Have you ever run into an issue with your invoices? Then you probably know how hectic and problematic invoicing problems can be. Sadly, this is often a recurring problem for companies.
If you deal with third-party vendors, you will face a lot of invoicing errors. Invoice reconciliation helps you identify, rectify and avoid these errors. Hence, avoiding losses worth thousands of dollars.
As your business grows, you will need a strong invoice reconciliation process. This helps you create an accurate balance, or profit, and loss statement.
If you’re wondering how the invoice reconciliation process goes, below is an overview:
Understanding the Invoice Reconciliation Process
So what exactly is invoice reconciliation? This is the process of matching all your transactions with bank statements and invoices. The invoices could be from your vendors or to your clients.
Reconciliation ensures that all the transactions on your end match with your vendors’. The primary purpose of reconciliation is to ensure that your business isn’t paying for items you didn’t receive. It also helps you pinpoint which services were overpaid or underpaid and fish out fraudulent activities on your accounts.
So why is it important to reconcile your invoices? Below are some of the benefits of invoice reconciliation:
- It helps you pinpoint any errors in your invoices
- It’s a great way to impact your customers and vendors’ overall experience
- It helps you retain customer trust
- Detection of fraudulent activities and errors
- It helps your invoicing team to pinpoint the root cause of errors and eliminate them
When reconciling invoices, there are two types of invoices. These include customer and third-party vendor invoices. The process of reconciling the two kinds of invoices varies slightly.
For instance, the process of reconciling a sale invoice is quite different from that of reconciling a payment invoice.
Profit and Loss Statements in Invoice Reconciliation
When reconciling your invoices, you will come across the term profit and loss statement. This refers to the financial report of a business that recaps the costs, expenses, and revenues incurred during a specific period of time, often a quarter or fiscal year.
Your business’ profit and loss statement will provide key financial information. The information is about your inability or ability to boost profits by reducing the cost of production, increasing your revenue, or both. In most cases, the statement will be presented by the accountant on an accrual or cash basis.
You can ensure that the costs and expenses in your company’s profit and loss statement are accurate through invoice reconciliation. This ensures that you don’t mislead interested parties such as shareholders and investors when sharing your company’s quarterly or annual profit and loss statement.
Final Invoice Reconciliation
As a small business owner, you probably know how challenging it is to manage your business. Not only are you responsible for key decisions, but you also handle most of your finances.
This is especially hectic for accounting and bookkeeping processes. Such processes include invoice reconciliation and creating a loss and profit statement. This is why we recommend you hire the best business accountant to help you with these processes.
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