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What Are the Benefits of Invoice Reconciliation for Your Business?
Every business must carry out reconciliation of invoices if it does not want unnecessary cash leakage. Many companies that don’t engage in the process end up losing cash and closing business.
The reconciliation process has proved useful when tracking your revenues and expenses. Moreover, the process makes it possible to examine accounting records and bank statements enabling the detection of errors and fraud activities.
If you are yet to start the reconciliation process, this guide is for you. Continue reading to discover the benefits of doing reconciliation and the best practices encouraged when doing the reconciliation process.
Let’s get started!
What is Reconciliation of Invoices?
Reconciliation of invoices has been mentioned as one of the best processes any business must engage in. But what is invoice reconciliation? Before we understand what it means, it is better to know the meaning of reconciliation and invoices.
Invoices are widely used documents that are legally used to demand payment from clients or customers. These documents are used mainly by self-employed individuals, sellers, and big and small enterprises.
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Reconciliation matches records to ensure they are accurate, consistent, and complete. Reconciliation is an accounting process used to ensure the completeness of records in the general ledger.
Reconciliation of invoices is a process that cross-checks the invoice input and output to ensure all records are clear and match bank statements. All invoices are sorted and compared to the corresponding bank statement for checking during reconciliation.
The Benefits of Invoice Reconciliation for a Business
Invoice reconciliation is a mandatory process that every business needs to undertake. Both small and large enterprises must do the process if they don’t want to risk the downfall of their firm. Reconciliation allows accountants to match book entries and bank statements for coherency.
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Businesses that always carry out the matching process of invoices have been identified to benefit, while 82% of the companies that ignore the process fail due to problems related to cash flow. Here are the reasons you must ensure your business takes the reconciliation process seriously.
- Detection of Billing Errors
Reconciliation is one of the ways of discovering minor errors that may be accidental or intentional. The customer billing process may sometimes encounter issues, and reconciliation is an excellent way to detect and correct the problems earlier. Most of the time, the billing errors are not intentional, and the reconciliation process is the first step to avoiding overpaying or underpaying your clients.
- Improve Your Customers’ Experience
Errors are prone to happen; no matter how careful one can be, they always occur. You can easily correct mistakes through the reconciliation process, improving trust with your clients. Moreover, your customers can also make mistakes, and you can quickly correct them by doing reconciliation on time.
- Enable timely payment
It is common to find invoices with issues, and maybe the amounts are not matching. In such a case, payment will be delayed because one needs to correct the errors before payments are made. Thus, early reconciliation enables detecting errors and timely payment of bills.
- Detection of Fraud
It is likely for employees to engage in fraud when working in firms. Studies have indicated that the lack of internal controls contributes to almost half of the fraud cases. Therefore, reconciling invoices is one internal control mechanism that any business must never ignore.
The Types of Invoices Reconciliation
Reconciling invoices can be grouped into two categories: manual and automated reconciliation. The manual reconciliation process involves looking at bank statements and matching them to invoices in person. Manual reconciliation is possible mainly in small businesses where invoices submitted are not many.
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In automatic reconciliation, a business has an accounting software tool that does all the matching of invoices and bank statements. Therefore, no individual is required in this type of reconciliation as the accounting software checks everything. If the amounts of bank statements and invoices match, it can close the bills automatically. The software only seeks your attention when the software detects any error.
The limitation of using the manual reconciliation process is the lack of enough time and patience to go through every record in the invoice while matching. If you are a busy business, the process will be tiresome and may not be as effective as it should be.
Why Are Businesses Choosing Automated Invoice Reconciliation?
There are several benefits to businesses using the automated reconciliation process rather than the manual one. Manual reconciliation encounters several drawbacks and is not the best way to reconcile for big enterprises. For businesses that do not want to experience the limiting factors of manual reconciliation, the following are the main driving factors making them go for automated reconciliation.
