This ultimate guide to supplier statement reconciliation gives you the information you need to:
- Understand what it is and why it’s important.
- Complete a statement reconciliation and demonstrate best practices for higher efficiency.
- Recognise common difficulties for manual statement reconciliation.
- Comprehend automated statement reconciliation.
- Choose the best automated solution for your organisational needs.
Prevent overpayment with error and duplicate detection.
Identify and prevent potential internal and external fraud
Reconcile more supplier statements more often to recover more cash
Optimise working capital by finding historical overpayments
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Table of Contents
What is a supplier statement reconciliation?
Supplier statement reconciliation, or vendor statement reconciliation, is the process of comparing transactions in your accounting records to a supplier’s statement and ensuring the two match. This allows you to spot exceptions to investigate and resolve.
Why do we do supplier statement reconciliations?
We complete statement reconciliations for several reasons:
Duplicate payments can represent a significant sum of money if not detected, and missing invoices can cause a multitude of supplier headaches. Finding the errors earlier can help negate those risks.
To maximise working capital and recover cash.
You’ll find duplicate payments, overpayments, unclaimed credits, rebates and discounts. Being proactive with claiming credits or recovering funds will directly contribute to a larger amount of working capital. This in turn allows your organisation to run more smoothly.
To ensure that the billing process is complete and correct before payment.
A robust and accurate payments process can prevent the need to recover incorrect payments later.
To prevent supplier fraud and improve vendor relationships.
Statement reconciliation errors can sometimes uncover more serious issues. Consistent duplicate payments or invoicing a higher price than what was agreed upon could be a fraud attempt. Paying vendors correctly and maintaining speedy contact if problems occur produces goodwill.
To keep ledgers accurate and up to date.
This allows your team to give correct reports and forecasts, in turn allowing the company to understand their spend better. It also ensures that you are prepared for audits.
To drive process improvements.
Careful analysis of statement reconciliation errors can provide helpful feedback on where your processes can be more efficient or robust.
How do you reconcile a supplier or vendor statement?
Reconciling a vendor statement against your transactional data is a relatively simple process and doing it well can pay huge dividends.
Below, we’ve given the full statement reconciliation process, including points where you may like to investigate improvements to your procedure. Some of the points here may not apply to your organisation or your role, so it’s best to double check your processes:
1) Gather your transactional data, and the supplier statements you are looking to reconcile.
2) Verify transactional information to ensure that you are checking the correct documents.
3) Compare both records, identify discrepancies and devise points of action. You may find unclaimed credits, rebates, discounts, duplications, previous overpayments and missing invoices at this stage.
4) Investigate anomalies to find correct values, missing invoices and more. Find root causes of the anomalies if applicable.
5) Communicate with vendors if necessary to clarify and resolve issues.
6) Rectify errors and update your systems.
7) Reconcile totals to ensure they match.
8) Document the reconciliation.
9) Highlight ongoing issues to management if necessary.
10) Review and approval by relevant stakeholders, if your organisation follows this process.
11) Generate reports and share with management.
12) Archive all relevant documents.
For an in-depth guide, see our blog on how to complete a statement reconciliation.
Statement reconciliation best practices.
We recommend the following best practices to ensure an efficient and effective supplier statement reconciliation process:
- Regular reconciliations with a consistent schedule, ensuring errors are identified and resolved quickly and stopping them from accumulating over time.
- Reconciling at least 80% of your supplier statements. We’ve found that the more statements we reconcile, the more value you uncover to get the most value.
- Keep clear documentation. Organised records make it simpler to spot discrepancies and trace error sources. They also assist with smoother audits and dispute resolution.
- Automate where possible. This streamlines your process significantly and increases volume, and therefore reward.
- Communicate with vendors regularly and promptly if there is an issue. Building strong relationships with your suppliers can make resolving issues much easier. In fact, ACCA say that dealing with ‘discrepancies quickly and professionally is key to maintaining good relationships with suppliers.
- Review your procedure often to eradicate errors. Reviewing and solving recurring issues and identifying where updates need to be made is essential in ensuring efficient processes. The same is true for statement reconciliation.
- Train your team regularly to keep awareness of procedure high, and to ensure they can perform their roles effectively.
The drawbacks of manual statement reconciliation.
The famously unpopular process of manual statement rec can be a difficult task for many. Common challenges include:
- Time-consuming, with large amounts of effort for little reward.
- Tedious, long-winded and repetitive, so people don’t want to do it.
- Resource intensive.
- Particularly complex statements can become difficult to accurately reconcile.
- High risk of human error, potentially negating hours of work.
While the process is designed to improve ledger accuracy, this only works if most of the discrepancies are found and rectified. That means that you need to look at 80% or more of your supplier base to have a significant impact on ledger accuracy.
