Invoice Reconciliation Process

The process of reconciling an invoice usually involves the following steps:

1. Gather all relevant documents

Collect all documents related to the purchase, including the purchase order, delivery receipt, and invoice.

2. Compare documents

You should compare the invoice against the purchase order and delivery receipt to ensure that the materials or services listed on the invoice match what was ordered and received. 

3. Resolving the discrepancies

If any discrepancies are found, they must be resolved by communicating with the supplier to acquire a revised invoice. This may involve negotiating a resolution, such as a price adjustment or a return of materials.

4. Enter the data into the system

Once the invoice has been reconciled and approved, the data can be entered into the accounting or procurement system for payment.

5. Pay the revised invoice

Once the invoice has been reconciled and approved, and any necessary approvals have been obtained, you should now pay it in line with the preferred payment terms of your supplier. 

6. Record-keeping

After the payment process, all documents related to the purchase, including the reconciled invoice, should be filed and stored for record-keeping and audit purposes.

Tips on Reconciling the Invoice

1. Find the right process for reconciliation

Using software can help you ease the burden regarding invoice reconciliation and provide assistance with your administrative tasks.

Initially, arrange your supplier invoices monthly, as this will enable you to generate reports that display overdue payments, simplifying the reconciliation process. 

As suppliers usually use their own labeling and formatting styles for invoices, it is essential to be aware of where key information, such as reference numbers, due dates, and other significant data, can be located.

2. Creating a checklist

You must develop a list of items to include in your invoice reconciliation process that will assist you in resolving discrepancies.

This list might include:

• Confirmation of any bank or financial institution transfer fees or currency conversion charges.
• Check whether the balance will be paid at a later date.
• Identify any discounts offered for early payment.
• Evaluate whether the supplier has undercharged or overcharged for any goods or services.
• Checking whether any amounts were carried over from a previous balance.

3. Using software

Entering the necessary information for reconciliation should not be a hard task or consume a significant amount of time. However, some business owners may not possess the required expertise, interest, or time to manage numerical data in a spreadsheet. 

To streamline this process, the most effective solution is to employ an online accounting software program that can match bank statement payments with outstanding invoices.

Benefits of Automated Invoice Reconciliation

1. Lower labor costs

Manually reconciling accounts can be a time-consuming procedure. Implementing an automated system enables you to use your workforce more efficiently and eliminates the need of hiring extra staff members to undertake the reconciliation process. Thus, resulting in an enhanced cash flow.

2. reduces the use of paper

Paper records can be misplaced or lost, ending up in the wrong department and resulting in delays of days or even weeks.

In some cases, they may become lost under piles of other paperwork or may not have been received at all. Adopting an automated accounts payable system eliminates the issue of missing or misplaced invoices permanently.

Additionally, the switch to an automated accounts payable system can significantly decrease the number of paper documents you need to handle daily.

3. Eliminates bottlenecks

Manual invoice and accounts payable reconciliation may typically cause delays, which can result in financial losses, such as late invoice approvals. Thus, missing the opportunity to gain beneficial payment terms such as early payment discounts.

These bottlenecks can also lead to invoices becoming past due, causing late payment charges, penalties, and interest fees that can quickly accumulate.