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- Saves Time
Automated reconciliation reduces the time it takes to process one invoice by around 90%. Imagine if it was a manual system, one must go through every single record, which is automatically done by software, saving a lot of time.
- Reduces Paperwork and Ensures Enough Storage
The use of software ensures records are scanned, extracted, and recorded into the cloud or on a computer. This means a business does not need to look for large storage that will keep their invoices history.
Moreover, this promotes tidiness in firms as not much file work is done. If it was a case of manual reconciliation, a company must have large files for documenting the invoices history that has been reconciled. Otherwise, it is stored in cloud storage or a computer.
- Enhanced Security
Using accounting software enables a business to transfer money to their clients securely. Moreover, payments are real-time, and one can trace every record of payment history promoting trust with your clients.
- Saves Costs
In cases where a manual reconciliation is done, a business must have a few personnel that will do matching of invoices and bank statements. But, in automated reconciliation, you only need affordable software per month or yearly. Compared to employing staff to do the job, using software helps to save costs.
- Error-Free Reconciliation
Businesses that employ automated reconciliation encounter errors rarely, unlike in manual reconciliation, where one gets tired after some time which may lead to errors. Most accounting software is tested and proved effective, and mistakes are rare when reconciling invoices. Moreover, the process is made instant.
What Are the Best Practices When Doing Reconciliation of Invoices?
It is recommendable that businesses ensure regular and effective invoice reconciliation. That way, a firm can account for the revenue and expenses of a company. Reconciliation may sound like a simple task, but a business is encouraged to take the following issues seriously to improve invoice reconciliation.
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- Ensure regular reconciliation
The process of reconciliation becomes more effective when it is done regularly. This way, a firm can track cash flow and trace the amount and volume of invoices.
- Take into consideration the type and date of invoices
A company must prioritize invoices depending on the type and the due dates to ensure payments are not delayed.
- Ensure proper assigning of roles instead of assigning the entire process to a single person.
When a single employee manages the entire process, the chances of fraudulent activities are high. Thus, it is advisable to separate roles and assign several individuals to reduce the chances of fraud activities.
- Ensure there are no duplicate payments
It is possible to find double payments made, which leads to a loss of cash flow. Thus, when doing reconciliation, it is essential to check for duplicates.
- Track and solve Invoice conflicts
It is a good habit to monitor invoice conflicts and inconsistencies regularly to help track and maintain cash flow in your firm. Moreover, a business must ensure the relationship with their vendors is preserved.
- Ensure account reconciliation is done daily.
A business must ensure account reconciliation is done every day. That way, accurate and timely financial intelligence will be delivered for business decisions.
Online Invoice Generator for Freelancers
For freelancers, managing finances can be a daunting task, especially when it comes to creating invoices. Thankfully, technological advancements have provided access to various online tools that simplify the process, including the online invoice generator for Freelancer. This tool enables freelancers to generate professional-looking invoices quickly and easily.
The online invoice generator is a web-based application that automates the invoice creation process. Its user-friendly interface allows you to input essential service details such as the client’s name, service date, the amount charged, and any additional notes or comments. After filling in all the information, the invoice generator will produce an invoice within seconds.
Using an online invoice generator saves freelancers time, which can be spent on other critical business aspects like marketing and client acquisition. Additionally, it streamlines financial records, making it easier to monitor income and expenses, especially during tax season.
Conclusion
Reconciling invoices is a necessary process that must be done regularly. Many businesses are victims of fraud, and a lack of internal controls has contributed to the fraud. Doing reconciliation is one of the best internal control measures every business has to undertake.
Moreover, if your business is extensive and receives many invoices, it is suitable to adopt automated reconciliation to save costs and time. There are several software tools a company can choose from, and they are cost-effective and error-free.
This guide has outlined essential points that anyone who wants to venture into the business world must take seriously. Moreover, if you have not been reconciling invoices for your company, you are losing a lot of money. Read through this guide for valuable insights that will make your business better.
