What Is Account Payable Reconciliation?

Account payable reconciliation is a financial strategy in which the outstanding amount in the vendor’s account statements is matched against the company’s records at the end of the financial year.

When both are identical, it is referred to as a successful accounts payable reconciliation. An unsuccessful reconciliation is a clear indication of a rework, which is needed to identify the discrepancies. This process helps companies provide accurate financial reporting and on-time payments to vendors.

Why Is It Necessary to Reconcile Accounts Payable?

Reconciling accounts payable plays a key role in maintaining accurate financial records. It helps prevent later duplicate invoices and incorrect payment amounts, ultimately improving the vendor relationship.

With the proper AP reconciliation, companies can prevent liquidity issues with the right cash flow management. This minimizes risk and enhances financial clarity. It also prevents fraud, unauthorized transactions, and other financial misstatements.

Proper reconciliation makes auditing easy and effective. That is why professionals should always make reconciliation a regular part of their routine tasks.

Additionally, accounts payable reconciliation provides access to early payment discounts that enable businesses to avail of some savings. As reconciliation helps to prevent late payment penalties, companies can save such amounts.

What Are the Different Types of Account Payable Reconciliation?

There are different kinds of accounts payable reconciliations.

Bank Reconciliation – This includes comparing bank statements to the company’s accounting records.

Vendor Reconciliation – This involves matching corresponding vendor invoices with goods receipts, purchase orders, and AP records.

Interim Reconciliation – In this process, professionals need to reconcile the AP sub-ledger with the general ledger.

Payroll Reconciliation – This payable reconciliation process covers reconciling payroll records with bank statements.

Two-Way and Three-Way Matching – These are specific methods that are used within vendor reconciliation.

Expense Reconciliation – The expense reports and receipts match the accounting records.

Credit Card Reconciliation – This is a related process that ensures the accurate reconciliation of credit card statements with expense records.

Reconciliation of Accrued Liabilities – This payable reconciliation process ensures the correct recording of accrued liabilities.

How to Reconcile Accounts Payable? Step-by-Step Guide

Companies must follow a proper process for the accurate reconciliation of accounts. Now, when you think about how to reconcile accounts payable, you need to follow the steps below:

1. Gathering of Documents

The process begins with collecting documents such as invoices, bank statements, supplier statements, and payment receipts. You also need to obtain accounts payable aging reports that list all the amounts you owe for each vendor.

Once you have all the documents, create a proper document structure that is easy to access. This will make the process more concise. You must also make sure that the details of all the documents are for the same accounting period.

2. Review Vendor Invoices

Review the vendor invoices and ensure they include all the required information. Examine the invoice properly and figure out all the mistakes related to payment, invoice number, or vendor names.

3. Check Payment Records

After reviewing the invoice, check and verify the payment records. This will include verifying checks or electronic payment confirmations. You need to compare them with the vendor invoice and make sure all the details are identical. Meanwhile, make sure there are no missing entries or duplicate payments.

4. Reconcile

In this phase, you will match the outstanding balances to the accounts payable records. When you encounter discrepancies, resolve them quickly by adjusting the vendor statement.

5. Comparing With Bank Statements

Once you have completed the above step, the next move is to cross-check the accounts payable system records with the bank statement entries.

6. Resolving Discrepancies

You need to resolve the discrepancies promptly after you find them. Some strategies to resolve discrepancies are reviewing payment documentation, communicating with vendors, and reconciling payment records with bank statements.

7. Make Adjustments

You need to make the necessary adjustments to fix the errors in the AP system. It includes recording the missing invoices, updating payment terms, and correcting payment amounts.

8. Finalizing

Once discrepancies are resolved, confirm that the reconciled accounts payable records are correct. Prepare a proper reconciliation report along with the adjustments and get approval.

9. Monitoring

Accounts payable records should be accurate and complete, so they should always be checked and reviewed.

Incorporating automation and separating duties are the best practices for reducing fraud and errors. Additionally, annual AP auditing is also a good approach.

