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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Invoice Reconciliation — Everything You Should Know

Key takeaways

  • Invoice reconciliation is the process of comparing supplier invoices with purchase orders to ensure they match
  • It ensures you only pay for what you ordered.
  • This process prevents overpayments, catches fraudulent activity, and guarantees accurate financial records.

Invoice reconciliation can help businesses in fixing issues regarding payments. However, many people view it as a minor task. 

In this article, we will discuss what invoice reconciliation is. We will tell you how important it is in your procurement process. We will show you the process and tips on reconciling your invoice. Additionally, we will show you the benefits of using automation to reconcile your invoice. 

After reading this article, you should be able to reconcile your invoices efficiently. This will enable you to find out if there are mistakes in the invoice sent to you. 

Invoice Reconciliation: What is it?

Invoice reconciliation is the process of comparing the bank statements to outgoing and incoming invoices to ensure that all accounts are clean. It helps businesses to avoid paying for something they did not receive, overpayments, and even underpayments. 

Simply, billing reconciliation is matching every piece of information in invoices. The process includes organizing each invoice to match with corresponding bank statements so that every account can be balanced. 

In procurement, invoice reconciliation refers to the process of checking the invoices received from a supplier with the purchase orders to verify if they match. 

During the reconciliation process, discrepancies between the purchase order and invoice are identified. Any discrepancies are usually reported back to the supplier, who may need to issue a new or revised invoice to resolve them. 

Furthermore, invoice reconciliation ensures the accuracy of accounting and financial reporting, as well as maintaining good relationships with suppliers. 

Why is it Important?

Invoice reconciliation is a crucial part of procurement as it helps to guarantee transparency and accuracy in financial transactions between the business and the supplier. 

Invoice reconciliation can help a business to have robust internal controls, which enables you to detect if there are any fraudulent acts regarding invoices. 

Additionally, it can also prevent overpayment by ensuring that the invoice amount matches the purchase order. Thus, helping you to create accurate financial reporting, forecasting budgeting, and financial analysis. 

Furthermore, it improves your relationship with your suppliers by promptly reconciling invoices, resolving any discrepancies, and avoiding payment delays or disputes.

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

In case you need them, here are some 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

If you’re wondering what the benefits of automated invoice reconciliation are, then you need not wonder anymore!

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 outstanding 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.

Conclusion

Invoice reconciliation, often overlooked as a minor task, plays a crucial role in fixing payment issues for businesses. This article delves into the concept, emphasizing its importance in the procurement process. The reconciliation process, tips for efficient reconciliation, and the benefits of automation are discussed to empower readers in identifying and rectifying invoice mistakes.

Frequentlyasked questions

What is invoice reconciliation in procurement?

It is the process of checking the invoices received from a supplier with the purchase orders to verify if they match.

Why is it important?

Invoice reconciliation is important as it ensures that the company is only paying for goods or services received and that the payment is made on time.

How can software assist in invoice reconciliation?

Software can assist invoice reconciliation by simplifying the process by automating tasks such as data entry, report generation, and matching invoices to purchase orders and receipts.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics