If invoice reconciliation still slows down your business, your process is broken.
You’re not alone. One report found that 58% of companies in North America did not have efficient invoice reconciliation processes in place. As a result, these companies had to manually enter invoice data, a time-consuming and painstaking process.
At Order, we’re firm believers in automating the invoice reconciliation process. Automated purchasing platforms reconcile invoices in real-time, at the point of purchase. As we’ve discovered from working with hundreds of customers, if your finance department uses an automated purchasing platform, you eliminate the hours spent on invoice reconciliation, reduce invoice discrepancies, and close your books faster.
Invoice reconciliation is a broken process
Invoice reconciliation is the worst kind of time sink for your team. It pulls your top talent away from strategic activities and buries them in stacks of invoices and rows of bank transactions.
Even the best teams can’t avoid the reality of manual invoice reconciliation: it’s slow and error-prone.
Manual reconciliation takes too much time
An Ardent Partners study found that the average invoice took 8.3 days to process. Now, consider the hundreds or thousands of invoices your business receives each month. Each one of those invoices must be reconciled to make sure that you don’t underpay or overpay. If your team is reconciling by hand, that’s a lot of time.
Your finance team likely agrees with that sentiment. Fully manual invoicing can take up to 15 steps. The process adds even more time to the reconciliation process. Forty percent of the accounts payable departments that Ardent Partners surveyed also cited “too much paper” as the top pressure on AP departments.
Teams are forced to spend time reformatting and recategorizing invoices if sent multiple invoice formats (e.g., paper, digital files) — including turning paper documents into digital files or manually typing invoice data from PDFs into your system. Considering that half of all invoices are sent as paper documents, your team has to spend significant time on this step before they can even reconcile.
Manual reconciliation is prone to error
Time drain aside, manual invoice reconciliation is a process asking for errors. IMA found that two-thirds of finance departments continue to rely on spreadsheets to reconcile invoices. When it comes to spreadsheets, one thing is for sure: errors are a given.
A recent study found three compelling aspects concerning spreadsheet errors:
- On average, large spreadsheets include at least one bottom-line error.
- Spreadsheet errors are difficult for humans to detect.
- Spreadsheet users are reluctant to admit to mistakes in their spreadsheets.
This doesn’t bode well for spreadsheet-based invoice reconciliation. It doesn’t matter how talented your team is: anyone tasked with matching thousands of paper invoices against endless spreadsheet lines is bound to make a mistake. Only 28% of finance professionals that IMA surveyed indicated they trusted the accuracy of their financial reporting data.
Reconcile invoices in real time with an automated platform
When you use an automated purchase-to-pay platform, you accomplish each invoice reconciliation step at the time of purchase. The end-of-the-month reconciliation push vanishes because no discrepancies exist. Take a look, step by step.
Step one: get organized
When you reconcile invoices manually, getting organized is the first step. It’s a time-consuming process.
When your purchase-to-pay process is managed through a single platform, there’s nothing to organize. The same system generates purchase orders and invoices. If those two don’t match, the transaction isn’t approved. Without approval, no money leaves the company.
If you want to sort invoices by vendor or purchase category, you can do so with a few clicks. From purchase to pay, everything is tracked, step by step, and perfectly organized. Invoice reconciliation, step one, is no longer necessary.
Step two: matching
Matching is that painstaking exercise of going line by line through spreadsheets and comparing those transactions against invoices. The reviewer looks for mismatched transactions that need reconciliation.
Automated purchasing platforms integrate with payment systems. Transactions must match at the time of purchase; otherwise, payment isn’t sent. Because matching occurs at the time of purchase, step two becomes redundant and unnecessary.
Step three: mark off each line
In Step Three, reviewers mark off the Step Two matches to indicate where reconciliation isn’t needed.
In automated systems, transactions are essentially matched at the time of purchase. The platform doesn’t allow payment for unmatched transactions. Delete Step Three from your end-of-month process. It was handled at the time of purchase.
Step four: circle discrepancies
Circling discrepancies is the opposite of marking off approved transactions. Reviewers flag transactions that don’t match invoices and that require reconciliation.
When an automated system ensures that each transaction is matched at the time of purchase, no transactions require further investigation. Say goodbye to another step.
Step five: add up invoices
Step Five is a vendor-by-vendor review to double-check the first four steps. When total payments made to a specific vendor do not equal the total invoices from that vendor, further investigation and reconciliation is needed.
But when an automated system takes care of the first four steps at the time of purchase, the fifth step is just another unnecessary, time-consuming exercise.
An automated purchasing platform handles each step of manual invoice reconciliation at the time of purchase. Software replaces tedious review by a human, and it does so instantly. Purchase-to-pay platforms relieve AP teams from laborious reconciliation efforts and free them to work on strategic initiatives.
What an improved invoice reconciliation process looks like
SoulCycle used to spend five to six hours each month on financial reporting. This included chasing invoices, reconciling those invoices, and hopefully closing accurate books. The company relied on Excel spreadsheets for its financial review, a method that is slow, unreliable, and unscalable.
Now SoulCycle can complete these tasks faster by simply consolidating their invoices with a software-driven purchase-to-pay platform. Instead of purchasing from dozens of different portals with invoices flowing in throughout the month from various suppliers, the company pays a single invoice each month.
In short, SoulCycle no longer has to work through a slew of vendor invoices which means processing multiple invoices isn’t necessary. The company can complete invoice reconciliation in the moment because there are less invoices for the finance team to manage.
Sarah Richman, a former SoulCycle operations manager, expanded on the benefits:
“I can also get a report without waiting for someone to provide me with the data. 90% of the things I need to do, I’m able to do in the moment.”
The time that SoulCycle used to spend on invoice reconciliation is now spent on more value-added activities:
- Managers review spending trends to stay under budget.
- Managers track vendor-specific metrics to increase fulfillment rates.
- Managers spend more time training new hires on strategic initiatives instead of reconciliation and reporting.
Ardent Partners found that “best in class” AP departments (the 20% of enterprises with the lowest invoice processing costs and shortest invoice cycle times ) were 125% more likely to use fully automated purchase-to-pay systems. SoulCycle’s experience with an automated system illustrates how these platforms empower finance teams.
The end of invoice reconciliation as we know it
Yes, invoice reconciliation is broken at most companies. But the existence of invoice reconciliation indicates a larger problem in the purchase-to-pay process. An effective, automated purchasing platform eliminates the need for end-of-month invoice reconciliation, which saves your finance department hours of work each month.