What is AP / AR reconciliation and how to match invoices to payments: the five-minute guide
AP / AR reconciliation (accounts payable / accounts receivable) can be regarded as mirror processes. In both cases, accountants perform side-by-side comparison of invoices against payments. Companies exchange with clients and suppliers money for goods and service. At period-end close, accountants revisit customer and supplier accounts to verify that incoming and outgoing cash streams match obligations.
Accounting takes seriously the reconciliation of invoices because of their material impact on the balance sheet accounts. The cross check between the internal records statements provided by an independent counterparty should secure accurate period-end reporting. However, perfect matches occur very rarely. The investigation of discrepancies struggles with tight deadlines and conflicting priorities.
Invoices used to be processed by the pen and paper method until recently. Laborious and time-consuming operations like gathering files from different sources, data entry, and manual transaction matching filled up the days of accountants. Reconciliation solutions like ReconArt respond to the long-standing demand for automation of the whole invoice reconciliation cycle and dramatically improve the team productivity.
The process steps in account reconciliation of payables and receivables
In account reconciliation of payables and receivables, the reconciling process involves two main aspects: verifying the invoices and that the correct payments are received.
The process steps generally include:
• Gathering all relevant financial records documenting the transactions – including bank statements, invoices, and payment receipts. They inevitably come from multiple sources within or outside the organization.
• Converting incompatible files, extraction and normalization of data in a unified format to prepare the input files. Probably one of the more rigorous task as it requires switching between many systems that do not necessarily communicate directly. Human operator manually facilitate the data transfer from one application to another. For example, manual data entry in a spreadsheet from a printed copy is slow and exposed to typos.
• Compare invoices to payments. Although it sound straightforward, it involves careful lining up of reference numbers, counterparty IDs, dates, amounts. If only one of those does not add up, a discrepancy needs attention and explanation.
• Identification and classification of the discrepancies in the pool of matched items. Really, the main objective of the reconciliation is to monitor for unmatched transaction and eliminate the risk they carry if linger unresolved.
• Create and approve journal entries to ensure timely and accurate booking of the legitimate exceptions.
Challenges accountants face with reconciling invoices versus payment
Account reconciliation can be time-consuming and tedious, especially if done manually or using spreadsheets. With high-volume transactions on payables and/or receivables sub-ledgers, it can be overwhelming to keep track of each one and ensure accuracy. Reconciling invoices and payments brings up numerous complications. Matching by amount totals is nowhere near sufficient to pair the payment to its corresponding bill.
Along with that, they may also face the following challenges:
• Large and increasing volumes of transactions
• Lots of disruption in the processes as data and documents are scattered in several systems
• Dealing with complex accounts and multi-currency transactions
• Trivial error like typos during manual data entry or calculations
• Partial matches and ageing items that hang on in queue
Typical exceptions that appear during transaction matching and AP / AR reconciliation
Moreover, the complexity only increases when dealing with multiple counterparties, various data formats, and different payment methods. Payables and receivables reconciliation can expose a number of inconsistencies, but some of the most frequent ones are:
• over or underpayments
• manual data entry mistakes
• duplicated invoices
• payments in transit and timing delays
As a result, financial teams often spend a significant amount of time and effort on verifying and correcting these errors. Additionally, fees, discounts, taxes, and foreign exchange differences hidden in the total balance must be deciphered and properly booked across respective accounts.
Despite these challenges, there are solutions available to help businesses streamline their financial operations. With the increase of the invoice workload and the complications at period end, organizations are turning to automation tools that can handle the typical challenges of AP/AR reconciliation.
How ReconArt makes a difference in AP / AR reconciliation
ReconArt users reap numerous benefits from using our software. One of the main advantages is gaining full control over their payables and receivables allocation. Our platform allows for easy tracking and management of these financial transactions, ensuring accuracy and timely processing.
In addition to this, ReconArt users can save significant amounts of time by moving away from manual processing methods. With automation and streamlined workflows, our software eliminates the need for tedious and error-prone manual tasks, allowing users to focus on more important aspects of their job.
Moreover, using ReconArt promotes partnership trust and prudent vendor relationship management. By providing transparent and accurate data, our platform strengthens the relationship between businesses and their vendors. This builds a foundation of trust and facilitates smooth collaboration towards achieving mutual success.
