How To Reconcile Accounts Receivable
January 7, 2022
Accounts Receivable management is responsible for what is often the largest current asset – the money owed to a business for goods and services sold. The condition of the Receivables balance, as represented by key metrics such as DSO, delinquencies, disputes, and bad debts, provides a quick glimpse of the company’s financial health and performance.
Therefore, understanding how to manage accounts receivable efficiently and effectively is critical. That starts with knowing how to reconcile accounts receivable, but what does that process entail?
Here’s what you need to know about reconciling accounts.
The purpose of accounts receivable reconciliation is to match and clean up the credits and debits on your accounts receivable, so you know what your customers owe and that your accounts are clean and auditable.
In any high-volume business, there is always a difference between what your customer thinks is owed you and what your ledger says. If you reconcile it, you can collect it.
On a more granular level, it comes to a detailed reconciliation of a single transaction, for example, the discrepancy between a credit memo that you issue for a customer return vs. that that the customer takes as a deduction.
Accounts Receivable Reconciliation is an important process because it confirms that the general ledger and subsidiary ledger are accurate, and it enables you to collect the amounts that are due. Reconciliation also updates account records to apply properly and credit all payments.
Like many accounting processes, A/R reconciliation is something people can do manually or with software. Either way, there is a set process for reconciling accounts.
The first step when reconciling accounts receivable is to compare the balance on the A/R detailed aging report to what the customer believes it owes. In virtually all cases, there will be a difference.
The accounts receivable reconciliation process should follow these steps:
Product return reconciliation is a problem of major proportions as the return debit memo and the receiving credit memo hardly ever match, with discrepancies in quantity, price, and SKU (National Drug Code or NDC for Pharmaceuticals) in over 75% of large returns.
You will also find products not approved under your RMA policy, other manufacturers’ products, or products the customer purchased at a lower cost from a product diverter (which are not returnable to you).
To match customer returns deductions against your credit memo and receiving records, the reconciliation has to be at the SKU/NDC level; comparing the quantities and prices invoiced, how many units of SKU #123 at what price does the customer claim they returned to you vs. how many units you received using the pricing (lowest or most recent) as per your policy.
Carixa utilizes the power of machine learning and configurable rules to automate the matching and reconciliation process for high-volume receivables reconciliations. Using multi-level, configurable rules, we customize a reconciliation platform for your company’s business practices.
Carixa’s Matching and Reconciliation Automation can solve the challenges that come with A/R reconciliation and transaction matching, no matter how complex, using powerful matching algorithms along with AI to provide accurate and efficient reconciliations.
Carixa can handle reconciling accounts at any scale and provide discrepancy analysis with resolutions, including historical forensics, file rebuilding, etc. This can be on a standalone basis or part of an integrated process, with software alone or including an expert reconciliation service.
By partnering with Smyyth-Carixa, you can collect 100% of the revenue you are owed, eliminate problem reconciliations and write-offs and be in the best shape when it’s time for an audit. Clean receivables, accurate billing accounts, and properly matched credits and debits help keep the financial accounts on track for any sized business.
If you want to learn more about automating your A/R, contact our experts today.