27 Aug 2020 Ankit Chadha

Why and How to perform Vendor Reconciliation?

Vendor payments account for a substantial cash outflow in any given business. Typically, Account payable (AP) managers perform a reconciliation of vendor statements for ease of function. Even though this task can be time-consuming and tedious, it offers many benefits and is often overlooked. To ensure optimal business performance, every operational function, including vendor reconciliations must be effectively implemented and utilized.  

Why Reconcile Vendor Statements? 

Vendor statement is a reconciliation statement of account or document from the vendor’s accounting system, listing all unpaid invoices at a specific date. Generally, it comprises of credit notes and payments.  

Vendor reconciliation process for any business requires matching the invoices and other line-ups to documents. Failing to properly execute the vendor reconciliation process may result in unmatched records are discrepancies, which may further comprise the vendor statement reconciliation report.  

Advantages of Vendor Statement Reconciliation System 

An effective vendor reconciliation ensures that no such discrepancy, or hindrances arise when it comes to managing third-party, and other related business associates. Here are some advantages of performing vendor reconciliation:  

  1. Double Payments To Vendors 

Any holdup in the processing of invoices can disrupt future supply and lose settlement discounts. Subsequently, if any identification of vendor invoices cannot be located, then organizations must request the vendor to resend the documents which results in delayed payments.  

Similarly, if invoices get recorded for incorrect vendors in the accounting system, your business ends up paying the wrong vendor. And when the correct vendor queries it, the organization might also pay this vendor, thus duplicating the payment and resulting in accounting errors 

Such duplicate payments can be avoided by matching invoices to the vendor’s reconciliation statement. Even if vendor reconciliation is only processed after payment, the duplicates can be identified. So, that you can take the necessary steps to fix the errors. 

  1. Deductions and Discounts

Vendor reconciliation in SAP helps you identify discounts that the vendor has not yet made a pass on or for placing claims and returns that have not been credited. Recognizing such documents reduces the burden of payment that your business makes towards a vendor.  

Additionally, such deductions should be posted as early as possible to maximize cash flow. A timely vendor reconciliation report acts a substantiated proof the organizations can receive some money back. 

  1. Improved Invoice Processing

Organizations might end up overpaying in case their system’s vendor pricing master data is incorrect, or if the vendor invoice got captured at an incorrect price.  

During invoice processing, there are chances that available discounts might get inaccurately omitted.  Thus, matching the vendor line items on the system to the vendor reconciliation statement will either prevent or at least identify such overpayments.  

How Vendor Reconciliation Enhances Procure-To-Pay Process? 

Procure-to-pay process (P2P) uses a goods receipt-invoice receipt (GRIR) account. The goods that have been received but whose vendor invoice is yet not processed will be recorded in the account. Also, in the process of reconciliation in finance long-open GRIR postings should be cleared to profits and reduce balance sheet liabilities. A reliable early indicator for the GRIR account for clearance is when the vendor reconciliation statement does not list an invoice for goods.  

Vendor statement reconciliation is the litmus test at the end of the P2P process. It helps organizations identify the issues between their system and the vendor’s accounts. This vendor reconciliation format assists in formulating a comprehensive report which reduces vendor queries and improves the relationship with the vendor. 

How to Reconcile Supplier Statements?

Matching thousands of supplier invoices and other documents every month is a critical and tiring task, even when you consider the benefits of reconciling supplier statements. The manual matching of statements might involve printing and ticking or system downloads, so it’s essential to digitize some functions, similar to the other AP processes.  

Manually supervised and automated supplier statement reconciliation saves employee time, while providing accurate results and ensures proper audit controls. Some generally used ways of reconciling supplier statements: 

  1. Hire An Outsourcing Partner

In a case where the organization is unable to implement a solution directly in the current accounting system; a new standalone system or support will be required.  

For the same, you could outsource your vendor reconciliation processes to an experience consulting partner who can handle all transactions, claims, invoices, and taxes to get to implement effective and prompt vendor reconciliation formats. 

  1. Choose Vendor Statement Formats 

Organizations will be likely to receive supplier statements in multiple formats as each vendor system produces a different format or layout. The emailed statements would in Excel or PDF formats. Other reports might be in paper format, which would be either posted via mail or delivered at your organization. 

Unless the vendors can conform to a single statement template, the automated supplier reconciliation solution should be equipped to load all formats and layouts. It will ensure that the statement data is not required to be typed into the system. 

  1. Start Matching Vendor Statements 

If the organization is unable to match the reconciliation statement to a vendor invoice, the supplier reconciliation solution should automatically match up the procurement chain: 

  • The invoices that are still processing in the system need to be matched if the organization uses an automation solution. Primarily if they use ReadSoft, OpenText/VIM, Dolphin or eFlow or one of the many in the market.  

Also, it is true even when the business has parked or held invoices before posting or had processing errors. If the automatically produced vendor reconciliation report immediately identifies the location of the invoice, this can be quickly resolved. 

  • Matching to the GRIR account is crucial to identify statement lines without an invoice match, but for which a goods receipt has been posted. 
  • Identifying the valid purchase order (PO) number on the system will help the investigation if the statement does not match an invoice or GRIR. 
  1. Go Paperless 

Approving vendor reconciliations in the organization’s system will ensure a full audit trial. These approved reconciliations should be emailed to the supplier so that the supplier has sight of all issues. The original statements and finalized agreements should be stored in the accounting system to alleviate the need for any filing. 

How TRC Consulting Helps With Vendor Reconciliation?

We, at TRC Corporate Consulting, offer you outsourced accounting services that deliver in-depth technical precision for all accounting functions. Our professionals gauge in a deeper understanding of the organization’s requirements before streamlining a strategy. We help you drive forward to achieve your business goals with comprehensive accounting solutions.  

We are renowned for determining the best practices for vendor reconciliation and helping you better understand the types of reconciliation that can be beneficial for your firm. Thus, explore our range of consulting and advisory services including, taxation, audit, fixed asset reconciliations and GRC functions. You can trust us as we make sure that you obtain accurate outcomes within the specified deadlines. For questions, contact us! 


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