What is statement reconciliation?
Statement reconciliation is the method of comparing two sets of data – a vendor statement and transactional information – and discovering where there may be issues to address to balance the books. This blog shares how to reconcile a supplier statement in a step-by-step process.
Why reconcile a supplier statement?
Statement reconciliation is an essential check to ensure that all invoices and credits have been received as expected. The process also identifies discrepancies between your purchase ledger and supplier statements and allows your team to rectify them. This gives you more accurate ledgers and therefore more accurate financial reporting and forecasts.
When you reconcile a supplier statement, it can help strengthen your supplier relationships. Any issues you find and share will also help your suppliers’ ledgers to become more accurate, or rectify any issues in their processes, and ultimately lead to them being paid on time.
How to reconcile a supplier statement.
Statement reconciliation can be completed in multiple ways. Some companies complete the process completely manually, others prefer to use their ERPs to help with this, and others use automated statement reconciliation.
The following process gives an outline on how to reconcile a supplier statement, including points where you may like to investigate improvements to your procedure.
1. Gather Statements and Transaction Data:
Collect the supplier statements you’ve received for a specific period. This is typically a month but could be per quarter or even per year if you are completing an audit. Also gather invoices, purchase orders, and any other relevant data related to transactions with the vendors you will be reconciling.
2. Verify Information:
Ensure that you are checking the correct documents. Confirm the supplier’s statement matches the information in your records, such as invoice numbers, amounts, and dates.
3. Identify Discrepancies and areas for action:
Compare the vendor statement to your records and identify any discrepancies or differences between the two sets of data. This is an opportunity to look for unclaimed credits, rebates, discounts, duplications and previous overpayments. For manual reconciliation it is often done by comparing both documents side by side, with a highlighter. Automation allows this element to be completed for you.
4. Investigate Anomalies:
For each error or issue found, investigate the root cause. This may involve checking order confirmations, delivery notes, and communication records to determine the correct information.
5. Communicate with your Supplier:
If necessary, contact the supplier to clarify discrepancies and resolve issues. This could involve sending emails, making calls, or engaging in other forms of communication. It is important to treat the area with care, particularly when dealing with a key supplier, or one where the relationship is unsteady.
6. Rectify Errors and Update your Systems:
Update your records to reflect the accurate data and make necessary updates in your financial systems. This ensures that your data is correct across the board.
7. Reconcile Totals:
Calculate the corrected figures for your ERP transactions and the supplier statement to ensure they match.
8. Document the Reconciliation:
Keep a clear record of the reconciliation process, including notes on discrepancies, their resolutions, and any communication with the supplier. This could belong in your ERP system.
9. Highlight Ongoing Issues:
If you notice a pattern of discrepancies, address the underlying issues to prevent it repeating in future. Flag them to management or your supplier, depending on where the issue originated.
10. Review and Approval:
Depending on your workflow, the reconciliation may need to be reviewed and approved by relevant stakeholders. Ensure this is completed before finalising.
11. Generate Reports and Share with Management:
Create reports summarising the reconciliation results, including any discrepancies found and their resolutions. These reports can be useful for internal tracking and supplier communication.
It may also be useful to include information such as a breakdown of the suppliers you deal with the most, or whose invoices are the highest value, as well as those with consistent discrepancies. Use the insights gained from your reports to make improvements to your financial procedures. This will help to minimise future exceptions and increase working capital.
Store all relevant documents, including supplier statements, invoices, emails, and reconciliation reports, for future reference and auditing purposes. This could be inside your ERP, with the individual statements if your process is fully digital.
- Please note that some of the points in this process may not apply to your organisation or your role, so it’s best to double check your processes before you begin.
For the most effective statement reconciliation, we’ve put together some tips that define best practices. Read more here. One of those tips is to utilise automation technology to save time. We absolutely recommend this approach, as you will then be able to complete more statement reconciliations, and therefore find and rectify more discrepancies as a result. Our own automated solution can match a statement in just 7 seconds on average. Think how much time that could save you.
We’ve created a helpful infographic below to help with your statement reconciliation process.