Invoice reconciliation is the practice of making sure a business’s bank statements match both the outgoing and incoming invoices in their business. Reconciling invoices makes sure that all the accounts are balanced, and there’s no missing money. Although it may be one of the least enjoyable jobs for many small business owners, it’s crucial for financial accuracy (and accountability).
Reconciling invoices can catch billing mistakes and payment timing issues, as well as catch fraud. It requires a corresponding accounting entry for every invoice number, and purchase order whether it’s done on an excel spreadsheet or with accounting software.
It’s recommended that more than one employee be a part of the invoice reconciliation process. Small businesses might have a hard time hiring enough employees to ensure each employee is only involved in one part of the reconciliation process, though. Hiring an external accountant or bookkeeper is often an easier and more cost-effective option.
On the buyer side (accounts payable), invoice reconciliation/account reconciliation requires a few preliminary steps. The first thing to do is inspect the order and make sure the packing slip mirrors the shipment. This verifies that the business isn’t missing any of the things they paid for and that the invoice is correct.
Next, double-check that the packing slip is the same as the order form. If any items are missing, let the vendor know as soon as possible so the problem can be resolved on the invoice. If everything is correct, the packing list and order form can be sent to the accounts payable department to issue payment to the supplier.
Now that the preliminary steps are out of the way, the first step in invoice reconciliation is to gather your bank statements and accounting statements for the period that you’re looking to reconcile. Some businesses/accounting departments reconcile every time an updated statement arrives, but if there are a lot of transactions, reconciling can be done at any time.
The second step is to compare the bank statements with the accounting statements from the same period. If the statements are balanced, your work is done. There’s no need to reconcile balanced accounts. (Entrepreneurs everywhere are wishing this was the case every period!)
If there are imbalanced accounts—and most often there will be—the inconsistencies need to be found and fixed. Errors can be in any step of the invoicing process, whether payment is being sent or received. Such mistakes could be recording payments twice, missing an early payment, or placing accounting records in the wrong category on a balance sheet. The important part is to catch the error and contact anyone involved to fix the problem.
Last but not least, double-check that everything has been filed correctly. If the final balance is the same on both the bank statements and the accounting statement, the invoices have been reconciled properly!
Automated invoice reconciliation software/apps can remove so much of the strain that comes with the accounting process. To use an automated invoice reconciliation system, it’s important to start with organizing invoices by accounts payable, and then receivable, and after, organize them by the month of due payment. This helps keep track of what’s paid, what’s due, and what’s owing in an organized fashion.
Automated processes allow for the business’ order form, packing slip, and invoice, to all match in terms of quantity, cost, and what was shipped to the business from the vendor —without the hassle of manually checking and balancing each account with each invoice. Once the system knows that everything is balanced and correct, it will set up an invoice for payment in the business’ accounts payable department, so the payment goes out when it needs to.
An automated system helps businesses digitize and streamline what their reconciliation team does. It eliminates the need for a department of employees to manually pull documents and compare discrepancies by hand—where there’s more room for error and often much higher time demands on employees. This allows business owners to redeploy employees to other areas of the business, all while enhancing the efficacy of invoice reconciliation processes.
Automatic invoice processes can record deposit dates, line items, or each book while eliminating delays from errors caused by manual reconciliation. The software can troubleshoot potential issues right away and can find the source of the issue much faster than a single employee could, saving a lot of time. With fewer errors balancing accounts and matching bank statements it can feel like they’re being paid faster, but really it’s the functionality of the payment system that’s been improved.
But some businesses need (or want) to get paid faster. In these cases, there’s a great solution for vendors, distributors, and manufacturers that also facilitates automated invoice reconciliation. Resolve facilitates providing net terms for buyers, while also paying out up to 90% of approved invoice amounts within one to two days, allowing businesses to have a much stronger cash flow position.
