Card and invoice reconciliations are among the biggest challenges for businesses. Not because they are particularly difficult, but because they are labour intensive, especially if your spend management tech is not up to scratch.
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If you're part of the finance team at a larger or growing business with complex financial operations and multiple revenue and expense sources, you probably find reconciliations particularly challenging.
Getting accurate reconciliations is stressful, from discrepancies between records to missing information. And finally, the pressure to reconcile quickly and accurately is enormous, especially when it comes to managing cash flow and meeting reporting deadlines.
Companies follow the card reconciliation process to match all transactions listed on a company's bank statement with its corresponding accounting records.
Performing card reconciliation ensures that the business, finance team, and cardholders have recorded all of their spend accurately and helps identify any discrepancies or errors. The process typically involves comparing the transactions listed on the bank statement with those recorded in the accounting records and then resolving any differences or making necessary adjustments to ensure accuracy.
To perform card reconciliation, your finance team must match the bank statement transactions with the company's accounting records.
The main steps in card reconciliation include doing the following:
There can be several reasons why businesses get card reconciliation wrong:
Businesses need to have clear and documented reconciliation processes, use technology designed for the task (which also supports automation), and train employees to reconcile cards correctly to avoid the above mistakes.
The bank reconciliation process matches the account balance within a business or entity to a company's latest bank statement. If there are any discrepancies between the two figures, then the finance or accounting team needs to check back through the statement and fix them accordingly.
For many businesses, the reconciliation process is now mostly automated, but there's still a lot of manual work involved for some companies.
Payhawk customer MDM Props shared the challenges of performing accurate bank reconciliations before switching to Payhawk as their spend management solution.
"We have large volumes of transactions, and before Payhawk, our payment reconciliation process was manual. It took months to catch up as we had to enter the net amount, the VAT, and what project it was related to," MDM Props' Finance Manager Uchenna explained. "Now, with Payhawk, it's so much easier as the OCR captures all relevant receipt data, and we can code it correctly from the outset using the custom fields."
There are three, or technically five types of bank reconciliation.
Bank reconciliation (and inter-company)
Here companies must reconcile bank statements with any of their recorded transactions. They must ultimately reconcile the balances in their subsidiary’s books towards the parent company’s books.
Customer reconciliation
Businesses are the vendor here and must ensure that their books balance with their customers’ books and there are no discrepancies.
Vendor reconciliation (business-specific reconciliation)
Businesses are the customer here and must ensure that their books balance with their vendors’ books and there are no discrepancies. Companies must check to see if the services or goods they receive from the vendor are the same as they have recorded.
No matter the size of the business, there are several important steps to complete the entire bank reconciliation process; these include:
Bank reconciliation is vital and helps to swerve any inconsistencies that are important for audit and tax purposes.
Performing the bank reconciliation process also ensures you have an accurate view of how much money is coming in and going out of your bank account so you can make important decisions that will affect the health of your business. From savings to investment, companies need to see their spend correctly, so they manage budgets and reroute funds as necessary.
Invoice reconciliation is an essential step in the accounts payable process to ensure accuracy and prevent discrepancies when it comes to payment.
By comparing the invoice and purchase order and receiving a report, you can confirm the accuracy of any of your charges and ensure that you received all the correct goods or services that were specified in the agreement.
The traditional invoice reconciliation process looks something like this:
a) Get the invoice information from the ERP or database
b) Open the online banking website
c) Introduce the credentials or token
d) Manually enter the bank account number, bank name, supplier name, and amount into the online banking portal
d) Reconcile the transaction in the company's books via accounting software
In the 'olden days' (pre-spend management software x accounting software), one of invoice reconciliation's challenges was timing. And when exactly payments would show up on your balance sheet.
For example, if you deposited on Friday, but it didn't show in your account until Monday, then you'd have errors if you performed your invoice reconciliation in between.
You could also be left in limbo, waiting for your vendors to cash any cheques you sent.
When reconciling invoices, you must be sure to check for fraudulent behaviour by looking for red flags or unusual patterns. Take for example the recent phishing scam case, involving Quanta, Facebook, and Google, where over $100 million was paid out for fake invoices. Some common red flags include the following:
If you suspect fraudulent behaviour when reconciling invoices, you need to take steps to protect your business. This may include contacting the vendor to verify the invoice, reviewing the payment records, and taking legal action if necessary.
Invoice reconciliation is the process of comparing supplier invoices against purchase orders and receipts. The purpose of invoice reconciliation is to ensure that the amounts billed on the invoices are accurate and match the quantities and prices agreed upon in the purchase orders. The process also helps to identify and resolve any discrepancies or errors, such as overcharges or missing items, promptly.
