What is Invoice Reconciliation? Explanation and Benefits 
December 14, 2022
As a business owner, it’s super important that you do invoice reconciliation to keep the company up to date. It will make your life much easier and help you avoid any payment mistakes or fraudulent statements.
But what exactly is invoice reconciliation, and why should you perform it?
If you want to find out, you’ve come to the right place! This article will tell you all about this important process and show you why it can be beneficial for you and your company.
So, let’s find out what it’s all about!
What is Invoice Reconciliation?
Invoice reconciliation is a process where you pair your incoming and outgoing invoices with your bank statements. In accounting, this refers to comparing payments to ensure they are correct.
The process lets you track every payment and transaction that has been sent and received.
Invoice reconciliation guarantees that every transaction is accurate and consistent. So, essentially, reconciliation confirms that the money that leaves your bank account is the same amount spent for services.
It’s also important that these two payment statements be the same when the reporting period ends.
Invoice Reconciliation Checklist
If you want to easily reconcile the numbers, you should create a checklist. It should include questions that will remind you of what to cover when reconciling, such as:
- Has there been an under- or over-payment?
- Can you offer a discount if an early payment has been issued?
- Has your bank statement listed any additional fees?
- Has there been a recent change in the payment balance?
4 Benefits of Invoice Reconciliation
As an independent business owner, you should reconcile invoices because:
#1. It is a Way of Monitoring Payments
Invoice reconciliation helps you track every single outgoing and incoming payment at any moment. Monitoring your payments is essential to any business, as it is proof of every task that is being done for a client and that the payments are being fulfilled each time.
#2. It is an Opportunity to Detect Fraud
If you regularly use invoice reconciliation, you’ll be able to take note of any unpaid invoices from clients. As you’ll notice any late payments faster, you could quickly contact the client who has not made a proper payment.
#3. It Helps With Bookkeeping
When bookkeeping, you need to keep records of any financial affairs of your business. Invoice reconciliation is beneficial here, as you can confirm and match transactions in no time.
#4. It Saves Time and Money
If you’re using automatic invoice reconciliation software, you’ll save a lot of time and money on the whole process. You won’t need to pay an additional person to do the job, and on top of that, automatic invoice reconciliation takes only a couple of minutes.
How to Reconcile Invoices in 4 Easy Steps
Here are the steps you should follow to successfully reconcile your invoices:
#1. Gather Invoices for a Time Period
To start reconciling invoices, you must sort your documents systematically by date. This will allow you to keep track of any delayed invoices during a specific time and show you why the holdup happened, as well as what steps you can take to clear it up.
#2. Create a Transaction Ledger
A transaction ledger is a book in which you track and store payments from your clients. It is incredibly useful for reconciling invoices, and you should regularly update it.
When reconciling invoices, you can use a transaction ledger to compare and match payments to the invoices, making the process much easier.
#3. Identify Mismatches
Next, to properly organize your invoices, you must check for and identify any payment mismatches. These mismatches can either be duplicates or discrepancies.
To identify them, you can take notes on every discrepancy and try to match the clients’ payment statements with the invoices. Further on, you can double-check the amount and number of the invoices and check if any additional tax payments need to be submitted.
#4. Reach out to the Clients
When reconciling invoices, you should reach out to your clients in case any payment inconsistencies have happened. To do that, you can send them an overdue invoice letter.
If, by any chance, you have tried to contact them but are still unable to solve these issues, an authorized person can decide whether it’s best to write the situation off as an outstanding payment.
4 Tips to Reconcile Invoices More Efficiently
To make your invoice reconciliation easier, we’ve prepared some tips for you. Check them out in the section below!
#1. Keep Invoicing System Organized
One of the things that’ll make your invoice reconciliation process easier by a wide margin is having an organized system. To organize your invoices, you can use:
- Spreadsheets. Although you can use both paper and digital spreadsheets, it’s better to use the latter since it’s faster and easier to maintain.
- A filing cabinet. Organizing your invoices in folders will allow you to access them easily when necessary.
- Cloud storage. If you want to protect your invoices against natural disasters or cyber threats, your best bet would be to use cloud storage, like Google Drive, for example. On top of that, you’ll always be able to access your documents, no matter where you are.
Note that the best way to keep your invoicing system organized is to use digital invoices. A digital invoice usually comes in PDF format and can be stored online in the cloud or offline on disk. This makes it safe from natural disasters and cyber threats.
#2. Always Compare Orders and Shipments
To easily avoid discrepancies, ensure you always compare all orders and shipments. So, whenever you order something new, compare it and try to match it to what you have received. If any discrepancies occur, it’s always best to note them down so you can easily track them down.
#3. Reach Out to Your Clients
If you notice a discrepancy when reconciling your invoices, you should contact the client to whom you issued the invoice. Describe to them the issue you’re facing and write off a long outstanding due, depending on the outcome of your conversation with the client.
#4. Regularly Perform Invoice Reconciliation
One of the most important things when it comes to invoice reconciliation is to perform it regularly. By being consistent, you ensure you won’t miss out on any discrepancies in your invoices. Most importantly, you’ll be able to handle late payments much faster.
Different Types of Invoices
Now that you know all about invoice reconciliation, check out the different types of invoices in the table below:
This invoice type is used by owners of small businesses for calculating item totals, tax, credits, net pay, etc.
Freelance invoice is used by independent contractors who charge hourly or daily rates for their services
If you provide any sort of photography service, you should use a photography invoice.
As its name suggests, this invoice is used by part-time and full-time writers.
A construction invoice is used to list all the work done on a construction project and the materials required to get the job done.
This type of invoice is used by companies that ship their products to buyers from another country.
A tax invoice is a legal document that sellers of a service or product must give to their clients when collecting payments for taxable sales.
If you want to make any of the above-mentioned invoices, use our invoice generator. With it, you can get these important documents in a few easy clicks, and most importantly, the program itself is super easy to use!
- Invoice reconciliation is a procedure in which you match the bank statements to your invoices to keep a clean record of your payments.
- By performing invoice reconciliation, you can avoid fraudulent payments, make catching mistakes easier, and keep track of your records hassle-free.
- When reconciling invoices, you must gather your invoices for a specific period and contact your clients if any payment issues occur.
- The best way to reconcile invoices is to keep your invoicing system organized, always compare orders and shipments, and never be afraid to contact your clients.
- If you want to make any type of invoice, your best bet would be to use an online generator.
Whether you’re just getting started with your business or have already established one, it is important to know that invoice reconciliation is a practice that every business should follow. Although the process might seem tedious at first, don’t worry—we can help!
Check out what we have to offer and make invoices in a few simple steps. We’ll generate tailor-made invoices for your business, so you can focus on your work instead.
We can also make other important documents for you, such as the 1099 MISC or W-2 form!
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