Vendor Reconciliation – Overview, Template, and Steps

Vendor payments are vital for managing a business's cash outflow. Typically, the accounts payable team is responsible for vendor reconciliation to enhance operational efficiency. Although this task can be intricate and time-consuming, it delivers essential advantages that are often underappreciated. To ensure the best business performance, implementing effective vendor reconciliations is crucial.

What is Vendor Reconciliation?

Vendor reconciliation involves aligning a vendor's account with the vendor's statement. This involves comparing vendor invoices with those in the business' system. It ensures no discrepancies exist between what the vendor has billed and the actual products, inventory, or services received by the company.

This process aids in spotting issues between the system and vendor accounts. It strengthens vendor relationships, minimizes queries, and gives better control over vendor spending. Despite these benefits, managing vendor reconciliation can be challenging due to the heavy volume of daily transactions and statements needing reconciliation. A flawed vendor reconciliation approach may lead to unnoticed overpayments of vendor invoices.

Controllers should focus on efficiently managing the vendor reconciliation process while utilizing advanced technologies to reach these goals.

Vendor Reconciliation Process

While vendor reconciliation's benefits are enticing, manually aligning thousands of vendor invoices and related documents monthly can be laborious. Manual reconciliation demands printing, checking, and data manipulation to prepare diverse spreadsheets. The essential steps of vendor reconciliation include:

1. Starting with the Opening Balance: The first phase in the vendor reconciliation process is comparing the opening balance on the vendor's accounts payable ledger with that on the vendor's statement.

2. Reviewing Line Items: Next involves matching line items from the vendor's statement with the invoices. Companies usually reconcile upon shipment arrival to confirm that invoices correctly depict the quantity and values of shipments. Items that appear on both the vendor's accounts payable and statement are excluded from reconciliation.

3. Spotting Discrepancies: Remaining items that are not excluded indicate discrepancies, including those in accounts payable not on the vendor statement or vice versa. These discrepancies arise from timing issues, errors, or omissions.

4. Maintaining Accuracy: Each purchase transaction is verified for appropriate authorization. If vendor invoices and related documents are in paper form, they are reviewed for modifications made after approval but before processing. Transactions are immediately checked. Invoices are verified for timely progress by accounts payable. Any discrepancies prompt follow-up actions with the processing or authorizing department.

5. Handling Payments and Credit Notes: All payments and credit notes reflected on the supplier statement should be allocated to corresponding invoices.

Format for Vendor Reconciliation

Businesses might receive vendor statements in various formats, as each vendor's system may generate distinct layouts. Statements could be emailed in PDF or Excel, while others might be paper-based sent via mail.