What are the Steps for Invoice Reconciliation?

Traditional invoice reconciliation is a three-way match process, which is similar to the method found in the accounts payable process. Accounting clerks review invoices against the bill of lading sent with goods from the vendor and the company’s internal purchase order. Common points to reconcile are the quantity of goods, price for each item, payment terms, and authorization from upper management. Companies may also reconcile invoices against vendor statements. This ensures no unauthorized invoices exist and all invoices receive prompt payment.

Invoices are official documents that represent a bill of sale. Large organizations can receive hundreds or thousands of invoices each month, which creates the need for a strong reconciliation process. Additionally, bill payment is a part of the cash management process. Companies — especially those that are publicly held — must pay close attention to bill payment to ensure the company does not waste capital. Internal controls can include separating the person completing the invoice reconciliation process from the employee responsible for cutting checks to pay invoices. This ensures the company is not processing false invoices for payment.

Most companies will create standard reconciliation procedures. For example, many companies pay their bills on the 10th and 25th of each month, whichever comes first according to invoice dates. At this time, accounting clerks will review invoices needing payment and collect the corresponding purchase orders. Each invoice is compared to the purchase order prior to issuing payment. Another option is for companies to pay invoices once a month after receiving statements. Most vendors or suppliers will send statements within the first two weeks of each month, creating a standard cycle for paying bills.

Monthly invoice reconciliation using statements starts with comparing unpaid invoices to the monthly statement. Companies using a computerized accounting application will have electronic records for invoices. Paid invoices will be marked off the invoice; this should leave all unpaid invoices currently in the accounting file. Accounting will probably have stapled internal purchase orders to each open invoice, which results in simply matching the invoices to the statement and paying the bill.

Reconciling invoices is a highly cyclical process. Business owners and managers will often require the same information supplied with each payment request prior to signing the corresponding check. This allows for a final review of the information prior to releasing funds. Owners and managers will review general ledger account codes, authorized signatures, recalculate math figures or ask questions to confirm the accounting clerk completed all required reconciliation steps.