With thousands of transactions and statements to reconcile, maintaining both accuracy and timeliness throughout the reconciliation process poses a significant challenge for Controllers. A lack of visibility into the vendor reconciliation process can mean that companies could be overpaying on their vendor invoices without knowing it.
Controllers must learn how to efficiently and effectively approach the vendor reconciliation process and leverage emerging technologies to achieve those goals.
Common Methods for Reconciling Vendor Invoices
To evaluate the best option for vendor invoice reconciliation, consider the most prevalent methods that organizations currently use for this process: manual entry, OCR software, and spreadsheets.
Too often, accounting teams decide to handle vendor statement reconciliation by manually entering financial data into the system of record. Besides being extremely time-consuming and tedious, this method introduces a significant amount of risk. Manual entry and processing often compromise the integrity of the data flowing into the reconciliation process, and therefore the data in the final reporting.
Optical Character Recognition (OCR) software is often utilized by accounting departments to digitize scanned statements. While much faster than manually entering each statement, this technique still consumes time and incurs error. Characters can be misread, or a field might show up as empty, both of which feed incorrect data into the reconciliation process.
Vendor reconciliation in spreadsheets creates many issues throughout the reconciliation process. Spreadsheets were designed to manage an average family’s household budget — not accommodate an organization’s finances. This becomes even more clear as issues surface and accounting teams try to work through these complexities with the tool that caused them in the first place.
First, there is a limit on the amount of data that can exist in a spreadsheet, so a single spreadsheet tends to be filled to the brim with information. This leads to a massive system of siloed spreadsheets that are disjointed and have to be edited manually. Not only does this make the reconciliation and close processes bulky and inefficient, but poses a huge compliance risk for the organization, as it can be easy to miss an error that impacts several areas of the close. And even if the error is caught, accountants have to dig through numerous spreadsheets to find the source.
A Forrester study found that nearly 50% of companies rely solely on spreadsheets for their auditing and controls, despite the spreadsheet’s lack of inherent controls and easy manipulation. Another study found that 90% of all spreadsheets contain errors. Using an error-filled tool to audit the same error-filled tool only boosts the organization’s risk profile.
Additionally, over 35% of finance and accounting departments regularly utilize spreadsheets to drive their decision-making, meaning many business leaders are more than likely basing critical decisions that drive the future and survival of the organization on inaccurate data.
How to Reconcile Vendor Statements More Efficiently and Accurately
Instead of using outdated approaches for reconciliation, accounting teams should be instead utilizing modern technology to streamline their process while reducing risk. Automated reconciliation software is the key to both efficiency and accuracy. Documents like vendor invoices can be imported into the system to be utilized in the reconciliation process and stored in the Cloud. Not only that, but the invoices will show up in the audit trail for both internal and external auditors to see.
Automated reconciliation software also provides visibility into the reconciliation process for Controllers to monitor for timeliness and accuracy. Finance leadership can set up and test controls in automated reconciliation software to reduce risk in the reconciliation process. The system flags errors and notifies the correct staff member so they can easily locate the source of the error and correct it.
It’s time to move beyond manual processes, OCR software, and spreadsheets to execute the reconciliation process. Discover more about how automation can treat your most common reconciliation challenges.
Written by: Ashton Mathai