How you can do invoice reconciliation the easy way

in Business Hacks

by
Sophia Eribo (ser)

Fit your figures together with less fuss


 

"Revenue is vanity, cash flow is sanity, but cash is king."

If you've ever heard that saying before, it's easy to understand how and why invoice reconciliation is so important.

If you recognize this saying, but don't really know what it means, you're in the right place. Even if you don't technically work in accounting, but you deal with finances, knowing what invoice reconciliation is about is a must. 

What is Invoice Reconciliation?

It's the process of matching the information on bank statements to the invoices you have going out and coming in.
If you don't get organised fast, keeping track of invoices you're owed and bills you need to pay can become both chaotic and a nightmare.  You need to keep on top of who has and hasn’t paid you and which bills of yours are outstanding.

In addition, reconciling invoices is a key accounting action – it makes sure all accounts are kept clean & tidy, and every entry in a book is matched correctly.

Minimum Input, Maximum Output

Putting in the data you need for doing the reconciliation shouldn't be hard work or take lots of time. Not everyone who runs a business has the time (or interest) in staring at figures and spreadsheets. To make this process even easier, the best solution is a piece of software that matches payments on your bank statement to your open invoices semi-automatically.

Strike!

Now, if you had to go each item on the bank statement individually reconciling them with each invoice one at a time by searching through all open invoices, it’s easy to see how this could get tedious. Ideally, you want a system that lines up all invoices in one place with the best matching payment entry and you reconcile them all in one go. Say “yes” once!  Think of it like a strike when you’re bowling – it would be an absolute pain putting the pins out one at a time and throwing the ball again and again. And what if the system congratulates you on your progress and time performance?

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My Numbers Don't Match

It would be ideal if all the amounts on your bank statement matched your invoices exactly, but so would be winning the lottery or world peace. But don’t be stressed if the numbers don’t match up. This could be for a number of reasons, but never fear - all have solutions just waiting to be chosen.

Typically, there are five major reasons for invoice mismatches:
1. Maybe you’ve given a discount for early payment. 
2. There could be bank charges, like for currency exchanges or international payment fees. 
3. Or perhaps the remaining balance will be paid later?
4. There could be an invoice or expense note missing in the system
5. Lastly (and unfortunately), you realize the invoice will never be completely paid so the unpaid part needs to go as a loss in your P&L statement.

There is a number 6...
6. A client has paid too much for an invoice and it can go as extra profit in your P&L.

But, number six would only really happen in your dreams, so we're back down to five reasons!

Ideally, as soon as you've identified the reason you should deal with it straight away by taking the right action (file the invoice, write the expense note, write down the difference as a loss, etc.)

Although they're the main ones, there are probably more than just the five scenarios we've mentioned. It's good practice is to identify extra ones that might occur and add them as well.
The outstanding amount should automatically show up on your original invoice. And, hey presto, that’s partial reconciliation for you!

Whether or not you're an accountant, dealing with invoice reconciliation is crucial - we hope this blog will help you on your way!
 
A few other points to remember about invoice reconciliation
* Reconciliation helps you stay on top of your company's most valuable asset - cash!
* Proper reconciliation will help you spot any fraud - but to be effective, the person who does the accounting and withdraws money should be different to the person doing the bank reconciliations unless it’s you that does all these things.
* Use a system that allows you to make partial reconciliations, keep invoices open and lets you add whatever extra fields you need.
 
 
Reconciliation really can be done in no time at all. Why don't you have a go yourself using our Odoo demo.

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