Invoices come in from vendors, and you send money out. Invoices get sent to customers, and you get money in.
At least, that’s the way it’s supposed to work. But statistically, at least 13 percent of invoices get paid late, which can throw your accounts into chaos and impact profitability. Invoice reconciliation matches your bank statements to the incoming and outgoing invoices to ensure everything matches up.
Done manually, this process can be a tedious monthly chore. But there are ways to simplify and streamline this critical task so you can focus on your customers rather than your accounting ledgers.
What To Look For
Before you get started, it’s good to understand what you’re looking for as you do your reconciliation. Fortunately, you don’t need fancy financial industry experience to figure it out! Your job is to look for anomalies and determine the reason for them.
Some can be innocent like a client paying the wrong amount, while others can indicate fraud or an error in your billing. More than 60 percent of late payments can be tied to incorrect invoices. With client invoices, you want to be checking the following:
- Payment amount matches the invoice
- Payment was made for an invoice
- Invoice sent was accurate
With invoices you receive from a vendor, you should be checking:
- Invoice matches what you purchased
- Invoice amount matches the agreed-on amount
Simple Invoice Reconciliation Process
Your process needs to include checks and balances for good internal controls and be easy enough that you will follow through on doing it monthly. Most accounting software can check invoices against your bank statements, while project management software can check invoices against purchase orders. You can take it one step farther by connecting those with something like QuickBooks construction project management.
The basic steps for reconciliation cover your orders, vendor invoices, and client invoices.
- When you receive orders or services
- Check you got what the packing list says was sent
- Check it was what you ordered and everything you ordered
- When you get vendor invoices
- Don’t pay until you receive goods/services unless you have to pre-pay
- Compare invoice to purchase order to see what was ordered and the price agreed to
- When you send client invoices
- Check that the client paid
- Check that they paid the correct amount
- Follow up with them if they haven’t made a full payment
Keep Your Invoices Organized
Whether you’re tracking money going out or money coming in, invoice reconciliation helps you stay on top of your business’s cash flow and bank accounts. Taking time each month to organize your invoices and reconcile them against your statements ensures you take care of your bills and stay on top of client payments. Automating your system can streamline your process to connect the different parts of your business finances to ensure efficiency.
If you’re a small business owner, check out other articles on our site related to business ownership and running a smart business.