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In business accounting, reconciliation is the process of comparing two sets of records to ensure the figures match. It’s a way to verify that money leaving a bank account matches up with expenditure, and that money flowing into a bank account matches up with what’s owed. Invoice reconciliation is a part of this process, in this case matching invoices with bank statements. Here’s a closer look at the benefits of invoice reconciliation and how it all works.
Invoice reconciliation definition: what is invoice reconciliation?
The invoice reconciliation definition describes a specific accounting process. Reconciliation matches and verifies each detail found in an invoice by comparing it with the appropriate bank statements. This helps a business balance its accounts.
The invoice reconciliation process begins with looking carefully at an invoice. This detailed bill shows line items, products, and services provided along with their corresponding prices and tax charges. Invoices also contain terms and conditions as well as a request for payment. With the process of invoice reconciliation, you must go through these various charges and compare them with the money sent or received. If you’ve paid an invoice, this should match money leaving your bank account. If you’ve received payment for an invoice, this should match money entering your bank account. The goal of any reconciliation procedure is to ensure all accounts are correct and balanced.
How the invoice reconciliation process works
To reconcile your invoices, you must match bank statements to all incoming and outgoing invoices. There are many strategies you can use to accomplish this goal.
As you might imagine, going through each invoice line by line can be rather time-consuming. Most businesses today will use accounting software to help keep everything organised in one place. You can sort invoices by month, invoice number, reference number, or additional category. By going through each invoice, you’ll be able to pinpoint outstanding invoices or payments still due.
Sometimes, the amount in your bank account won’t match the original invoice amount. It’s helpful to use a checklist as you go through the invoice reconciliation process. Look for things including:
Early payment discounts
Adjusted invoice totals
These can help you determine why the figures are different and make corresponding adjustments to your records. Once your records match, you’ll have completed the process.
What are the benefits of invoice reconciliation?
Invoicing errors can cost time and money, requiring further investigation and follow-up. One of the primary benefits of invoice reconciliation is spotting discrepancies early on, keeping your accounting records accurate. At the same time, it reduces the chances of fraud by identifying red flags and inaccuracies.
It also makes it easier to keep on top of outstanding or overdue invoices. You’ll be able to collect these overdue payments before they take a toll on business cash flow.
The advantages of using invoice reconciliation software
While some businesses still perform invoice reconciliation manually, today’s accounting software makes the process far more efficient. To perform manual billing reconciliation, you need to go through each document, line by line. This is both tedious and time-consuming, not to mention more prone to errors.
By contrast, invoicing software automatically identifies mismatched transactions. This helps accountants by allowing them to take immediate action to reconcile these issues. You’ll be able to automatically match purchase orders with your bank accounts, supplier invoices, vendor invoices, balance sheet, and other important documents.
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