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What is Customer Reconciliation and Vendor Reconciliation?


Reconciling customer statements ensures that there are no inaccuracies or mistakes in what the vendor is charging and the inventory, services or supplies you received. Statements mostly arrive at the same time each month. In simple terms, reconciliation is matching the statements items with your invoices. 

What is Customer Reconciliation?

Vendor reconciliation is a statement received from the vendor which contains details of invoices of the vendor for a particular period. This is a process of comparing the outstanding customer balance or bills to the accounts receivable as recorded in the general ledger. It is part of accounting activity and is usually conducted at the month-end before issuance of monthly financial statements. It also contains unclear items such as payments and credit notes. 

Steps to reconcile customer/vendor statement:

  • Gather your invoices:
Organize your invoices of the vendor by date. If you use a computer to assist your accounting needs, you can perform your reconciliation and be sure to mark the included invoices paid in your computer when you finish. 
  • Inspect the line items:
Match the line items to your invoices from the vendor’s statement. Usually, businesses reconcile invoices as soon as the shipment arrives. So your invoices must reflect the correct count and dollar amounts of each shipment. 
  • Place check marks on matched items:
Place check marks on your statement when the invoice matches the line items. For example, you have received an invoice of 12 computers for your business, then there must be a line item on the statement corresponding to that shipment. Compare statement invoice number for that item, and if they match place a check mark beside the statement item.
  • Highlight any inconsistencies:
Circle the items in the invoices that don't match the statement. Make a note of the invoice number that does not match. Call the customer/vendor and ask for a copy of the invoice through mail. But if the vendor has mistakenly put a wrong item on the invoice, mark that item and bring to the notice of the vendor’s account receivables department about the inaccuracy. 
  • Compare the totals:
Lastly, add all the relevant invoices and compare the amount to the total of the statement. If the total amount doesn't match- check the calculations again. Even if it doesn't match, call the vendor's accounts receivable department and ask for help locating the error.

Benefits of customer reconciliation:

Customer reconciliation is of great importance as it affects the revenue of the company. This is also required at the time of auditing. Following are the benefits:
  • It saves the revenue of the firm
  • It facilitates internal auditor while auditing the account
  • It helps in eliminating errors 
  • It helps to prevent the material inaccuracy in financial statements of the firm.
  • It also identifies payments you made but that your vendor has not yet received or allocated, or discounts your vendor has not passed, or pricing claims and returns that have not yet been credited. 
Importance of reconciling vendor statements:
  • It ensures early settlement of discounts taken
  • It prevents duplicate payment or overpayment
  • It identifies procure to pay issues
  • It also identifies vendor invoices or credit notes not processed or received
  • It helps in identifying credits, payments or discounts not processed by the vendor.
  • It reduces vendor queries, improves relationships and prevents disruption of supply. 
  • It validates the balance sheet and determines any possible provisions or accruals.

Conclusion:

If you do not compare your invoices to the shipment, you may end up overpaying your vendor because the invoice could reflect more product than the items sent by the vendor. It can be time consuming and a tedious task. Therefore, an effective process for reconciling vendors must consult LedgerBench.
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Location: Wall St, New York, NY, USA

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