Invoice reconciliation is the process of matching bank statements to incoming and outgoing invoices. The purpose of invoice reconciliation is to confirm that the data entry is correctly matched with every invoice.
Author: Brad Nakase, Attorney
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Invoice reconciliation is important to ensure a business accounting record is accurate and current, and to avoid fraud or stolen money. The process ensures there are documents to support accounting data entry.
For example: Claudia is the owner of a small business in San Diego, California that sells luxury jewelry for both men and women. Every week, she deals with vendors who supply her gems, metals, and other materials. She also manages dozens of sales every week, which means that Claudia is constantly swamped by the invoice reconciliation process. She and her team of employees go through invoices at the end of every week to match purchase orders with received goods, as well as receipts with items sold. Claudia is careful to avoid any errors, because she does not want to lose any money. Even errors of only a few dollars can add up over time, she reasons. However, she understands that the reconciliation process is taxing on her small team. Therefore, she decides to invest in accounting software that automates most of the process. This ensures that there are few errors in interpreting invoices, and Claudia can rest assured that her profits are safe.
By reconciling invoices, a business owner can recognize and avoid mistakes that might cost his or her company hundreds or even thousands of dollars. As a company grows, invoice reconciliation becomes even more vital because errors become more expensive and harmful. That said, getting together the resources and ability to reconcile invoices can be difficult and take a lot of time. This is especially the case if a business owner is unfamiliar with the process of invoice reconciliation.
The following three points describe why having an invoice reconciliation process is necessary.
Invoice reconciliation may be a back-office process, but it affects the experience for vendors and customers. If a business’ invoice reconciliation process is full of errors, then it can cause payment delays or incorrect invoices to be sent to vendors and customers. This can create customer service issues.
The harsh reality is that not all employees are honest or loyal, which means invoice reconciliation is the primary means of defense against accounting mistakes and fraud. If a business lacks a good reconciliation process, it can be easy for mistakes and fraud to go unnoticed. If you believe there is an accounting fraud, please contact Nakase Wade accounting fraud lawyer for a free consultation.
As a business’ transaction volume increases, invoice reconciliation can eat up an enormous amount of time. Luckily, it is possible for a business owner to improve his or her existing reconciliation process. This means a business owner should make sure his or her accounting team is working in a productive, efficient manner.
When a business reconciles invoices, it has two types of invoices to reconcile. The first type are vendor invoices, and the second type are customer invoices. These two types of invoices demand different reconciliation processes. It should also be noted that the process for reconciling vendor statements may differ a little based on whether a product or service was purchased.
In order to simplify the invoice reconciliation process, a business owner must first recognize the steps involved.
This process regards invoices that a business owner receives for buying new products.
Invoice reconciliation is so vital to a business that every accounting tool supports it. Depending on the tool that a business owner selects, he or she will be able to automate much of the invoice reconciliation process.
If a business owner has not yet downloaded an accounting software, then it is recommended that he or she do so. Generally, business accounting software is priced at about $15 a month. This is a small fee to pay in exchange for the benefit of an automated system that can drastically reduce errors and save a lot of time.
A business owner’s invoice reconciliation process may slightly differ from the one described above. It is important that a business owner take the time to outline his or her process in detail. It may be helpful to draw up a checklist, which would include areas such as the following:
Invoice reconciliation may be affected by suppliers, accounting software, and the size of a business owner’s team. Therefore, each business owner’s process may vary slightly. The task a business owner faces is to find a process that fits his or her needs. This may take more than one attempt to achieve. Because of this, it is recommended to test an approach before committing to it. In the end, a business owner will settle on a process that works for him or her, their employees, as well as customers and vendors.
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