With thousands of statements and transactions to reconcile, maintaining timeliness and accuracy throughout the vendor reconciliation process is often posed as a challenge. And, lacking visibility into the process of vendor reconciliation might result in companies overpaying to their vendors without even knowing.
Moreover, in most organizations, vendor payments make for the largest cash outflow. One of the best ways to track and manage accounts payable is vendor statement reconciliation. While the benefits are significant, the task of vendor reconciliation is often overlooked as the process is quite tedious and time-consuming. However, it is vital for organizations to have an effective vendor reconciliation process in place. Before we get into the complexities, let’s understand the meaning of vendor reconciliation.
Vendor reconciliation is the statement that shows the difference of company payable to vendor outstanding balance and vendor A/C balance. It is reconciled from the account balance of the company as well as the vendor. And, if any advance amount is given to the vendor, it will reduce the company's payable amount balance.
Vendor statement reconciliation is like a litmus test which is performed at the end of the procure to pay process. Vendor reconciliation identifies issues between your vendors’ accounts and the system. This single clear report can better your vendor relationship, reduce vendor queries, and improve your control over vendor spend.
A vendor statement refers to the document from the accounting systems of the vendor that lists all the unpaid invoices at a specific date. It may also contain uncleared items such as credit payments and notes. Vendor statement reconciliation involves matching the invoices and other documents from your system. All the unmatched documents are the discrepancies, which are mentioned in the vendor statement reconciliation report. Therefore, all the possible issues are mentioned in this single report.
So, in principle, the reconciliation of supplier accounts is very simple and straightforward. Here's what it looks like-
The credit-control department of the supplier sends a statement of account containing the invoices that are unpaid on their sales ledger to the accounts payable department of the buyer. Thereafter, buying organization's accounts payable team compares this statement to their accounts payable ledger for the identification of the differences. However, usually, companies face a few challenges:
Usually, the account payables team is occupied with the management of the daily activities of processing invoices. This is further exacerbated as the supplier statements are either in PDF-based formats or paper and might include thousands of transactions. For identifying exceptions, the accounts payable team might have to check all the details manually on the accounting system having every transaction listed, which might take hours or a couple of days to reconcile a single vendor.
For some time, organizations used technology for automating invoice entry and processing. Furthermore, e-invoicing networks and supplier portals drove the adoption of electronic methods for communication between supplier and buyer. However, if an invoice doesn't pass the check and controls that organizations have in place for preventing errors, manual intervention will be needed for resolving the issue, irrespective of how was the invoice received. Therefore, despite having the best controls in place, there'll be scope for errors.
The need is to identify any credit notes or invoices on the accounts payable ledger that are not there on the supplier statement or vice versa. The identification of the incorrect invoice numbers will lower the risk of duplicate invoices. A few common things that tend to be spotted during the vendor reconciliation process are the identification of invoices that are entered with incorrect currency, invoices on the ledger, which are credits in reality and others.
While there is a wide array of computer programs available to assist you in fulfilling your business accounting needs, nothing can be compared to the reconciliations performed by expert professionals. So, here's how to perform the vendor reconciliation process effectively:
Most likely, you receive supplier statements in different formats as each supplier's system produces a different layout or format. Usually, the statements received online are in PDF or Excel format or paper format, which is received via delivery or post. However, unless all your suppliers conform to one single statement template, your supplier reconciliation solution should be capable of loading all layouts and formats for ensuring that you don't need to type the data into the statement.
If you are unable to match the vendor statement to a supplier credit note or invoice from your system, the supplier reconciliation solution should match the procurement chain:
Begin to approve reconciliations in your accounting system for ensuring a comprehensive audit trail. Your system should email all the approved reconciliations to the supplier such that the supplier will have sight of all issues, which would reduce follow-up queries. The finalized reconciliations, as well as the original statement, should be stored in the accounting system for eradicating the need for any filing.
Therefore, as stated above, vendor account reconciliation might seem easy but involves technicalities and other vital things which need to be taken care of, making it necessary to leverage the services of expert professionals.
TRC Corporate Consulting's best-in-class accounting advisory services comprise of a professional and dedicated team that provides accounting and financial reporting advice and assists clients on a wide array of events and transactions, including adherence to revised or new accounting standards and effective management of the financial processes, including vendor statement reconciliation, audit, taxation, GRC functions, and fixed asset reconciliations.
TRC Corporate Consulting serves a multitude of leading corporations on a recurring as well as an event-driven basis. Our team has a plethora of skills, practical experience and technical knowledge, standard-setting experience, complex event and transaction understanding, and project management capabilities.
Get in touch with us and hand over your accounting and vendor reconciliation processes in trusted hands!
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