Accounts payable (AP) is the money your business owes suppliers. AP reconciliation is the process of checking that what your books say you owe matches reality. It sounds dull, and it is, but skipping it is one of the most common causes of overpayments, late fees and inaccurate financial statements.
Two reconciliations, not one
There are two checks that together give you confidence in your payables.
1. Vendor statement reconciliation. Compare each supplier’s statement with your own record of that supplier. Every invoice, credit note and payment should appear on both sides.
2. Control account reconciliation. Check that the total of all individual supplier balances in your AP ledger equals the accounts payable balance in your general ledger. If they differ, something has been posted to one but not the other.
Why balances stop agreeing
Differences usually come from a handful of causes:
- Timing. An invoice is on the supplier’s statement but has not reached you yet, or a payment you sent has not reached them.
- Missing invoices. A bill was emailed to someone who never forwarded it.
- Duplicates. The same invoice was entered twice, once from the email and once from the paper copy.
- Unapplied payments or credits. A payment was recorded but not matched to the invoice it paid.
- Wrong supplier. A bill was posted to a similar sounding vendor.
- Manual journals posted directly to the AP control account, bypassing the supplier ledger.
Timing differences are normal and resolve themselves. Everything else is an error that needs fixing.
A simple monthly routine
- Close the period. Make sure all invoices and payments for the month are entered.
- Run an aged payables report and check that its total equals the AP control account balance.
- Request statements from your main suppliers, or download them from supplier portals.
- Reconcile each statement, listing every difference with its cause.
- Fix genuine errors: enter missing bills, remove duplicates, apply credits.
- Follow up with suppliers on items you dispute.
- Keep a record of the reconciliation and the reasons for any remaining differences.
You do not need to reconcile every supplier every month. Start with the largest and the most active, and rotate through the rest.
Controls that prevent problems
Reconciliation finds errors after they happen. A few simple controls stop many of them in the first place:
- One inbox for invoices, so bills do not get lost in personal email
- Approval before payment, with clear limits for who can approve what
- Duplicate checks on supplier, amount and invoice number before entry
- Separation of duties, so the person who enters bills is not the only person who releases payments
- A payment calendar, so bills are paid on time but not early
When to get help
If your AP balance has not agreed to supplier statements for a while, catching up can be time consuming. It is also exactly the kind of structured, detailed work an outsourced team does well.
Our accounts payable and reconciliation service covers invoice processing, payment run preparation and monthly reconciliations, while you keep control of approvals and payments. Book a free call to talk it through.
This article is general information, not advice for your specific situation.
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