What is invoice reconciliation?

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What is invoice reconciliation? - Pleo Blog
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Invoice reconciliation is the process of matching invoices with purchase orders and other relevant documents. This ensures that your financial reports are accurate, making this process a crucial element of the accounting process for all companies regardless of size or industry.

A reliable and smooth invoice reconciliation process reduces the risk of fraud and contributes to keeping your financial records organised and transparent. This enables you to make more informed decisions, improve your cash flow management and build lasting relationships with your vendors.

In this article, we’ll cover what invoice reconciliation is, how it works and the benefits proper invoice reconciliation provides for companies of all sizes.

Invoice reconciliation: What is it, and how does it work?

Invoice reconciliation is the process of ensuring that invoices received from vendors match the corresponding purchase orders (POs) and goods or services received.

The process consists of comparing and matching invoices with POs, delivery receipts and other documentation to confirm that they’re accurate and consistent. This enables companies to verify that their received goods and services match what was ordered and paid for and that all billing details are correct.

Invoice reconciliation allows companies to maintain accurate financial records and prevents overpayments or fraud – all crucial elements for companies of all sizes.

Step by step: How invoice reconciliation works

Invoice reconciliation can be broken down into 8 steps. Let’s take a look at how the process works:

  1. Receiving the invoice: The vendor sends an invoice detailing the goods or services provided, including quantities, prices and total amounts.
  2. Matching with POs: The invoice is matched against the original purchase order to verify that the billed items and amounts align with what was ordered.
  3. Matching with goods received: The invoice is also matched with the delivery note or goods received note (GRN) to confirm that the billed goods or services were actually received.
  4. Verifying pricing and terms: In this step, it’s verified that the prices, discounts and payment terms on the invoice match the agreed terms on the purchase order.
  5. Identifying discrepancies: Any discrepancies between the invoice, PO and GRN are identified. Examples of discrepancies include differences in prices, quantities or missing items.
  6. Resolving discrepancies: Once identified, any discrepancies are investigated and resolved by communicating internally or with the relevant vendor.
  7. Approving for payment: Once the invoice is verified and any discrepancies have been resolved, the invoice is approved for payment.
  8. Recording in accounting system: Finally, the invoice details are entered into the accounting system, and the payment is scheduled according to the payment terms.

The benefits of invoice reconciliation

Invoice reconciliation is an important process for all companies – regardless of size and industry. It affects everything from finances to operational, strategic and professional relationships of a company.

Here are some of the main business areas that benefit from effective invoice reconciliation in your company:

Financial accuracy

Through invoice matching and reports, invoice reconciliation allows your company to ensure that its financial statements accurately reflect its expenses. This enables you to improve budgeting, forecasting and decision making within your company.

Cash flow management

Proper invoice reconciliation ensures that your company only pays for what you’ve ordered and received. This helps you avoid overpayments and unexpected liabilities, helping you to better manage your cash flow and avoid unnecessary expenses.

Regulatory compliance and audit requirements

Discrepancies in invoices can lead to compliance issues and fines. Invoice reconciliation enables you to keep accurate records, helping you to maintain compliance with financial regulations and internal audit requirements.

Vendor relationships

Invoice reconciliation is vital for maintaining good relationships with your vendors. It ensures timely and accurate payments and enables you to resolve discrepancies quickly, ensuring that your vendors are paid correctly and on time. This fosters trust and, in time, can lead to better terms and pricing for your company.

Fraud detection and prevention

Invoice reconciliation can help you identify errors, red flags and other signs of fraudulent activity. By properly reconciling your invoices, you can quickly detect unauthorised or fraudulent charges. Not only does it help you detect fraud – it also helps you prevent it from happening in future.

Dispute resolution

When discrepancies occur between invoices and other documents, it’s important not to leave them unresolved for long. Timely invoice reconciliation ensures that discrepancies are resolved quickly, helping you to avoid delayed payments, late fees and strained vendor relationships.

How invoice reconciliation software streamlines the reconciliation process

Manual invoice reconciliation is a time-consuming task that requires going through every document line by line. This process isn’t just tedious: it’s also prone to error. For that reason, many companies are turning to software solutions to automate their invoice reconciliation – and with good reason.

Invoicing software automates the process of matching purchase orders with bank accounts, vendor invoices, balance sheets and other important documents. It automatically identifies mismatched transactions and discrepancies, saving you time and allowing you to take immediate action to reconcile these issues.

Automating your invoice reconciliation process also eliminates the possibility of overpaying or double-paying an invoice that’s already been processed. This doesn’t just save you money – it also saves you from spending unnecessary time correcting these errors.

Invoicing software allows you to streamline your invoice reconciliation process. The advantages are many – all you need to do is choose the right software for your business needs.

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