Top 5 Important Things to Know About Vendor Account Reconciliation and How to Conduct Vendor Reconciliation

Does your company work with many vendors? If yes, vendor payments might be accounting for a substantial cash outflow in your company. But do you have someone who is taking care of vendor reconciliations? If not, you should probably make sure that it is done soon.

So, Let's know about vendor reconciliation?

Vendor accounts reconciliation is a key procure-to-pay (P2P) control that has been designed as a routine key compliance process by many organizations. It has been implemented to reduce the risk of invalid liabilities held in the balance sheet and to have control over vendors that have huge debit balances.

Usually, Account Payable (AP) managers conduct a reconciliation of vendor statements to make the process simple. This task can be really time-consuming and tedious. But it offers many benefits and is often overlooked without understanding the potential loss the company might incur in the process.

While there could be multiple reasons for differences in the accounting of transactions in the books by either of the parties, below are some of the root causes for differences that appear in the reconciliation of vendor accounts.

→ Transparency in the accounting of invoices, payments and receipts

→ Identification of double payment/ excess payments/ Short payment made to vendors

→ Resolution of disputed Invoices and debit notes and credit notes

→ Tracking of incorrect application of receipts by the vendor

→ Sales returns accounting by either of the parties

→ Discounts not accounted for correctly

→ Advances / Retention amount not adjusted properly in vendor account

→ TDS and other taxes not accounted correctly by the vendor

→ Routine signoff of reconciliation ensures clean accounting

Have you felt that your company faces similar issues when it comes to vendor accounts and payments? If so, you should definitely implement vendor account reconciliation.

Before we get into the details, here’s what a vendor statement is:

A vendor statement is a document that a company receives from its vendors. This document might consist of the details of all the unpaid invoices. It usually contains credit notes and payments.

Now that we have made it clear what vendor statements are, let’s look at what we will discuss in this article:

1.      What is vendor reconciliation?

2.      Why should you reconcile vendor statements?

3.      What are the advantages of vendor reconciliations?

4.      How do you conduct vendor reconciliation?

5.      Why should you reach out to us for vendor reconciliations?

Let’s get started by knowing more about vendor reconciliations.

1.   What is vendor reconciliation?

If your organization has several vendors, the majority of your cash outflow will be for these vendors. The vendors will keep an account of all the unpaid bills they have. A vendor statement is a document from the vendor’s accounting system listing all unpaid invoices at a certain date. It could also contain other uncleared items such as credit notes and payments.

Reconciliation of this vendor statement requires matching the invoices and other lines to documents from your own system. Unmatched documents are discrepancies and comprise the vendor statement reconciliation report. All of the possible issues with your vendor account are represented in this single report.

2.   Why should you reconcile vendor statements?

A lot of companies do not reconcile vendor statements. It is a time-consuming and tedious task. But it is important to get this done. If the process for vendor reconciliation is in place, the company accountants can finally sleep in peace!

The vendor reconciliation process for any business requires matching the invoices and other line-ups to documents. Failing to properly execute the vendor reconciliation process may result in unmatched records are discrepancies, which may further comprise the vendor statement reconciliation report.

Now let us look at the advantages of vendor reconciliation.

3.   What are the advantages of vendor reconciliations?

With effective vendor reconciliation, every company can ensure that no discrepancy or hindrances arise when it comes to managing third-party, and other related business associates. This is important to maintain vendor relationships for a long period.

Here are some advantages of performing vendor reconciliation:

i. Any issue in the handling of invoices or bills can upset future stock and lose settlement limits. In case, any recognizable proof of seller invoice or bill can't be found, associations should demand the merchant to resend the reports which brings about deferred installments.

Additionally, if bills get recorded for mistaken merchants in the bookkeeping framework, your business ends up paying some unknown seller. What's more, when the right vendor questions it, the company may likewise pay this merchant, subsequently copying the installment and bringing about bookkeeping blunders

Such copy instalments can be kept away by coordinating with solicitations to the seller's assertions. Regardless of whether merchant compromise is just handled after instalment, the copies can be distinguished. In this way, you can do whatever it may take to fix the mistakes.

ii. Companies may end up overpaying on the off chance that their framework's seller evaluating ace information is mistaken, or on the other hand if the merchant receipt got caught at a wrong cost.

While preparing the receipt, there are chances that accessible limits may get mistakenly discarded. In this way, coordinating with the merchant details on the framework to the seller articulation will either forestall or if nothing else distinguish such excessive charges.

4.   How do you conduct vendor reconciliation?

While there are several benefits associated with reconciling vendor statements every month, it can be a really tiring task. Just imagine matching thousands of invoices and other documents! If you are to do this manually, there is a lot of printing, and cross-checking involved. The amount of time it will consume is more than you can imagine. Despite this, there are chances of errors because after all, how long can someone stay focused?

To avoid these problems from cropping up, you need to digitize vendor reconciliation so that you get a report that you can manually supervise.

Here are some ways to reconcile vendor statements:

i. You should choose vendor statement formats

Suppliers or vendors can share invoices and statements in several formats. This is because each vendor system will produce a different format or layout. You may receive some vendor statements via email in Excel or PDF formats. But, you may also have vendors who will send you physical copies of the statements.

Vendor statement reconciliation can be a nightmare if you have the statements in so many different formats because you will have to constantly keep referring to different formats. To avoid this, you need to first choose a format that all vendor statements should be in. But before you decide on the format, here’s what you should do.

ii. You should know your outsourcing partner

As mentioned earlier, it is not easy to conduct vendor reconciliation in an organization. It is a very time-consuming and difficult task. Given this, you can reach out to other companies that focus on vendor reconciliation and other accounting services. These companies may even have software that will help you and your employees a lot of time and energy.

So, once you finalize your outsourcing partner or software, you will be clear about the vendor statement format you require. This is because a lot of software will only accept certain formats. This makes it easier for you to decide on the required format.

Once you have decided on the format, you can inform your vendors to share the invoices and statements in that specific format. If not, you will have to type in a lot of details into the system.

Check out the next section to know how we can help you.

5.   Why should you reach out to us for vendor reconciliations?

If you are seeking help with vendor reconciliations, we would like to tell you that your search ends here. With us, you get end-to-end solutions for vendor reconciliation.

We offer reconciliation services in the below-given categories:

1.      Vendors

2.      Customers

3.      Modern trade, and,

4.      E-commerce

Since we are focusing on vendor account reconciliations, we will tell you the categories of your vendor partners we can help with:

1.      Material suppliers

2.      Service providers

3.      Logistics partners

4.      Utility vendors

5.      HR contractors

6.      Facility management vendors

We follow very systematic approaches when it comes to our services. And that’s precisely why you should outsource one of the most important tasks in your company to us.

Want to know the benefits of outsourcing your vendor account reconciliation to us?

You can check out the points below:

→ We offer our services at a competitive cost with quality comparable to top ITES companies

→ Significant reduction in processing time

→ Seamless information flow providing visibility to vendors as well

→ Improved cash management

→ End-to-end tracking of documents

→ Robust accrual process

→ Query management and document audit trail

→ Real-time monitoring through CTM

Now, that you know why you should outsource the most time-consuming and service difficult tasks to us,  We at AjayKumar and Associates assist our clients with precise vendor account reconciliation service.