Our software also brings efficiency and productivity gains for businesses with overstretched human resources. This leads to faster period-end closes, ensuring timely financial reporting for informed decision-making. Overall, ReconArt offers a comprehensive solution that empowers businesses to optimize their financial processes and achieve greater success.
Key features of the ReconArt software
ReconArt is a dedicated account reconciliation platform that is designed to automate all reconciliation processes, not least payables and receivables, regardless of the industry or organization specifics. The solution’s full configurability allows building any process from a scratch in an integrated, secure environment. The building blocks of the superb automation functionalities are the set of modules of the solution, which provide instruments for end-to-end automation of each process step:
• file import / export
• data transformation and enrichment
• matching and reconciliation
• exceptions management
Here they are in details:
Data import, export, transformation and enrichment
One of the key features of ReconArt is its fully automated data import and export functionality. This allows for faster invoice processing by automating enrichment and transformation, eliminating manual data entry tasks and reducing the risk of errors. With ReconArt’s data import capabilities, you can save time and effort while ensuring accuracy and consistency in your financial records.
With its advanced features, ReconArt offers unparalleled data import and normalization capabilities, ensuring seamless compatibility with any ERP system, CRM, GL module, or bank message feed. It supports all machine-readable file formats, making it easy to integrate with your existing systems and processes.
Transaction matching and AP / AR reconciliation
In addition to its powerful data import capabilities, ReconArt also offers advanced matching capabilities. Its multi-way matching feature allows for the comparison of two or more sources, while its rule-driven data comparison ensures consistency across multiple criteria. ReconArt also supports complex data relationships such as 1-to-1, 1-to-many, and many-to-many, making it a versatile tool for any reconciliation process.
With ReconArt’s pattern recognition features and system suggested matches, discrepancies can be easily identified and resolved. The software also has the ability to break down balances into transaction details for precise analysis and resolution. This empowers users to have full control over their reconciliation process, leading to more accurate and efficient results.
ReconArt also offers powerful discrepancy management tools such as automated categorization and grouping of exceptions, tracking of transaction ageing, and case management to prioritize high-risk delays. With its journal entry approval workflows and role-based notifications, ReconArt ensures that all discrepancies are addressed promptly and in accordance with your company’s policies and procedures.
Furthermore, ReconArt provides control and visibility over cash flows and current position through its sound financial reporting capabilities. Preparing spreadsheet reports on high-volume payables or receivables accounts takes up a lot of the accountant time and concentration, especially at period-end.
With over 30 templates to choose from, users can automatically generate comprehensive reports on supplier spend, invoice ageing, and settlement time. The user-configurable status dashboards keep outstanding balances regularly updated, while the granular audit trail allows for easy tracking and explanation of discrepancies.
ReconArt software benefits
ReconArt software has many benefits to offer accountants, such as:
• Simplified, fast, and accurate reconciliations
• Increased efficiency and productivity
• Reduced errors resulting from manual data entry or processing
• Lower risk of incorrect financial reporting
• Improved auditability and compliance
ReconArt also offers end-to-end automation of operations. This is a game-changer for companies that have previously relied on manual matching in spreadsheets. ReconArt eliminates the limitation of generic spreadsheet tools in multi-criteria data matching, efficient collaboration and separation of roles, auditability of the process steps and outcomes.
A key concept of the solution structure is that it does not comprise discrete modules for each process type – i.e. bank, credit card, AP / AR, etc. This approach, usually involving customizable templates and the add-on principle, appears restrictive for the end user and fails to reflect the process specifics or evolution.
Instead, ReconArt works as a unified, fully-configurable tool for rule-based automation of repetitive operations. Thus the solution users are process designers who actively govern the automation activities. This means that businesses can tailor the platform to fit their unique needs, instead of trying to fit into a one-size-fits-all solution.
Why choose ReconArt software for AP / AR reconciliation
Account reconciliation is an important aspect of accounting that ensures accuracy, completeness, and balance of financial records. It can be a challenge for accountants to perform this task manually due to the huge volume of data and time involved.
With its centralized control, scalability, automation, and configurability, ReconArt truly makes a difference in the world of reconciliation tools. Experience the difference for yourself and see how ReconArt can revolutionize your business operations.