Supplier Statement Reconciliation Audit

Supplier Statement Reconciliation Audit

Supplier Statement Reconciliation or Statement auditing for short isn’t a new concept. It has been a part of the vendor reconciliation process for quite some time. However, its traditional and manual processing nature limited wider use and true potential. Thanks to the unparalleled development of technology and fully automatized processes over the last decade, we’ve been given a unique chance of rediscovering and reinventing the statement reconciliation audit process and how it can help the accounts payable department.

Statement Reconciliation Audits Challenges v Opportunities

It comes without saying that each and any large-scale company simply has to deal with the overwhelming communication requests associated with their complex supply chain structure. In this sense, an automated statement auditing process may really turn out to be an invaluable helping hand.

Thoughtfully structured and automated reconciliation reports and business reviews can improve efficiency and ensure the proper handling of supplier accounts. In addition, you can expect significant improvements when it comes to collecting and managing settlement discounts, and other supplier-related accounting records regardless of the data source. Once successfully implemented and executed, the automated supplier statement reconciliation process can aid your business by identifying vendor line items that have been paid in error or in need of payment.

The Need for a Supplier Statements System

Large enterprises manage millions of transactions and payments to thousands of suppliers each year. Complex purchasing environments, high transaction volumes, and complex pricing lead to accounting errors, lost discounts, and improper pricing. It is nearly impossible to have 100 percent transaction and payment accuracy – even for companies with the strongest controls. Accounting and payment anomalies result from processing errors including multiple payments on an invoice, miss-applied credits, and data errors. Additionally, there are adjustments that happen after a transaction is settled, such as a lost credit note, overpayments, returns, refunds, non-offset goods receipt, and warranty issues. These types of anomalies multiply based on the volume of suppliers and purchasing transactions at a company and the lack of an audit trail across businesses within the accounts payable departments.

AP to AR Statement Reconciliation

Historically large enterprise businesses relied on accounts payable recovery audits to review their accounting data systems (AP, Purchasing, and GL) to identify errors related to contract compliance, payments made to wrong vendors, missed discounts, and pricing errors. In conjunction, the traditional recovery audit report would review AR records for a small subset of the company’s top suppliers to identify statement lines one credit note at a time. This process is known as a “statement audit.” For suppliers not included in this targeted subset, credits would remain open on the supplier AR report for an indefinite period of time as business liability.

Fortunately, technology and automation have enabled a new way to approach reconciling supplier statements. An automated statement audit is capable of reaching out to the breadth of a company’s supplier population to request, collect and analyze AR data account records, identifying credits and anomalies on an ongoing basis. For the company or customer, this means discovering more dollars due back to the bottom line deducted from future vendor payments.  For the supplier, this means a cleaner AR ledger, the resolution of outstanding credit notes, and possibly faster payments on invoices.

Best Practices for Statement Auditing

Implementing the following Best Practice Steps will help companies drive a successful vendor statement reconciliation process with their supplier base:

Start with good supplier data

In order to communicate with suppliers, the first step is ensuring you have the right data. Supplier data deteriorates quite rapidly, so it’s no small feat to keep your data clean and up to date. For an effective vendor statement audit, you need a system that will manage supplier data, cleanse and identify issues, enrich with external data, and ensure contact information is up-to-date at all times. This information will need to contain but is not limited to, credit notes, vendor invoices, vendor pricing master data, information on the supplier’s accounting system, balance sheet items to name a few.

Drive supplier compliance across multiple communication channels

Supplier statement reconciliation is an ongoing process; contacting suppliers just once is not enough. The statement audit process is analogous to collecting past due balances – outreach statistics show that multiple touches are required to drive maximum compliance. Using an automated multi-channel approach to drive compliance is critical to a statement audit. A state-of-the-art system will need to integrate many different mediums for communication like fax, email, SMS, mail, and telephony integration.

Use technology to capture and validate supplier statements

With the mass volume of outreaches, vendor statements, the supporting vendor reconciliation report documents, and verifications involved in a review, technology is essential to tracking and managing the process. Technology can ensure there is an easy way to manage, analyze and verify information sent to and received from your suppliers.

Proactively identify accounting anomalies and root causes

Visibility into transactions and credits across your supplier base enables you to identify accounting anomalies that occur after a transaction is settled. For example, expired products that are returned for credit after a three-way match will be caught by a statement audit. This will be true even in cases where the invoice number was keyed in error. Also if the Invoice number is not currently in your SAP accounts payable system.

View statement auditing as an ongoing process, not a project

 Transactional errors with suppliers occur every day. An accounts payable statement audit helps you find anomalies that your organization does not resolve in the first 120 days. Identifying and resolving issues identified in vendor statements on a regular basis helps you to maintain better processes and uncovers more money left with your suppliers. A rolling four-month statement audit is a best practice to increase recoveries and decrease cash outflow.

Using an automated and comprehensive approach to statement auditing will minimize payment anomalies and assure that both suppliers and their clients have an efficient foundation for long-term satisfaction and partnership.

Ongoing AP to AR Reconciliation Benefits Both Customers and Their Suppliers

An automated, comprehensive supplier statement reconciliation review will drive the resolution of outstanding credits and process issues on an ongoing basis.  Benefits include:

Companies see more supplier recovery dollars

Companies tap into a larger pool for credits due back to their bottom line. With an automated statement audit companies receive an ongoing stream of credits back from their supply base.

Vendors maintain cleaner AR ledgers

By regularly submitting a vendor statement reconciliation report the vendor can resolve outstanding credits stuck on their books collaboratively with their customers on an ongoing basis, ensuring customer satisfaction, and business loyalty.

Proactively resolve invoice processing issues

Both customers and suppliers can identify process issues for repair to reduce future reconciliation issues and build stronger relationships and even reduce the number of balance sheet liabilities. A supplier invoices ledger can also be shared and uploaded into the accounting system.