Reconciling business invoices can feel time-consuming, but when done efficiently, it can help you track cash flow, keep your books tidy, protect against fraud and maintain good relationships with suppliers.
What is invoice reconciliation?
Invoice reconciliation involves checking supplier invoices against internal records like purchase orders and delivery receipts. This process helps you confirm that the goods and services you received match what you ordered and that you’re charged the right amount.
If you send invoices to customers for your products and services, invoice reconciliation is also about matching their payments with open invoices.
Why is invoice reconciliation important in business?
Invoice reconciliation is important in business because it can help deliver the following benefits:
Improved cash flow management
Improved cash flow management is facilitated by invoice reconciliation. This is because you verify that your invoices have been paid, while making sure you don’t pay your suppliers more than you owe. Having strong financial control can help improve cash flow forecasting and expense planning.
Better fraud detection and prevention
On the accounts payable side, you can detect and prevent fraud more easily by cross-checking invoices with what you ordered and received. Solid procurement processes will also help prevent unauthorised transactions or fraudulent activity from suppliers or employees.
Improved financial accuracy
You’ll improve financial accuracy when you regularly reconcile your invoices. It’ll help you uncover discrepancies or inaccuracies before they skew your overall reporting.
Tip: Use MYOB Business to access financial reporting and budgeting at the click of a button. Built-in automation pulls data from across your business in real-time, giving you a clearer view of your income, cash flow and financial performance.
Dispute resolution
Dispute resolution is easier when regularly reconciling invoices, as you can spot errors sooner. Resolving disputes that are months old or from a previous accounting period is much harder.
Improved supplier relationships
You’ll improve supplier relationships when you can spot and resolve errors promptly.
Regulatory compliance
Making sure GST is correctly reported and paid is essential for all GST-registered businesses. Regular invoice reconciliation can help you track how much GST you’ve collected from sales income and paid in goods and services for your business.
How to perform invoice reconciliation
For accounts payable, here’s how you can reconcile supplier invoices:
1. Upload invoices to your accounting system
Upload invoices to be paid into your financial accounting software, like MYOB Business. Once loaded, it’s easy to filter and find invoices by number, issue or due dates, supplier name or amount. This function makes it simple to pay each one – you’ll have all the details in black and white.
2. Gather all invoices, purchase orders (POs) and other records for the accounting period
Gather POs, delivery notes and other records for the accounting period. These are what you’ll check your invoices to be paid against.
3. Compile all transactions from the accounting period
Check which invoices you’ve already paid. This is straightforward when your bank accounts and credit cards are connected to MYOB Business. Your bank transactions are automatically matched to your MYOB transactions every time you earn or spend. There’s no need to comb through statements and manually enter details in your accounting software.
4. Match invoices with transactions
Match paid invoices with transactions to identify any errors or discrepancies. As you reconcile your bank transactions, mark off any invoices paid in full. In MYOB Business, the software will match transactions to invoices in the system so you can review and reconcile them in one click.
5. Check for any discrepancies or missing invoices
Check invoices against your records for any discrepancies. Do the PO numbers match? Did you receive the goods and services as agreed? Is the information on each of the invoices correct and complete? Now is also the time to look for missing invoices — are there transactions that don’t have corresponding invoices?
6. Resolve discrepancies
Resolving discrepancies is generally as simple as discussing it with your suppliers. They might need to supply an amended invoice, replace products or offer a different service.
7. Authorise payments (if required)
Authorise payments for any invoices that haven’t yet been paid in full.
8. Maintain your records
Maintaining records of your reconciliation process is important in case you’re audited. Accounting software like MYOB Business will create this audit trail automatically. With MYOB, you or your accountant can review your records at any time to review what’s been paid and when.
Types of invoice reconciliation
Here are some ways to reconcile supplier invoices:
Two-way matching
Two-way matching is the simplest method of reconciling invoices, where you check your invoices against the purchase order to confirm they’re accurate.
Three-way matching
Retailers and businesses that sell goods often use three-way matching. In this method, the price and quantities listed in the invoice are compared against the purchase order and receiving report.
Four-way matching
Four-way matching is used by businesses that need rigorous accuracy and control. A pharmaceutical company, for example, may check the invoice against the purchase order, goods receipt note and inspection report. This ensures the goods received pass quality control standards.
Vendor statement reconciliation
Vendor statement reconciliation is helpful when managing large transaction volumes. It matches invoices and payments against a supplier’s statement.
Use accounting software to reconcile invoices
When you invoice customers, using accounting software to reconcile invoices shortens a time-consuming manual process and eliminates the chance of human error.
With MYOB Business, you can create and send invoices, with the software tracking whether they’ve been paid. By connecting your bank accounts to MYOB, you can monitor what’s coming in and identify any discrepancies you need to resolve.
Invoice reconciliation best practices
Invoice reconciliation best practices can help you streamline the process, save time and avoid errors.
Use accounting software
Using accounting software like MYOB Business helps you keep track of all invoices and online payments. The auto-reconciliation feature gives you a second layer of oversight to quickly flag inaccuracies or uncategorised payments early.
Have a clear audit trail
Bring your accounts payable and accounts receivable processes online. This will ensure all your invoices and an audit history of all payments are saved in your accounting software.
Implement reconciliation policies
The straightforward implementation of reconciliation policies helps your people understand the process and what to look for.
Invoice reconciliation FAQs
What are the different types of invoice reconciliation?
The different types of invoice reconciliation will suit different businesses. If you invoice customers for products and services, you’ll need to verify that the money received matches your invoice.
Many businesses may need to reconcile supplier invoices against their own records to ensure they’re not overcharged. This may involve two-way matching (against the purchase order), three-way matching (against the purchase order and delivery note) or four-way matching (against the purchase order, delivery note and inspection report)
Is it better to manually reconcile invoices or use accounting software?
It’s better to avoid manually reconciling invoices if you’re managing high volumes of invoices. Using accounting software can help you minimise time and errors while improving visibility.
Get reconciled to invoice reconciliation
Invoice reconciliation may seem like extra admin, but keeping your books clean and tidy is important to track cash flow efficiently and spot errors or discrepancies that may otherwise cost your business.
The good news is that when you invoice your customers, MYOB Business does invoice reconciliation automatically. By linking your bank account to MYOB, the software matches bank transactions to invoices. This means you can keep up with what your customers have paid and what’s outstanding. Try it for yourself today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.