What is accounts payable (AP) reconciliation?

Introduction to accounts payable reconciliation

Accounts payable (AP) reconciliation is the process of matching vendor transactions—such as invoices, credit memos, and payments—to what’s recorded in your organization’s accounting system. The aim is to ensure that the amounts you owe to each supplier (as captured in the AP sub-ledger) accurately align with the totals in the general ledger. This helps prevent payment errors, maintain accurate financial statements, and foster good relationships with vendors.

Regular AP reconciliation ultimately supports better decision-making, stronger internal controls, and a more reliable financial reporting process.

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Why is AP reconciliation important?

AP reconciliation plays a vital role in maintaining accurate financial records and healthy vendor relationships. By systematically comparing the amounts owed to suppliers with the actual figures recorded in your accounting system, you can spot discrepancies early, safeguard against fraud, and maintain a clear picture of your organization’s current liabilities.

Accurate financial records

Properly reconciled accounts payable balances ensure your balance sheet and income statement reflect the true status of liabilities.

Cash flow management

Knowing exactly how much and when you owe helps avoid late payments, manage working capital effectively, and build credibility with suppliers. Regular reconciliation is a key part of the AP payment process.

Fraud prevention and error detection

Regularly matching invoices to payment records makes it easier to spot discrepancies, such as duplicate payments or unauthorized vendor transactions.

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Key steps in the AP reconciliation process

1. Collect vendor documentation: Gather vendor invoices, purchase orders, goods-received notes, and payment records. This comprehensive view forms the basis of accurate reconciliation.
2. Compare sub-ledger and general ledger: Match amounts in the AP sub-ledger (vendor-by-vendor details) with the corresponding liabilities recorded in the general ledger.
3. Investigate discrepancies: Look for mismatches due to timing (e.g., invoice received late), incorrect postings, or missing credits. Resolve them by adjusting entries or clarifying details with the vendor.
4. Document and adjust: Keep a clear record of any changes you make. This includes writing off minor differences or posting correcting entries in the accounting system.

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Common challenges with AP reconciliation

• Partial or late invoices: Vendors may issue multiple invoices for a single purchase order, or their invoices may arrive late, leading to timing differences that complicate reconciliation.
• Unrecorded credits: Credit notes or refunds can slip through the cracks if not applied promptly, causing the AP balance to appear overstated.
• Complex supplier relationships: With high-volume vendors or global supplier networks, reconciling currencies, shipment documents, and tax implications can introduce extra layers of complexity.

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AR reconciliation best practices

• Standardized procedures: Develop clear, step-by-step guidelines for invoice processing, approval, and reconciliation to ensure consistency and reduce errors.
• AP automation: Leverage accounts payable automation tools that can match invoices to purchase orders, highlight discrepancies, and generate exception reports.
• Segregation of duties: Assign different individuals to input invoices, authorize payments, and reconcile accounts. This reduces the risk of fraud and improves accuracy.

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How Atlar can help with your AP reconciliation

Atlar integrates directly with ERP systems like Oracle NetSuite and Microsoft Dynamics 365 Business Central as well as over 60 banks and payment providers. By centralizing and standardizing all of your financial data, including outgoing AP payments, Atlar provides customers with a comprehensive transaction overview that greatly simplifes AP reconciliation.

Atlar customers can also automatically import bank statements from any bank directly to their ERP system, removing the need for manual imports. This can be done with any bank connected to Atlar, enabling customers to reliably sync financial data between their banks and their ERP. To learn more, get in touch with our team.