What is Invoice Reconciliation?
All the Basics You Should Know about Invoice Reconciliation
Invoice reconciliation is a process of confirming and matching every detail in invoices. The process includes sorting all invoices to match with corresponding bank statements, so all accounts can be balanced.
In accounting terms, reconciliation means using more than one record to make sure that all figures are matching and are in agreement with each other. It can also mean that the business owner is trying to confirm all accounts 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 products and services sold or offered. It always includes price and tax charges, if applicable, and payment terms.
Reconciliation is the process 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.
Why You Should Have Invoice Reconciliation?
Performing invoice reconciliation is mandatory for all the businesses on a regular basis. This is the best suitable way for the accountants to examine the 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 process will help you up to date your bank statement and accounts so that you can keep track of all the transactions on a regular basis.
How To Reconcile An Invoice?
Reconciliation of invoices is essential and needed for the sake of running the business smoothly. It also helps the business owner keep tabs on fraud detections.
Matching all figures and accounts to the invoices outside and the ones received, and also to know the customers who haven’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 all 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 process. Firstly, sort all invoices by month so that reports can be run to reflect all outstanding payments; this will provide you with a simple process.
Vendors often have their methods of naming and sorting invoices, making sure you can access invoice numbers, reference numbers, date of the amount due, alongside other data to help you organize the process.
CREATE A CHECKLIST
Prepare a checklist to help you through the process 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 than?
- 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 statements and bank statements manually must be a time-consuming task for most of the businesses.
That is the reason, modern companies moved to automated processes. This automated process does all the time-consuming tasks saving all the extra efforts. The system automatically pinpoints the errors and mistakes. For example, the software or tool will indicate all the matched transactions 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. The procurement system automates the matching of purchase orders by reconciling statements based on the invoices generated and you will be able to find any discrepancies at the same time.
The system also matches purchase orders with the balance sheet, bank account, supplier invoices, vendor invoices, payments, payment discounts, remaining amount, services, and all the other invoice processing. The system will also show flags where the accountant needs to pay attention and check manually. If the system finds any irregularities you should reconcile 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, there are many business owners that believe in traditional manual methods. Both methods 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. You will also be able to track the professional invoices. By using invoicing software you will be able to simplify the payment processes along with the invoice status.
The best way to simplify the invoice process 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 process or you can choose to have a complicated set of rules, it completely depends on you and your team members’ ability.
Important Tips for Invoice Reconciliation
Every business has its own way of dealing with their finances and accounting. To make their workload easy they try to search for quick ways of dealing with their financial transactions, 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 date 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 products 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 services or product 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 tips 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.