At month end, supplier statements arrive and someone in finance has to tick them off against the creditors ledger. For a handful of suppliers that is an afternoon. For a business with hundreds of suppliers, it is days of work, and the differences that cannot be explained are often carried forward month after month.
Here is how to do supplier statement reconciliation properly, and how automation takes most of the work away.
Why statements and the ledger disagree
A supplier statement and your ledger rarely match on the first try, and usually for ordinary reasons:
- An invoice is on the statement but has not reached you yet
- An invoice reached you but is still waiting for approval
- You paid, but the supplier has not allocated the payment
- A credit note was agreed but not issued, or issued but not captured
- The invoice amount differs from what you captured
- An invoice you hold is missing from the supplier's statement
None of these is a mistake on its own. The problem is not knowing which one you are looking at.
Reconcile line by line, from both sides
A proper reconciliation checks every line on the statement against your ledger, and every open item in your ledger against the statement. Checking only one side misses the invoices you hold that the supplier left off.
Rather than a simple matched or unmatched, give every line a clear result. A useful set of six:
- Matched. The same document and amount on both sides.
- Amount variance. The document exists on both sides with different amounts.
- Not received. On the statement, but you have no record of it.
- In workflow. You have it, but it is still being approved.
- Disputed. You have queried it with the supplier.
- Payment. A payment on one side not yet reflected on the other.
Prove the difference to the cent
The reconciliation is finished when the difference between the statement balance and your ledger balance is fully explained by the items above. Write it down as a balance proof: statement balance, plus or minus each category, equals ledger balance. If the proof does not balance, something is still unexplained.
Close the loop with the supplier
Most differences can only be resolved by the supplier. Send a query that lists exactly what is missing or different, and give them an easy way to respond, such as a secure portal link where they can upload a missing invoice or credit note. Every difference should become a task with an owner, so nothing is carried forward silently.
Sign it off
Once the difference is explained, the reconciliation should be signed off and kept on record. That record is what your auditors will ask for.
How automation changes the job
When every invoice, credit note and payment already lives in one system, the reconciliation can largely run itself:
- The supplier statement is read automatically, whatever its layout
- Each line is checked against the ledger and given one of the six results
- Invoices in the approval workflow are recognised as in workflow, not missing
- The balance proof is calculated for you
- A query letter and portal link go to the supplier
- Sign off is recorded on a reconciliation certificate
This is part of the accounts payable solution BCM Transform builds on the DocMGT platform. Your team only works the exceptions. See the video, brochure and demo.
See accounts payable automation, or book a free consultation and bring a supplier statement. We will reconcile it live.
Anriët Pretorius
General Manager