How To Reconcile Invoices
Did you know that businesses in the US are losing up to $50 billion annually due to employee theft? Within this category of internal theft, fraudulent invoices are a great contributor to this astounding number, many of which could have been avoided with invoice reconciliation.
This article will outline what reconciliation in accounting is, why it is important, and the step-by-step method to reconcile your invoices.
What Is Invoice Reconciliation?
The invoice reconciliation process refers to the act of matching outgoing and incoming invoices with the bank statements of a company, to make sure that all transactions are accounted for.
For example, if there was an outgoing expense of $13,000, reconciliation will determine that there indeed is a valid and accurate invoice backing up this transaction.
The reconciliation process for invoices is completed with the help of a reconciliation statement that details the additions and subtractions of all amounts.
The purpose of this document is to derive independent conclusions from the financial data of an organization and universal data.
Reconciliations are conducted with bank account statements, loan account statements, accounts receivables, and accounts payables.
Why It Is Important
Conducted on a daily, weekly, monthly, or annual basis, account reconciling reinforces the reliability, accuracy, consistency, and financial stability of the company.
Here are some of the other benefits:
- To Identify Fraudulent Behavior - The process of reconciling bills will help you find out if there are duplicate or irregular invoices you have paid.
- To Resolve Disputes - When you have disputes with a client, the reconciliation statement will show the details of all transactions, which can clarify misunderstandings.
- To Recover Lost Funds - It helps detect checks that are not sent/received.
- To Prepare For Audits - Reconciliation is helpful to trace and track transactions, especially for tax audits.
- To Confirm Financial Status: It helps you stay on top of all the accounting processes within your company.
When you are a small business, there might be many instances where invoice reconciliation cannot be forgone.
Take a look at ten such instances below:
- When your bill is paid partially instead of fully.
- When discounts for early payments were activated.
- When the bank charged fees for overseas transactions.
- When you are balancing accounts.
- When the products/services were prolonged.
- When you notice irregularities and suspect fraud.
- When the invoice is a duplicate or has been misplaced.
- When you are getting ready for tax audits.
- When you have a lot of outstanding payables and/or receivables.
- When there was a discrepancy in the reflection of the amount in bank accounts.
Using Software To Reconcile Your Invoices
Lack of reconciliation leads to unstructured accounts and poor visibility of finances for a business owner.
This process was conducted manually in the past by cross-checking and marking-off line-after-line between two documents.
Such a process is the breeding ground of errors and mistakes and this is why switching to automation is ideal in this case.
Take a look at the top software platforms to automate reconciliation processes and save time and resources.
With Quickbooks accounting software, you can reconcile financial records with bank statements directly by organizing the data by date or amount.
Once complete, the beginning balance will be appropriately displayed on the dashboard.
Invoice2Go With Xero
Built for making your tax audits hassle-free, the combination of accounting software Invoice2Go and Xero can save up to 2.5 hours per week when reconciling.
You can automate the process or manually complete it.
Freshbooks is another invoicing software that also offers automatic reconciliation with bank accounts by setting up the opening balance is FreshBooks.
You can then let the computer match transactions and view the bottom line.
The 5 Steps
Billing reconciliation ensures that the incoming and outgoing accounts are balanced at the completion of a reporting period.
It includes tasks such as comparing the records furnished by the financial department.
The following five steps outline how to manually reconcile your invoices with that of the bank.