Being a business owner, have you ever faced an issue like irregularities in your invoice? God forbid you to don’t! But what if such a situation arises? This may turn out to be a recurring issue for those companies that rely on external vendors for goods and services.
To understand the criticality of such a situation, it is important to understand what invoice reconciliation is. This is a process of matching bank statements with the incoming and outgoing invoices to ensure that the account is clean and matches correctly with every book entry. The reconciliation process involves two figures that should be matched with each other during the recording period. One is the money leaving the bank account, and the other is the money being spent.
Here in this article, we have covered the details of invoice reconciliation and how to do it. If you are unsure how to reconcile your invoices, then continue reading this article!
Difference between invoice and reconciliation
Invoice is the itemized list of services or products offered along with the total cost. The invoice is sent after the job is done. Sending the invoice gives a clear picture to the client about the work performed and the amount due.
Whereas, if any anomalies rear their head causing irregularities in the amount leaving the bank account and money spent, then you use a reconciliation process to identify the black hole. This process ensures whether the irregularities caused are due to fraud or not.
What is the purpose of invoice reconciliation?
Invoice reconciliation is an accounting process that compares two sets of records when any abnormalities are found. To understand the process of reconciliation it is important to know the probable situation that demands this correctional method. Below situations can call for invoice reconciliation:
- If an invoice is not fully paid
- Misplaced or duplicate invoices
- Early payment discount already applied
- An error in timing when the bank statement reflects the payments and deposits.
- Payment delay due to delayed delivery of products
- Fee charged for international currency transaction by the bank
The main purpose of invoice reconciliation is to identify fraudulent activities and track the timing issues. Invoice reconciliation checks issues with fraud, which can be better controlled by automating the process. This way you can set well-defined permission to prevent fraud. Reconciling invoices also helps to investigate the problem behind the mismatch of payment dates.
Types of invoice reconciliation
Manual reconciling invoices is a tiresome and daunting task practiced in earlier days. It involves cross-checking the details line by line which takes a lot of time and effort. This is a lengthy process and hence creates high chances of errors.
Automated invoice reconciliation involves integrated procurement system software and online tools like Billbooks. This reduces the amount of work and points out the discrepancies very easily.
Steps to reconcile invoices
Invoice reconciliation is a vital step that can be implemented to keep your account records clean, up to date, and protected from fraud. Matching the data in the bank statement with invoices coming in and going out, helps you to track every transaction. Take a look at the elbow steps to reconcile your invoices
Organize your invoices:
Organizing all your invoices helps a lot to understand the anomalies. Arrange the invoices sent by the vendor according to the date. This helps to understand why a certain invoice is delayed or what caused the mismatch in the time of deposit.
Check thoroughly the vendor statement with your invoice to ensure that the amount mentioned in the invoice matches with what you have received.
Mark off each line:
Check each line of the statement and invoice to find accuracy in date, items delivered, and invoice number as well. If all the points match, place a checkmark to show your approval.
Note down the discrepancies:
While verifying the invoices and statements if you find any discrepancies do note them down. Reach out to the vendor for an invoice copy. Cross verify and if you find issues with invoice number or amount, then put a note about the inaccuracy.
Add up your invoice:
After verifying the details, sum up all your invoices for a particular vendor. Check whether the amount matches with the one mentioned in the statement or not.
Additional tips of invoice reconciliation
Put all your invoices in chronological order of date to keep easy track of them. Besides, a few other quick tips can make your reconciliation process much easier and faster. Take a look!
Make the process simpler:
Running a business isn’t an easy task. And controlling your finances smoothly is even more difficult. A situation may arise when you need invoice reconciliation. You can implement an automated process for reconciling invoices to reduce your load and get your work done smartly. This organizes your process and minimizes the amount of time spent.
Juggling with the numbers in a spreadsheet is not everybody’s cup of tea. Moreover, business owners are so engaged in their work that they might not have enough time to deal with these. Therefore, it is best to have an online invoicing tool like Billbooks that would speed up the entire process.
Create a checklist:
In cases where the reconciliation cannot be done create a checklist to cover all the probable situations to understand what caused the mismatch.
Access to smart payment processes like Billbooks to create professional invoices. Keep a track of each transaction to avoid any last-minute hassle. Organize your payment system and analyze how it’s panning out for better performance.