What is supplier statement reconciliation, and why is it important?
For Accounts Payable teams, ensuring that ledgers are up to date and accurate is a critical part of offering a professional service to clients.
A supplier statement reconciliation, or vendor statement reconciliation, is the process Accounts Payable’s use to reconcile a supplier’s balance via an accounts payable ledger.
A statement or record of transactions will be submitted by a supplier in order for the Accounts Payable team to discover any discrepancies or errors in the ledger.
The statement provided by the supplier will need to include a record of details such as invoices, credit notes, discounts and payments agreed to by the supplier.
So, how should the supplier statement reconciliation process work?
It can be broken down into three key steps:
Step 1: Agree on the opening balance and matching transactions
When completing a supplier statement reconciliation, it is vital that the opening balance on the supplier statement is the same as the opening balance on the accounts payable ledger.
After comparing the two documents, all transactions that correspond to each other can then be marked as agreed, and therefore removed from the reconciliation process.
Step 2: Correspond payments against invoices
It’s also important that Accounts Payable’s confirm that payments and credit notes are included in invoices, to ensure this is all in order.
Step 3: Establish missing transactions against supplier statements and accounts payable ledgers
For all items that haven’t been eradicated in the first two steps, these will become the basis of the reconciliation, and show any discrepancies.
This includes items that are featured in the supplier statement and not in the accounts payable ledger and vice versa.
On paper, this three-step process to fulfilling a supplier statement reconciliation would appear to be a relatively simple and straightforward task.
But in practice, human error and time restraints can make the process much more complicated.
With accounts payable teams inundated with such a high volume of statements from their clients, it’s no wonder that statement reconciliation becomes an unpopular job across AP teams.
With such a high number of statements to monitor, these human errors can become a regular occurrence, and items can often get missed or recorded incorrectly.
As workloads increase, so does delegation which can again lead to further errors and miscommunication across teams.
All these errors can be resolved with time and dedication by AP’s, but in the long term, these mistakes can be harder to fix and difficult to keep on top of, particularly for smaller teams.
Continual errors can also lead to unsatisfied customers and therefore a loss in business, which can be very costly for small or medium-sized businesses.
To help remove these common issues that arise with manual statement reconciliation, automated processes have now come into play.
By automating the process, accounts payable teams are able to arrange for more statements to be reconciled, discrepancies to be resolved effectively and supplier payments to be made on time.
Firstly, automation has allowed for the reconciliation process to be less susceptible to errors. This can then free up time for AP’s, enabling them to flag any discrepancies with suppliers immediately.
A preventative approach can then be applied to all areas of the process. This gives AP’s the opportunity to fulfil the reconciliation process, as any non-reconciled payments will be flagged by the automation software.
By investing in this automation software, or working with a leading recovery auditor that has access to such tools, means the reconciliation process is much more streamlined than it ever has been.
By crafting reconciliation statements automatically every day, the software can ensure:
there is never a back-log of statements
flag if there are any issues immediately, making it easier to follow-up on such discrepancies
and highlight to teams that all invoices and credit notes have been received
By ensuring these areas are covered, it gives businesses the opportunity to fulfil roles including paying their suppliers on time, reducing the likelihood of incorrect and late payments and maximising on early payment discounts.
It also gives businesses the chance to improve their cash flow forecasting, which can be a common issue across all sectors.
So, automated supplier statement reconciliation can really help businesses to stay on top of their transactions.
By ensuring that supplier statement reconciliation is kept up to date with automation, Accounts Payable teams have the opportunity to save time, reduce enquiries and, most importantly, pay suppliers on time.
By improving relationships with suppliers, you can ensure you keep clients and can dramatically reduce the stress and workload placed on AP’s.
To discuss how the expert team here at Westgate Moore Associates can help your business and support your Accounts Payable team, please contact us today on 0121 325 6920 or send us a message here.
16 October, 2020