How to improve supplier statement reconciliation

Supplier statement reconciliation can be a tedious process for businesses, and it’s certainly not always pleasant to check exactly what it is you – as a business –  owe vendors. But nonetheless, it’s an essential action. Staying on top of accounts payable is critical for maintaining healthy vendor relationships, avoiding late fees, and ensuring financial accuracy. 

In this blog, we’ll therefore cover why supplier statement reconciliation is important, how to carry it out, potential complications to avoid, and ways to optimise the whole process.

What are supplier statements?

Supplier statements are documents that suppliers issue to their customers – typically on a monthly basis. These statements detail all transactions between the two parties within a given period, including invoices, credit notes, and payments. In other words, they provide a summary of the customer’s account with the supplier and indicate the current outstanding balance that is still to be paid.

Why must supplier statement reconciliation take place?

So, why is it so crucial the supplier statement reconciliation process actually takes place? At the top level, it’s obviously important that the location and quantity of any asset – whether money or goods – is known in order for financial forecasting to be upheld. Furthermore, it’s important to understand the potential consequences of not doing this, alongside the pluses of keeping on top of the process.

Let’s take a look at a few of the core reasons supplier statement reconciliation must take place: 

• ‍Timely payments - keeping track of what is owed helps ensure vendors are paid on time, preserving positive relationships – especially key in the case of vendors you hope to have a long-term, ongoing relationship with. Missing payment deadlines can strain partnerships, and some suppliers may even refuse to extend further credit in the future.
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• Avoiding late fees and penalties - missed payments often lead to additional fees or interest. Accurate reconciliation reduces this risk, ensuring that your business avoids unnecessary financial penalties which can be headaches at best, and much more serious if left to accumulate. 
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• ‍Accurate financial forecasting - knowing precisely what is owed at any given time allows for better cash flow management and more reliable financial forecasting. As a result, accurate supplier account records make it easier to plan for upcoming payments and project future financial health.

How to conduct supplier statement reconciliation

With the “why” laid out, let’s dig into “how” exactly to conduct supplier statement reconciliation. Take a look at these key steps to both implement and improve your supplier statement reconciliation process: 

• ‍Gather all relevant documentation - before starting the reconciliation, ensure that all invoices, credit notes, and payment records are readily available. You’ll need them to go through the reconciliation process.
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• ‍Review the supplier statement - go through each line of the supplier statement and cross-reference it with your accounts payable ledger. Ensure all invoices, payments, and credit notes match the supplier’s records.
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• ‍Identify discrepancies - look for any mismatches or discrepancies between your records and the supplier’s statement. These may be due to human error, unprocessed credit notes or unrecorded payments – whatever the case, these need to be noted and followed up on.
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• ‍Resolve issues - contact the supplier to resolve any discrepancies. Sometimes, differences arise from timing issues, such as payments sent but not yet processed. Always keep a clear communication channel with suppliers, both for the sake of your finances and as a form of relationship management with the given vendor.
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• ‍Update records - once any issues have been addressed, update your accounts payable ledger to ensure it reflects this accurate and up-to-date information.
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• ‍Repeat regularly - whether we like it or not, supplier statement reconciliation is not a one-time task. It should be part of your monthly closing process to ensure your accounts remain accurate and to avoid potential knock-on issues (more on that below).

What complications can occur during supplier statement reconciliation?

Even with a structured process, several complications can arise during reconciliation which is why finance teams have to have a sharp eye for detail and follow rigorous processes that allow them to keep everything in check. 

Obviously, it’s good to know what to avoid – (as well as what’s good to do) – so let’s take a look at some common pitfalls in supplier statement reconciliation below:

• ‍Outdated accounts payable ledger - if your accounts payable ledger isn’t updated regularly, you risk reconciling against incomplete data, leading to confusion and avoidable errors.
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• Missing invoices - if invoices are not properly stored or filed, it becomes difficult to cross-reference them with supplier statements, delaying the whole reconciliation process and potentially leading to missed discrepancies when it comes to comparing the internal ledger and supplier statement. 
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• Duplicate payments - human error, especially in businesses dealing with high transaction volumes, can lead to duplicate payments, which can go unnoticed without proper reconciliation.
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• Large volume of transactions - businesses dealing with many transactions face the challenge of reconciling hundreds or thousands of line items, which can be time-consuming and prone to errors. The more data there is to work through, the greater the chance for mistakes to be made. 
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• Currency differences - if you and your supplier operate in different currencies, fluctuations in exchange rates or improper handling of currency conversions can lead to unnecessary discrepancies.

How to optimise supplier statement reconciliation

Given these potential errors and complications, it’s a good idea to consider how you might actually go about optimising supplier statement reconciliation (to both avoid errors and ultimately save time). So, let’s take a look at some potential solutions to help streamline things:

• ‍Automated Reconciliation - one of the most effective ways to simplify supplier statement reconciliation is using automated reconciliation software. With a tool like Aurum you can extract and load data, match transactions, identify discrepancies, and streamline the entire process in a click of a button – saving valuable time and minimising the risk of errors.
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• Integrate an ERP System - a robust Enterprise Resource Planning (ERP) system can help store and organise invoices and payments, making them easy to retrieve during reconciliation. Additionally, when connected with automated reconciliation software such as Aurum, it can pull up the necessary documents automatically, reducing manual effort.
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• Set consistent exchange rates - for businesses that deal with multiple currencies, reconciliation software can be programmed to apply consistent exchange rates – whether historical or current – ensuring accuracy and reducing the chances of currency discrepancies.
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• Regular reconciliation - rather than putting off supplier statement reconciliation, finance teams should aim to reconcile supplier accounts regularly, at least once a month to avoid large backlogs of transactions. This approach not only saves time but also helps catch errors early so they can be resolved in a timely fashion. 

Supplying accuracy every time

Supplier statement reconciliation is critical to maintaining accurate financial records, staying on top of payments, and nurturing strong vendor relationships. As we’ve covered, the process can be complicated by high transaction volumes, missing invoices, or currency differences – but these challenges can be mitigated with the right tools and practices.

Opting for automated reconciliation software such as Aurum and integrated ERP systems can vastly improve the efficiency and accuracy of this essential task. By adopting these solutions, businesses can ensure their accounts payable processes run smoothly, minimising errors and fostering stronger supplier relationships.

To supply your records with accuracy in record times, get started today by booking your Aurum demo.