Denario guide to quick, easy invoice reconciliation

Peter Wise
October 12, 2022
min read

Invoice reconciliation can be frustrating and time-consuming – so much so, that some businesses fall behind on matching their inbound and outbound payments to the relevant invoices. Thankfully, it doesn’t have to be this way. In this guide, we’ll tell you how to do invoice reconciliation efficiently and easily through labour-saving automation.

What is invoice reconciliation?

Let’s recap the definition of invoice reconciliation, just so we’re all on the same page. Invoice reconciliation is the process of matching the invoices your business has issued or received to recorded payments into and out of your bank account(s).

Imagine you’ve sent an invoice to one of your suppliers. On that invoice, you’ve included a unique reference number and a payable total. After sending that invoice, you would check your banking records for an inbound payment showing the correct amount, paid by the relevant supplier and identified using the unique reference number. When you find that payment, you can record that the invoice has been reconciled. The invoice has been paid, and there’s proof.

The reconciliation process for invoices payable by your business works similarly. You keep a record of the invoices which have been issued to you for payment, along with any unique reference numbers used, and you confirm that the invoice is reconciled when you can see in your banking statement that the payment has been made correctly to the recipient who issued the invoice.

Of course, not all invoices are paid via bank transfer. You or your suppliers might pay via other methods such as cash or cheque, and these payments should also be included in the invoice reconciliation process

Why invoice reconciliation matters (and why some businesses don’t do it)

The purpose of invoice reconciliation is to ensure that payments are completed according to the terms of the invoices you’ve issued or received. Without reconciliation, you’re operating on blind trust – and it’s likely that some payments could be missed without you noticing.

According to Disputes Register, as much as 30% of invoices are not paid according to the agreed terms. In cases of late payment or non-payment, this can lead to financial difficulties– or even insolvency – for the affected business.

This problem is equally relevant to payments into and out of your business. Non-receipt of expected inbound payments can harm your business’s liquidity. Meanwhile, missing outbound payments can cause difficulties for your suppliers, as well as harming your reputation. In some cases of late payment, you might even face late fees or legal action. With all this in mind, invoice reconciliation is crucial to ensuring your business has optimal cashflow and healthy supplier relations.

Despite the clear importance of invoice reconciliation, some businesses struggle to carry out the process in a timely and consistent fashion. This can be equally true for SMEs with lean staffing, or for corporations which need to manage a high volume of payments. Historically, reconciliation has involved lots of manual work: searching through bank statements for payment records, chasing up suppliers to enforce accurate referencing, and so on. It’s easy to see how busy, time-poor businesses sometimes end up cutting corners.

In some cases, finance teams simply do not have the time budget required to do any invoice reconciliation whatsoever. This can lead to the work getting outsourced to an accountancy firm, which adds substantial cost to the team’s admin spend.

How automation makes invoice reconciliation easier and more efficient

Invoice reconciliation has always been a thankless task. The team puts in hours upon hours of manual admin work, only to deliver a basic business requirement, and without much scope for adding extra value.

But in recent years, automated tech has… *ahem*... reconciled this process with the capacity teams realistically have for doing this sort of work.

Automated invoice reconciliation is a key part of Denario, our payments platform. It’s simple:

  1. You start paying and getting paid through Denario. This involves securely connecting Denario to your banking account(s);
  2. Denario feeds information about each reconciled payment into your accounting, so that you can confirm and process the invoice reconciliation.
  3. Denario feeds information about each reconciled payment into your accounting, so that you can confirm and process the invoice reconciliation.

*If a payment is transacted externally to Denario, the record can be uploaded manually and the reconciled automatically.

The game-changing factor here is that tasks which would once have been done painstakingly by your finance team are now automated. This frees up the team’s time for other work that adds more value to the business, whether that means optimising financial processes or directly generating revenue.

Above all, automating invoice reconciliation saves you time and money. When you consider the fact that many businesses employ a dedicated, salaried team member specifically for the task of invoice reconciliation, it’s clear that there are considerable savings to be made.

What to do when an invoice can’t be reconciled

If you don’t have any record that payment has been made for a particular invoice, it won’t be possible to reconcile that invoice.

When an invoice can’t be reconciled by the due date for payment, it’s necessary to take action.

For outbound invoice payments, you’ll need to communicate with your team to expedite the payment.

For inbound payments, you may need to request a payment (or at least an explanation) fromthe client or customer. Traditionally, this has been done manually, by “chasing up” the clientvia email or phone – a time-consuming activity that can cause friction on both sides of therelationship.

Thankfully, clients can now be reminded of their obligation to pay without any real-time, in-person input from your team. Instead of chasing up, simply set up an automated reminder email that will be sent when a client’s payment becomes overdue.

Comparison of benefits: automated reconciliation vs. manual reconciliation

Some businesses will always prefer to do invoice reconciliation manually. Provided that you’re able to commit to a rigorous, routine-based approach to the process, this time-honoured approach is entirely possible.

There are very different benefits to either approach to invoice reconciliation: automated or manual. Comparing these contrasting upsides could help you to decide which approach is best for your business.

Missed or unaccounted-for payments – in or out – can be a critical problem for any business, affecting cashflow, reputation, and the capability to do accurate, compliant accounting. Invoice reconciliation is the solution that will keep down the proportion of your inbound and outbound invoices which end up unpaid or unreconciled. Whether you choose an automated solution like Denario, or a more old-school manual method, just be sure to keep on top of this crucial business process.