What is Invoice Reconciliation?

Invoice reconciliation is sorting each invoice and matching it with the corresponding bank statements so that each transaction can be traced.

Invoicing and reconciliation

An invoice is a legal document issued to record a sale transaction. It includes details of goods sold, quantity, rate, taxable value, etc. Invoicing generates a valid invoice and sends it to the customer to demand payment for goods sold or services provided. 

Whereas reconciliation is a process where two records are compared to clear the differences between them. Reconciliation helps to keep track of each transaction regularly.

Meaning of invoice reconciliation

In accounting, reconciliation is when two sets of records are matched to ensure that they agree with each other. Invoice reconciliation involves matching bank statements with the incoming and outgoing invoices to ensure that the books are correct. Each book entry match is called invoice reconciliation. This reconciliation process ensures consistency and accuracy. It also keeps your accounts up to date and helps in avoiding fraud. 

Benefits of invoice reconciliation

Invoice reconciliation helps to settle discrepancies. It can be done manually or by using an automated process. The mismatch usually occurs due to financial errors committed either by a bank or business entity. Thus this settlement process helps the business a lot. 

1. Monitor payments- A regular invoice reconciliation process helps identify customers from whom payment is due but not yet received. One can timely reach out to such parties for pending dues.
2. Detect frauds- Fraud detection is very important to run the business. A proper reconciliation process helps you to identify frauds.
3. Helps to maintain up to date books of accounts- The reconciliation procedure helps the company maintain up to date books of accounts with the bank statements, thereby keeping track of each transaction daily.

How to reconcile invoices in accounts?

Follow the below steps to reconcile invoices:

1. Organise all the invoices- Arrange all the invoices systematically and sort them date wise. This will help to understand why a certain invoice is delayed. Start checking the customer statement with the invoice to ensure that the amount received matches the actual invoice amount.
2. Note down the mismatches- Note down each discrepancy while matching the customer statement with individual invoices. Cross verify all the details such as invoice amount, invoice number, taxes, etc. 
3. Reach out to the customer- One should reach out to the customers to resolve the discrepancy. If they are unable to resolve discrepancies, the business owner/authorised person can decide whether to write off long outstanding dues or not.

Tips for effective invoice reconciliation

Some of the tips for effective invoice reconciliation are:

• Invoices should be filed using a deposit date format, and entries should be passed as soon as payments are received.
• Invoices should be filed in chronological order.
• Reconciliation process should be performed at regular intervals.
• Reconciliation process should be done by a person other than the one who does an accounting to make the process effective and identify frauds if any.

Manual invoice reconciliation versus automated invoice reconciliation

Historically, businesses used manual invoice reconciliation wherein each invoice was manually compared with the bank statements. But, manually comparing each invoice with a bank statement is quite time-consuming. Nowadays, companies have moved to automated processes to save time and enhance efficiency. The system automatically identifies the entries with discrepancies. Thus, the identification part is done by the system, then one can reach out to the customers to resolve the discrepancy.

Some advanced systems provide additional features such as probable reasons for errors and suggest adjustments accordingly.

ClearOne software can be used to create GST compliant tax invoices. It facilitates fast-tracking of invoices and also payments due. By using the same mobile number for mobile apps and the web, all the data will be synced, which increases efficiency.