Accounts Payable
8 steps for easier accounts payable reconciliation

8 steps for easier accounts payable reconciliation

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Accounts payable reconciliation is one of the most important parts of keeping accurate financial records for your business. Put simply, reconciling accounts payable is making sure the amount owed to vendors and suppliers matches the accounts payable balance in your accounting ledger. But it's not always so simple.

Errors and issues often appear during the accounts payable reconciliation process, and if unspotted or unaddressed, they can lead to bigger problems down the line. So we've put together 8 easy steps for making your accounts payable reconciliation easy (and accurate).

8 steps for easier AP reconciliation

AP reconciliation seems straightforward, but it can be challenging for even seasoned AP teams to get right. To be successful, and to make the process quicker and easier, follow these steps every time before closing your books.

Step 1: Check the beginning balance

Before you even think about reconciling your accounts payable, see if the beginning balance of the reports for the current period is the same as the ending balance for the previous period. If they don't match, go back to the last accounting period when they did. That's where you'll want to start your accounts payable reconciliation.

Step 2: Collect documents and data

Make sure to gather all the necessary documents, such as invoices from vendors, payment receipts, and bank statements. Verify that you have comprehensive and precise records for every transaction related to accounts payable within the reconciliation period.

Documents to collect:

  • Supplier statement, which shows how much you owe according to your vendor’s records, payments made, and credit notes.
  • Accounts payable ledger, the list of transactions from the Accounts Payable balance in your balance sheet. Not to be confused with your general ledger, which you can learn all about in our guide, Understanding general ledger: Your financial foundation.
  • Accounts Payable aging reports. This report lists all the amounts you owe for each vendor,  including details such as the amount due or past due, payment terms, and the due date
  • NOTE: All these statements should be for the same accounting period.

Step 3: Review vendor invoices

Take a look at your vendor invoices and make sure they contain all the necessary information. You're looking for errors like incorrect or misspelled vendor names, invoice numbers, payment amounts, times, and terms. Then check that each invoice has been entered into your accounts payable system properly.

Step 4: Verify payment records

Go through your payment records (including checks or electronic payment confirmations) and make sure they match their corresponding vendor invoices and entries in your AP system. Be on the lookout for any duplicate payments or missing entries.

Step 5: Adjust vendor statements

Examine your vendor statements to ensure the outstanding balances are the same as the accounts payable records. If you come across any discrepancies, like missing payments or invoices, flag and adjust so they match the recorded balances. Note: this could require contacting vendors.

Step 6: Compare with bank statements

Confirm any and all payments in your accounts payable system are correctly recorded by cross-checking them against the entries in your bank statements to make sure they match.

Step 7: Review and finalize

Once you've resolved all discrepancies, go back over your records to make sure everything is complete and accurate. Then finalize the process by writing a report summarizing your findings and start obtaining any approvals necessary to make further changes.

Step 8: Reconcile regularly

It's important to continue to perform the accounts payable reconciliation process regularly. But don't worry, it’ll get easier! You should also consider implementing internal controls like financial automation tools and separation of duties to further reduce the risk of errors and fraud in the future.

In addition to regular AP reconciliation, consider doing a yearly AP audit. AP audits can uncover vulnerabilities in your AP operations and accounting procedures that could lead to duplicate payments, overpayments, and other mistakes—or even fraud. It sounds daunting, but with AP automation software, it's no worse than a monthly reconciliation.

Why is accounts payable reconciliation so important?

In order to close your books for the month, you need to make sure that no discrepancies exist between the amount owed and the accounts payable balance—and that there are no outstanding bills that are unaccounted for.

Errors can be costly

If you don't reconcile your accounts payable properly, you could face late payments, duplicate payments, and incorrect payment amounts. Or worse, a lower bottom line, penalties, or even legal action.

Even with an efficient, established process, AP reconciliation can be challenging. Especially when you're potentially dealing with dozens of vendors and even more bills. So attention to detail is absolutely vital to avoid errors that could cost you time, money, or even your business.

Regular reconciliation has its advantages

Accounts payable reconciliation can be daunting and difficult when it's being done for the first time. But the more regularly you perform it, the easier it gets. Every reporting period, you'll notice fewer and fewer errors, eventually mastering and perfecting the process.

A well-oiled accounts payable reconciliation process will help your business:

  • Identify billing discrepancies: including incorrect pricing, duplicate invoices, or unauthorized charges
  • Prevent missed or late payments
  • Avoid late fees
  • Protect vendor relationships
  • Assist cash flow forecasting
  • Improve inventory management and budgeting

Best practices for successful accounts payable reconciliation

You have all the steps for a successful accounts payable reconciliation, but here are a few ways to improve and refine your process.

Standardize processes

Crafting a standardized accounts payable reconciliation process makes sure it's always done the same way. Like a pilot going through their pre-flight checklist, having an easily repeatable framework for how you reconcile your AP helps you avoid unforced errors or missed steps. This is especially helpful if you're implementing financial automation into your process—you'll want a solid framework before you speed things up.

Prioritize invoices

An easy way to ensure a successful AP reconciliation is to prioritize bills based on their due dates (and payment terms) and pay them as they come in. Not only will you avoid missing due dates, it's also easier to compare statements and invoices to catch errors early.

Implement two- and three-way matching

In accounting, invoice or purchase order matching is the process of comparing documents to ensure the information aligns before the invoice gets approved and paid. If there are any discrepancies, the invoice is held without being paid until rectified.

A two-way match compares two documents–a purchase order and an invoice–and three-way match introduces a third document: the goods receipt.

Use a financial automation platform

Implementing a financial automation platform allows for streamlined payments and approvals, improved cash flow control, and best of all—automated processes. All adding up to vastly faster accounts payable reconciliation, fewer errors, and less time wasted on paperwork and tedious, manual processes.

Streamline your accounts payable reconciliation with BILL

Follow the 8 steps we've laid out above—and implement as many best practices as you can—and you'll be zooming through your accounts payable reconciliation process in no time. The next step? Upgrading your business finances with BILL Accounts Payable to automate and streamline your AP processes. Take a demo to see how you can help your team spend 50% less time on your accounts payable process.*

Ready to streamline your AP reconciliation? Try BILL AP risk free.

*Based on a 2021 survey of over 2000 BILL customers.

Accounts payable reconciliation FAQ

How often should I be doing accounts payable reconciliation?

Short answer: every month. Slightly longer answer: it depends. Mostly on the complexity and scale of your organization, its financial transactions, and the number of vendors it pays. Smaller, less complex organizations can get away with doing accounts payable reconciliation once a month. But larger organizations with multiple departments and dozens of vendors and suppliers may need to reconcile their AP more frequently to reduce errors from accumulation—twice a month or even weekly.

Does automation reconcile transactions in real time?

Yes and no. Financial automation platforms (like BILL) offer seamless integrations with accounting software (like Sage Intacct) that you can set to auto-sync daily or trigger manually, meaning any changes you make in one system will automatically update in the other. Which is basically real-time, just not all-the-time.

BILL Accounts Payable also offers automated two- and three-way matching, which pairs your payments with your invoices and purchase orders, so your accounts reconcile faster and you have transparent remittance information with every transaction. Again, not instant, but much, much quicker.

*Capabilities vary by accounting software. Contact BILL to learn more.

Is bank reconciliation part of the accounts payable reconciliation process?

Yes. Bank reconciliation is a specific process within the broader accounts payable reconciliation process that focuses specifically on your organization's cash accounts and transactions. It compares your internal cash records against your bank's records for that account, with the aim of explaining the differences between your bank statement balance and your ledger cash balance.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.