What Invoice Reconciliation Actually Looks Like in Practice
Ask any savvy business magnate, and they’ll tell you that cash flow is king. Keeping an eye on where the money comes and goes is the lifeblood of any business.
That’s why a smart business knows the importance of invoice reconciliation. It’s how you keep track of the invoices you’re owed or need payment which can be a nightmare to deal with without an organized reconciliation process. It can help you catch financial statement errors or fraudulent operations that can cost big money.
It’s a tedious process, but someone’s got to do it, either yourself as a small business owner or your finance department. The profitability of your business depends on it, and even more so as your business continues to grow.
What are the steps for reconciling your invoices? Keep on reading to learn more.
1. Organization Is Key
The first step to reconciling your invoices is to get organized. Start by separating vendor invoices, purchase orders, customer invoices, and bank statements. Rearrange everything by date.
2. Reconcile Vendor Invoices
Reconciliation for invoices for products your business purchased starts when your order arrives. Begin matching line by line what was shipped compared to what’s on the packing list and the purchase order.
Once you’ve received the invoice, compare it to the purchase order. Circle any discrepancies, and report them to the vendor whether they’re in the vendor’s favor or yours. Request an updated invoice from the vendor if you’ve found an error.
Otherwise, you can safely send the invoice to accounting for payment. The process is almost the same if you’re purchasing services. The difference is you’re matching the invoice to your contract with the vendor instead of a purchase order.
3. Customer Invoice Reconciliation
Reconciling customer invoices is similar to the process for vendor invoices, except you’re the one sending the invoices this time. Again, attention to detail is crucial.
Before sending an invoice, match it with the customer’s purchase order or contract, and ensure everything is in order. Verify details such as payment policies, supply dates, and include a clear description of the services or goods you’re providing.
Once you receive payment for the invoice, compare it with the invoice details and note any mistakes. Let your customers know if there’s an error as soon as possible.
4. Add Up Invoices and Bank Statements
The end of the month is when you usually receive a bank statement. So, the end of each month is the best time to add up your invoices. Confirm that the sum from your invoices matches the total of the statement.
5. Automate the Process
Business ownership is tough enough, and managing your finances yourself makes it even more challenging. Anything to make the process of reconciling simpler can do you a world of good.
Learn to use accounting software and tools to automate all or much of the invoice reconciling process. Business accounting software and innovative virtual cards that track your expenses can save you both time and money. Find out more about virtual cards here.
Eye on the Prize
The survivability of your business depends on how you keep track of the flow of money. Invoice reconciliation is a vital process that ensures your business always has gas on the tank to keep running.
For more business tips, feel free to browse our site.
For more articles visit this website.