How To Do Invoice Reconciliation

Whether you’re a sole proprietor, independent contractor, or small business owner, chances are you deal with a sizable amount of invoices on a regular basis and constantly have money going into and out of bank accounts.

To help manage these finances, it’s important to verify the amounts you find on bank statements with the different incoming and outgoing invoices you have. This is called “invoice reconciliation” and is a key action to make sure your accounts are accurate. To efficiently perform invoice reconciliation, learn why it’s important, what it entails, and how to improve your process.

Why Invoice Reconciliation Matters

Before the age of digital wallets, balancing a checkbook was a must to make sure the right amounts were debited from a checking account.

Invoice reconciliation is just like this process except used by businesses to match incoming and outgoing invoices to bank statements in a specific period. Invoices should account for revenue from buyer purchases and expenses from supplier bills.

Reconciliation can save you from considerable financial loss and ensure appropriateness of money leaving or entering your account.

How Do You Reconcile an Invoice?

Invoice reconciliation involves verifying all outgoing and incoming charges against your bank statements to ensure accuracy. The process seems relatively simple but can become more complex depending on how manual you make it.

Here’s a straightforward method of reconciliation:

1. Organize all incoming invoices in one folder, whether a physical or computer file depending on preference.
2. Organize all outgoing invoices in one folder.
3. Select the reporting time frame you would like to review.
4. Gather bank statements covering that time frame, usually accessible from your online bank login.
5. Review incoming invoices and match them to the line items on your bank statement.
6. Mark each invoice as “completed,” “unpaid,” or “partial payment.”
7. Make any unpaid or partial payments, or mark the due date on your calendar.
8. Review outgoing invoices to account for payments made to you.
9. Mark each invoice as “completed,” “unpaid,” or “partial payment.” 
10. Look into any discrepancies.
11. Follow up with customers who are unpaid or partially paid to collect their payments.

How To Improve Invoice Reconciliation

The Small Business Administration recommends all business owners maintain proper bookkeeping, and invoice reconciliation is one of the essential actions to account for revenue and expenses. But even this relatively simple task can be overwhelming with such a manual lift.

Benefits of Accounting Software

You need to find the best way to improve your reconciliation process to make it more efficient. For instance, automated processes found in business accounting software can often include an invoice reconciliation feature. This forgoes the need to build spreadsheets and review line by line.

Enhance Spreadsheet Skills

​​Are you a traditionalist who likes to do the process by hand? Learning new spreadsheet skills via an online course is an easy way to up your DIY accounting. Memorizing keyboard shortcuts and Microsoft Excel formulas can add accuracy to reconciliation.

Hire an Accountant

If you’re swamped with a demanding schedule and clientele, it may be best to outsource your reconciliation efforts. A certified public accountant (CPA), for one, offers tailored financial services, while a bookkeeper can assist with more day-to-day activities at a lower cost. Search for and identify a few accountants and make sure they offer invoice reconciliation.

No matter what your invoice reconciliation process is, you should be actively reviewing financial paperwork. This puts you in the driver's seat and aware of any red flags. To help expedite the process and make your statement reviews easier, you can create a checklist with known bank fees, repetitive charges, and rollovers.

Frequently Asked Questions (FAQs)