With many customers requiring net terms from the businesses they buy from, this is a solution that works perfectly for both parties. Resolve’s system can be completely integrated with QuickBooks. They also offer a branded payment platform—this is where that automated reconciliation process comes into play. Customers have online access to all the information about their supplier invoices. They can see their remaining credit limit, see their invoices, payment terms and due dates, and use the payment processes to pay online using their choice of payment.
Bank statements are one of two sets of records needed for invoice reconciliation. The bank statement has all the information on the business's financial activity and can be used to cross-reference the second essential tool in invoice reconciliation—the accounting statements with every individual book entry. In tandem, bank statements and accounting statements are used to perform the checks and balances on the business’s invoice system.
Bank statements also confirm that incoming payments have been processed and deposited – and outgoing payments have been received. Using bank statements makes it easy to pinpoint every imbalance in the invoices and makes it easy to fix the problem. Banks will also issue a reconciliation statement to disclose any fees that were charged to the business’ account.
The fundamental steps to reconciling invoices are all relatively the same across the board – regardless of what type of business or how many employees there are working in the business. For small business owners, however, the reconciliation process may be different in a few ways.
It’s always helpful when a business has enough employees to perform the necessary checks and balances on the invoicing process for a few reasons. The most common reason is to catch mistakes that one person may not notice on their own. The second reason is to ensure that an employee isn’t taking advantage of the business for their own personal gain.
If a small business doesn’t have enough employees to properly carry out invoice reconciliation checks and balances, the business owner might consider the option of hiring an external accountant or bookkeeper to reconcile their invoices and make sure everything is in order after each period. Aside from the number of employees and the system that the business chooses to use to reconcile their invoices, the reconciliation process is the same from business to business.
Checking the business’ bank statements, and performing checks and balances are very easy to do using QuickBooks (qbo). Note: If you’re a visual learner, their online tutorial may be helpful. Start with reviewing the checking account’s opening balance to make sure the end amount matches the amount listed in the bank statement. Next, set up the business’s QuickBooks account so it will ‘speak’ with the business bank account so they can reconcile transactions and verify that they’re correct as they come in. (If reconciling the accounts manually is preferred, skip that step.)
Once the bank statement is available, begin by adding the final balance into the bank reconciliation tool on QuickBooks and compare both end balances. (With the ease of online banking, this can happen at any time.) If each transaction is balanced and accurate, it's been reconciled, and the invoices can be filed away as closed.
However, there may be a transaction or two that need to be reconciled. Between credit card accounts and charges, undeposited funds, bank transactions, and payouts, there’s a lot that can be missed. In this case, the next step is to compare each transaction in the bank statement and its corresponding statement in QuickBooks to make sure they’re correct.
When a business syncs their bank account with their QuickBooks accounts, it gives permission to reconcile invoices as they’re added and paid for and QuickBooks will automatically input checkmarks next to statements that they’ve verified to be balanced. For statements that aren’t already verified by QuickBooks, double-check them, and mark the checkbox if they’re balanced and correct. Pay attention to the dates during this step to avoid making mistakes by reconciling invoices and bank statements that don’t match.
If reconciliation is finished and there’s still a noticeable discrepancy in QuickBooks, check over everything again to find the imbalance. To do this, select the “edit info” tab and verify that the beginning balance, ending balance, and ending date are all correct. To discover which statement is causing the discrepancy, go through and double-check all the invoices and bank statements again to find the error. The final step should always be to save and close.
If the error can’t be found, QuickBooks will still allow you to finish and adjust any other changes made before the statement is completely balanced. It’ll keep track of those mistakes and add them into a journal that adjusts the books for the missing amount. Online tutorials and even faqs might help with troubleshooting when this happens.
If the accounts are balanced in QuickBooks, reconciliation is done. Even after submitting a completed record of reconciliation, it’s still possible to go back and look at the changes within a date range and adjust anything that’s needed by clicking on the “history by account” tab. Another option with this accounting software is quickbooks payments, which allows you to directly accept payments from customers through their payment portal.
While invoice reconciliation remains one of the least desired tasks for most business owners, having the process automated, and using the right fintech software certainly makes it easier—and often more accurate than the old manual options.