Account reconciliation, such as vendor reconciliation or business-specific reconciliation, is a process of comparing your internal records and ledger with third-party and independent financial statements. Vendor reconciliation is important to ensure your account payable ledgers are in accordance with your vendor’s statement.
Therefore, In this article, we will be focusing on why vendor reconciliation is important, vendor reconciliation steps, as well as its benefits.
What Is Vendor Reconciliation?
Vendor reconciliation is a process of identifying whether there are discrepancies between vendor invoices and the vendor’s account. This is done by reconciling your balance of accounts payable and your vendor’s balance.
Vendor reconciliation uncovers any misstatements and discrepancies between the charged amount and the goods or services received by your business. Hence, it is an essential step in managing accounts payable. On a side note, reconciling accounts receivable with your customers can be done through customer reconciliation.
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.
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
Vendors usually include credit agreements in their statement, which contain payment methods, terms, and discounts. These details have to be applied accordingly to the invoices.
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.
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
- Increase data entry accuracy by up to 98% through our OCR (Optical Character Recognition) system
- Generate purchase orders or bills manually with specific line items, discounts, and tax rates
- Personalize approval workflows with appropriate stakeholders and budget designation, leading to faster approvals
- Once approved, the PQ will be converted into a PO and automatically forwarded to the vendor.
Avoid Duplicate Payments
When vendors send multiple bills to multiple departments, Peakflo will notify you in case duplicate bills occur.
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.
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.
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 DSO report, aging balance, 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.
Intrigued about automating your finance process? Take a look at our product tour!