Best Strategies for a Successful AP Reconciliation

We have learned about the AP reconciliation process so far. However, professionals should focus on its quality. Follow the strategies below for a successful AP reconciliation:

Automation

Using and implementing AP automation software can speed up payable reconciliation processes. Through automation, professionals can quickly match invoices with receipts and POs.

Systematic Documentation

The manual account reconciliation process is slow and error-prone. Professionals should maintain a record of POs, invoices, and receipts. This simplifies the auditing and reconciliation process.

Regular Reconciliation

Reconciliation on a regular basis (monthly or quarterly) is helpful in preventing long-standing errors. This strategy is important for detecting discrepancies. Errors are hard to fix if they are not checked regularly.

Three-way Matching

Three-way matching reconciles the purchase order, invoice, and receiving report. In this system, you must ensure that the details on the invoice match those on the PO and receiving report.

Generating Reports

Generating reconciliation reports is the best approach to tracking progress and identifying recurring issues. These reports easily give professionals valuable data, and some accounting software helps generate them.

Give Priority to Invoice

To ease your AP reconciliation, handle and pay your invoices according to their due date. This will simplify the comparison of statements and invoices while assuring that no invoice is left over to pay.

Master Your Accounting Team

It is necessary to train your finance team so that they become skilled enough to handle the AP reconciliation properly. This is even necessary when you opt for automation because when your finance team is not skilled, it will be difficult to manage the discrepancies.

Bifurcation of Roles

When your finance team handles the accounting reconciliation, assign them different roles. This not only simplifies the operation but also prevents fraud and mistakes.

What Are the Challenges in Reconciling Accounts Payable?

While performing accounts payable reconciliation, the accounting team can face many challenges. Some of them are as follows:

Handling Large Volume

Along with business growth, payment processing becomes complicated and challenging. The team needs to handle more invoices, purchase orders, and approvals. It gives rise to more complexity and confusion. However, this condition is more prone to a lack of a systematic and standardized approach.

Manual Data Entry

Manual data entry is always a cause of mistakes. For example, in accounts payable reconciliation, the finance team can accidentally input the wrong invoice number, vendor name, or amount. The perfect solution to this problem is implementing an automation and digital capture tool.

Miscommunication With Vendor

When discrepancies arise, the vendor may not answer the email or be unavailable to contact you. It stretches the resolution time and leads to a slow payable reconciliation process, which ultimately negatively impacts the whole process. The best solution to this issue is to maintain the updated vendor contact information and keep active communication with the vendor.

How Often Should You Reconcile Accounts Payable?

The accounting department can perform account reconciliation daily, weekly, monthly, or annually.

A daily or weekly payable reconciliation process is also possible, but this is not easy to perform with the manual concept.

The ideal time interval for performing accounts payable reconciliation is monthly. Companies can easily perform monthly reconciliations, which helps them make timely payments to vendors and track expenses regularly.

Many companies follow and perform annual reconciliation, which is done at the end of the financial year/reporting period. However, this is the least preferred option for the companies.

Professionals must also note that the reconciliation time interval depends on a company’s financial transactions, complexity, and scale.

Experience the Best Accounting Reconciliation With Moon Invoice

Moon Invoice, a well-known accounting software, provides the optimal solution for accounting reconciliation.

Professionals can streamline their reconciliation through the automation concept that automatically matches the invoice with its corresponding purchase order. Moreover, users can define the rules for automatically matching the debit and credit entries.

Professionals can easily establish a link between credit card entries and bank accounts. It ensures accuracy and reconciles the payment.

Overall, Moon Invoice’s automation concept helps detect discrepancies and errors, reduces overpayment risk, and improves financial records. With Moon Invoice, professionals can save time and speed up their processes.

Wrapping Up

Accounts payable reconciliation is a valuable part of effective financial management. Companies can make it more efficient by adding an automation touch. It keeps errors at the lowest level while enhancing productivity.

Additionally, companies must consider reconciliation as a routine task. Regular account reconciliation helps reduce errors, ensure on-time payments, and improve inventory management.

Are you ready to ditch the manual account payable reconciliation? Join Moon Invoice today!

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