Due to these challenges, statement reconciliation becomes a lower priority for many finance teams. After all, who would want to use up their valuable resource on something that doesn’t give high reward versus the effort that’s put in?
You know that supplier statement reconciliation is something that ought to be done to improve ledger accuracy, and that when errors are found, it can be extremely lucrative. It therefore needs to be made easier and faster so a higher number of statement reconciliations can be completed.
Technological developments have made it possible to automate the process and mitigate all the above issues.
What is automated supplier statement reconciliation?
Automated statement reconciliation uses software to complete the statement reconciliation process. This often comes in the form of sourcing the statements and transaction data, matching the statements and showing the results. Automation allows the process to be faster and more accurate as it lowers the level of human input.
How can automated supplier statement reconciliation help
According to the PPN Annual Survey 2023, only 35% of respondents had automated their statement reconciliation process. What could it do for you?
Statement reconciliation software can match high volumes of transactions quickly. This reduces the risk of error, saves time and allows your team to discover credit notes, rebates and overpayments.
Depending on the technology used, it can also gather invoices and statements, reconcile totals, create reports, store documentation securely and keep an audit trail.
This helps your organisation in multiple ways:
- Increases efficiency. Automating the process saves huge amounts of resource. Our statement reconciliation solution matches statements in just 7 seconds, overcoming time restraints and freeing up time for resolving exceptions.
- Increases volume. Faster statement reconciliation means that your time can be spent doing more. It allows for larger volumes of statement reconciliations to be completed.
- Adds cash to your bottom line by finding overpayments, credits, discounts or rebates. What’s more, the higher amount of reconciliations you complete, the more lucrative this can become, as you’ll have a higher likelihood of finding these.
- Improves supplier relationships through regular communication and discrepancy resolution.
- Reduces human error and improves accuracy. The software identifies discrepancies on your behalf, removing human error. For example, the right software can better differentiate letters and numbers. It can see the difference between a letter ‘O’ and a zero, or a lower-case letter ‘L’ and a one. You miss fewer statement issues as a result and have higher ledger accuracy. This pays dividends with reporting and forecasting.
- Streamlines payment and recovery. Faster processing of statements means you can resolve discrepancies faster. Your cycle can therefore be shorter.
- Builds supplier trust with consistent, accurate payment. With more steady communication your organisation will be up to date on supply issues, allowing you to better manage your supply chain. This also opens opportunities for better pricing, offers or credit facilities.
How FISCAL can help you with statement reconciliation.
Our automated statement reconciliation software delivers matches in seconds, and it is unique in that it completes continuous reconciliation. As soon as a statement drops inside our software from an email or by upload, it is matched. No waiting around. What’s more, our software will match again if any further transactional information is inputted into the system, so that missing invoice may no longer missing on your statement reconciliation results.
With batch processing capability and a prioritised list of discrepancies, we make it simple for you to complete supplier statement reconciliations at scale.
Choosing the right statement reconciliation software for you.
There are many options to choose between and much to consider when choosing the right automated statement reconciliation solution for your organisation. Here are seven points to consider during the process:
- Automated matching capability. Think about the number of supplier statements you need to match every month, the amount of process you would like to automate, and your resource levels.
- Integration and compatibility. Your statement reconciliation solution should be compatible with your ERP and the method of inputting your data should work with your processes. You will also need to consider whether your solution should be on-premises or cloud-based.
- Efficiency and time savings. The speed, capacity, accuracy and error reduction rate will all affect how fast you can reconcile statements, and whether you can do it in bulk.
- Flexibility and customisation. Think about your needs as a business and what you report on or would like to report on for statement reconciliation. What are your dashboard and report needs?
- User experience and ease of use. The onboarding process, training and amount of software updates will be extremely important to understand. You will want to ensure you have adequate support, and that you will get the best from the software. Add to this the ease of use in the interface itself.
- Data security. A clear necessity from a GDPR and Privacy standpoint is around your financial data. Assurance that this data is protected is paramount, so ensure that NDAs and ISO certifications are in place. Knowing the types of logins that are available to you and how much each can see will also be useful.
- Pricing and ROI. Pricing can often be a deciding factor when choosing software, so ensure you are clear on what your price would be. Identify what cost savings you could be making with each one and ensure you have examples of how ROI can be achieved, and in how long.
Finally, don’t forget that there are comparison sites that can help you with find out much of this information. Capterra is a good example of this.
Alternatively, our in-depth blog gives you more information on what to consider when choosing the best supplier statement reconciliation software for you.
The future of statement reconciliation.
We’ve seen automation technology being utilised more and more within the P2P sphere, and statement reconciliation is no exception. We expect to see this trend continue as manual processes become obsolete and no-touch automation becomes more prevalent.
We speculate that statement reconciliation could be further integrated inside ERPs and analysis tools. There could be more options for uploading statements and more advanced reporting on the road ahead.