HomeAccount PayableVendor Reconciliation: A Finance Guide for Accounting Teams

Vendor Reconciliation: A Finance Guide for Accounting Teams

Vendor payments represent a significant portion of your cash outflow, so it’s crucial to handle them carefully even after they are settled. This is where vendor reconciliation comes in. Without timely reconciliation, accounting teams often end up processing double payments.

Vendor reconciliation involves comparing your internal records and ledger with third-party and independent financial statements. It’s essential to ensure that your accounts payable ledgers align with your vendor’s statement.

In this article, we’ll discuss why vendor reconciliation is important, the steps involved, and its benefits.

What is Vendor Reconciliation?

Vendor reconciliation involves checking for any discrepancies between vendor invoices and the vendor’s account. This is done by comparing your accounts payable balance with your vendor’s balance. It helps uncover any mistakes or inconsistencies between the amount charged and the goods or services received by your business, making it a crucial step in managing accounts payable.

In the accounts payable vendor reconciliation process, you match vendor documents from various stages. This includes comparing paid and unpaid invoices with bank statements or receipts to track what’s been paid and what’s still owed. Other documents like vendor statements, purchase orders, and goods received note can also be used to ensure accurate matching.

A vendor statement, for example, lists all paid and unpaid invoices and credit notes. By comparing these documents systematically, any discrepancies are identified and recorded in a vendor reconciliation report.

What Is the Reason for Vendor Reconciliation?

There are several benefits of vendor reconciliation, which enables your business to:

  • Having better control over vendor spending: guarantee that the goods, inventory, or services the business receives match the vendor’s charges to prevent overpayments and underpayments,
  • Strengthening vendor relationships: vendor reconciliation encourages timely and accurate payments toward vendors, which is an opportunity to maintain good vendor relations.
  • Claim discounts: You can also view discounts that your vendor has yet to enter. The amount due to the vendor will be reduced if these entries are corrected.

    How Do You Reconcile Vendors?

    To understand how to reconcile the vendor’s account, you see the vendor reconciliation process flowchart below.

    vendor reconciliation process


    1. Check the Opening Balance

    To start off, you will have to check and ensure that the amount is tallied between the opening balance of the vendor’s account payable ledger and the vendor’s balance statement. In addition, your closing balance from the previous month should also be tallied to the opening of the current month.

    2. Match Invoices to the Line Items

    Next, thoroughly match line items from the vendor’s invoice and the vendor’s statement. This can commonly be done when the items have been delivered so you can examine whether the amount on the invoice reflects the delivered quantity.

     In case you find items that are both in the invoice and statement, you can exclude it for the upcoming step. 

    3. Reconcile Discrepancies

    Then, ensure the items that remain after the filtration from the previous step reflect the items within the vendor statement outside of the account payable ledger. This is also known as the items on the vendor statement that aren’t added to the account payable ledger. You can discuss these discrepancies with your vendor and find out the root cause.

    This can be caused by timing differences, which occur when you have already paid, but the vendors did not receive the notification immediately. It is also possible the imbalance is due to missing records of transactions from either party.

    4. Ensure Accuracies

    Make sure that purchase transaction documents are authorized and in accordance with what has been processed. The management of vendor invoices also has to be inspected, as they have to be recorded and posted timely by the account payable team.

    5. Apply Credit Notes to Payments

    While this verification is typically done before payments are made, it’s advisable to double-check for any missed offers and discounts. It’s also important to include credit notes in the verification process. Without them, it would be impossible to determine why a payment appears in the vendor’s statements but in the debit section of your own statement.

    What Are the Challenges of Vendor Reconciliation?

    Vendor reconciliation is done frequently, which could take much of your time and energy. 

    While reconciling the vendor’s account, you must ensure the process is done on time. This might be a great challenge itself, as your company might have a lot of vendors. However, delays in vendor reconciliation might lead to discrepancies that could affect the company’s financial reporting. 

    There are also supporting documents, such as purchase orders and goods receipts, that could come in different formats, such as excel sheets or printed papers. If done manually, reconciling these documents might add unnecessary stress and reduce your productivity.

    vendor reconciliation automation


    Why Should You Automate Vendor Reconciliation?

    With all the weariness of doing endless reconciling vendor accounts, you might need a system that could help facilitate the reconciliation process. With Peakflo, you can automate your process of vendor reconciliation by reducing any redundant steps.

    Peakflo can enhance the benefits of vendor reconciliation process by:

    Optimize the Invoicing Process

    3-way matching in vendor portal


    Avoid Duplicate Payments

    When vendors send multiple bills to multiple departments, Peakflo will notify you in case duplicate bills occur. 

    Instead of wasting your time by adding bill data manually to your accounting software or ERP, just forward your bills by email or send them to Peakflo WhatsApp and allow Peakflo to take care of the rest!

    Organize Vendor Communications in One Place

    With our user-friendly dashboard, your finance team and the vendor can communicate hassle-free. You can grant limited access to your vendors, which they can view and edit their personal information, include payment preferences, and oversee invoice payments safely.

    Track in Real-Time

    • Get real-time reports that are simple to use to keep track of the deliverability of your invoices.
    • Filter invoices by status, customer, amount, or due date to suit your needs.
    • Use AI-powered reports to forecast your cash flow and customer payment patterns.
    Accounts payable reports

    Integrate with Ease

    Peakflo can be seamlessly integrated to your accounting software, such as Xero, NetSuite, Jurnal, Quickbooks, or Zoho CRM. This way, you can leverage our automation into your current work and activate 2-way sync for a faster reconciliation.

    Sync the transactions and three-way match to your accounting software and say goodbye to manual data exports and imports.

    Sync the transactions and three-way match to your accounting software and say goodbye to manual data exports and imports!

    Improve Reports and Audits

    Get insightful finance reports and make important strategic decisions to improve your business. Peakflo provides many kinds of reports, such as bidding matrix report, aging payables, invoice status, etc.

    Peakflo also will keep an audit trail for all purchase requests and bills. The finance department and approvers will be able to simply track who edited the bill and when.

    automate reconciliation


    Peakflo’s Procure-to-Pay and Vendor Management solution plays a crucial role in streamlining vendor reconciliation processes. By automating and centralizing key aspects of vendor management, such as invoice processing, payment approvals, and vendor communication, Peakflo simplifies the reconciliation process. Its ability to capture and integrate credit notes ensures that discrepancies are promptly identified and resolved. Peakflo empowers businesses to manage their vendor relationships more efficiently, leading to improved accuracy, reduced manual effort, and enhanced financial transparency.

    Intrigued about automating your finance process? Take a look at our product tour!




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