reconciliation by going through the document by document, line by line. Attempting to reconcile each and every statement and a bank statement manually must be a time-consuming task for most businesses.
That is the reason, modern companies moved to automated processes to achieve their goal. This automated procedure does the time-consuming tasks, saves the extra efforts, and solves the issues businesses and users face. The system automatically pinpoints the error and mistake. For example, the procurement software, platform, or tool will indicate all the matched transactions for the item such as whether the vendor has paid in full or partially paid or still not paid. This will help accountants to reduce their time on miscellaneous tasks and problems. It also helps them take action immediately.
The procurement system automates the exact match of purchase orders by reconciling invoices based on the invoices generated and you will be able to find any discrepancies at the same time when the delivery occurred. The advanced version of the online platform also offers some additional features and capabilities to resolve the problem of reconciling statements and allow to make adjustments according to that.
The system also matches purchase orders with the balance sheet, bank account, supplier invoices, vendor invoices, vendor records, payments, payment discounts, remaining amount, list of goods and services, profit and loss statement, and the other invoice processing.
The system will also show flags for the account-related issues where the accountant or approver needs to pay attention and check manually for account reconciliation. If the system finds any irregularities in costs you should reconcile and check the statement right away. This is ideal to prevent human errors and quickly find out the past due invoices.
Most businesses nowadays use various tools that help them out with their accounting needs. Still, many business owners believe in traditional manual methods. Both techniques are appropriate in their own way. But choosing the right and best suitable method depends on your business requirements. You must choose the one that helps you save your team’s valuable time and efforts.
Simplify Invoice Reconciliation
Managing your own business finances is definitely a tough job along with the other business tasks. So, you should focus on simplifying the invoice statement reconciliation by using payment systems to automate and organizing reconciling invoices and records. You will also be able to track the professional invoices and make any changes if needed. By using invoicing software you will be able to simplify the payment processes along with the invoice status, this will impact your revenue.
The best way to simplify the invoice procedure is to use the right tool that allows you to perform all the tasks on behalf of you without creating a hassle for you. You can follow the most basic rules for simplifying the procedure or you can choose to have a complicated set of rules, it completely depends on you and your team members’ ability.
Important Suggestions for Invoice Reconciliation
Every business has its own way of dealing with its finances and accounting. To make their workload easy they try to search for quick ways of dealing with the financial records that help them identify the mistakes they should avoid.
There are plenty of things you need to keep in mind while doing invoice reconciliation. The first thing is that you need to make sure you are filing your invoices by using a deposit dates format and make entries as soon as you receive the payment. Put all the documents in chronological order, so it will be easier for you to keep track of the data. Then when you perform invoice reconciliation processes, you can skip the lengthy steps.
Many business owners miss making entries when they receive payment for their goods or services and then they won’t be able to find out the missing entries at the time of the audit. So, it is very important to keep entries as soon as you receive any kind of payment for the goods and services or items you sold to your clients. You should make a habit of reconciling invoices as soon as the shipments depart and receive and make sure you are not overpaying the vendor or the inventory is not empty. These little suggestions will help you with up-to-date transaction information between you or your clients, so both of you will have entries to cross-check the data.