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Did we pay?

Companies invest time ensuring they pay their bills on time and capitalise on favourable terms and conditions. Purchase to pay processes, and their governing policies, make sure that a company:

  • Procures goods and services under the best terms and condition

  • Complies with regulation and internal corporate standards

  • Applies the purchase to the right budget and to the correct accounts

  • Processes and pays invoices on time

  • Retains supporting documentation

Expenditure reconciliations can support financial reporting, improving operations, and find trends in purchasing to influence negotiations.

Accounting reconciliations

The accounting reconciliation relevant to companies reporting under a statutory reporting requirement (US GAAP, IFRS, etc.); however, it can also be relevant for those who only require management reporting. These reconciliations confirm that the product has been received, vendor accounts are accurate, and that advance (deferred) and future (accrued) payments are accounted for on the balance sheet.

Accounting reconciliations ensure that:

  • The financial reports (statutory, MIS, and tax) are accurate,

  • Financial Planning and Analysis processes have accurate information for decision making,

  • Transactions are monitored and aged ensuring on-time payment and accurate working capital analysis.

  • Accounts do not have illogical balances (receivables) which could indicate errors in processing and fraud.

  • Invoices have been matched to payables, expenditure, and cash evidencing that the balances are correct.

Accounting reconciliations are the backbone of a company's finances; therefore, these reconciliations come to support accurate decision making and support the financial planning and analysis reporting and cash flow analysis.

Operational reconciliations

Operational reconciliations monitor activity and support KPIs. They also identify errors, fraud, and areas of improvement. Ensuring a business has these reconciliations in place will ensure efficient and effective business performance:

  • A vendor reconciliation should be performed at least every 6 months. These confirm that all bills have been paid and that the company is not owed anything from the vendor. Sometimes, companies will request statements from vendors to support the reconciliation.

  • Invoice reconciliations are common in multinational companies with multiple departments. These compare the invoices to the system to the physical invoices. Even where scanners are used, it is still important to review as in some cases ERP systems are overridden.

  • Open items reconciliations can indicate errors in matching of invoices and errors in procurement process. Goods received with no invoice could indicate difficulties with suppliers and cash flow management. Some companies also record quantity, and these reconciliations make sure that all of the goods purchased have actually been delivered.

  • Where goods are purchased, it is important to conduct an inventory reconciliation which compares the expected goods purchased to the orders.

Setting policies and procedures

It is important for companies to determine their risk profile before implementing reconciliations. The resource to review paperwork against the ERP system and compliance should be assigned after a cost/benefit analysis. For companies where the ERP system does not allow for manual override, a lighter tough approach might be appropriate; however, where there is significant judgement required or where managers have an ability to approve changes to invoices and payment terms, management may want to consider reconciliations more fully.

Setting polices and procedures keeps the control environment high reducing senior management involvement in controls and keeps the business running smoothly. Implementing these processes requires a clear policy, procedure, and training for staff. Chayim Messer Consulting specialises in policy writing, procedure development, and implementation. Contact us today for a free consultation.

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