Invoice reconciliation is an essential part of financial management and helps organisations maintain accurate financial records and prevent loss due to fraud or errors. It also helps a business manage its bill payments accurately to ensure it only pays for the goods and services it receives.
In summary, the purpose of invoice reconciliation is to:
Reconciling your card payments and vendor invoices is time-consuming but vital. If your business is still doing much of this work manually or with multiple solutions, then there is a better way.
Your business needs to start leveraging software that will make the reconciliation process more automated and efficient and reduce manual errors.
Companies of all sizes have a few big asks when it comes to the reconciliation process and managing their business spend. They need to:
a) capture data spend data easily, including from card payments and invoices
b) ensure the data is synced perfectly with their chosen accounting software or ERP
c) get real-time reconciliations flowing in order to get an accurate picture of the businesses’ cash flow
At Payhawk, we do all of these things and more.
Payhawk’s spend management solution includes smart OCR technology across both the desktop platform and mobile app that can pull out and grab the most important receipt and invoice data in seconds.
With Payhawk, your business has a complete spend management solution, including company cards, expense management, invoice management, and more.
Cardholders have corporate cards connected to expense management software via an easy-to-use app and admin portal. All they need to do is spend (within limits already set by the finance team in the solution), upload their receipt via a quick snap, and select the spend categories (from a list created by the finance team).
"The Payhawk app is so smart and intuitive," said Alessandro Lupo, Finance Director at Club Freelance. "The team loves the app because it's easy and straightforward for everyone to use. We've also seen fewer mistakes now that the built-in OCR tech captures all the receipt data once someone uploads a receipt. So, all they need to do is choose the right expense category, etc."
The OCR technology pulls out all the relevant data to ensure that there are no missed fields, and no gaps in info. And, if your colleague forgets to upload their receipt? The solution chases them automatically until they do.
Payhawk customer, ATU, managed to save over €2m in VAT reclaims by using company cards and correctly categorising receipts at reconciliation.
"We no longer have to chase receipts. Since using Payhawk, managers must simply take a picture of their receipt — thus digitising it — and enter it into the automated finance system. In the first year, this change resulted in ATU recouping € 2 million from the tax office that would have otherwise been lost," Mathias Goet, Senior Project Manager at ATU, explained.
Like, the card payment receipt reconciliations, invoice reconciliations are easy with the OCR and custom fields in Payhawk.
We surveyed our customers about what paying and reconciling a single invoice looked like before Payhawk. They explained that it could take up to 15 minutes to pay and involved multiple people.
With Payhawk, it takes just seconds. As the OCR pulls all of the relevant data out, the person submitting the invoice selects a couple of custom fields, adds a comment, and the job's done.
The process means that the categorisation is decentralised, and the finance team can make strategic decisions for the business instead of drowning in invoices and chasing up missing info.
At Payhawk, our integration strategy supports finance professionals and accountants to work fast and swerve errors. We created our ERP and accounting software integrations in accordance with the accruals concept by differentiating between the invoice/receipt and payment recognition dates, meaning your finance team can:
With Payhawk, you save time and effort by digitising your spend data via the OCR, categorising it correctly with automation, and transferring it effortlessly into your ERP or accounting software. All that, and the company's card spend is within limit thanks to the controls you set up before giving out your corporate cards.
The true cost of missing receipts can be enormous, as ATU and MDM Props shared above.
But with the easy-to-use app and platform, receipts and invoices are easy to manage and capture. And if there are missing receipts? The solution automatically chases them to ensure no spend data goes unrecorded.
Collecting receipts can mean big VAT reclaims for businesses, and our integration with 60dias means you can even file backdated receipts.
"The recovery of VAT can be retroactive for a period of up to four years in some cases," Sergio Pérez Vegas, technical managing partner (and tax inspector on leave specialising in VAT) at 60dias, told us. "Meaning you can recover VAT on receipts from two years ago but feel the benefit before this year-end."
Beyond the benefits of VAT reclaims and efficient month-end close, proper reconciliation can make or break the accuracy of an audit trail.
Spend management solutions, like Payhawk, can take care of many of your audit trail steps without error or effort. No mistyped expense amounts thanks to the OCR, and no confusing spend categories thanks to the custom fields suggested by your in-house finance team.
Invoice and card reconciliations are vital but don't have to be complicated. Book a demo to find out how your business could improve reconciliations to save time, money, and stress.
Take financial control and manage your business debit and credit cards and spend easily, all from the same account. That's the power of all-in-one finance.
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