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Date Posted: 1/4/2012

Best Practices for Ongoing AP to AR Reconciliation in the Supply and Demand Chain


By  Joe Flynn

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 returns, refunds and warranty issues. These types of anomalies multiply based on the volume of suppliers and purchasing transactions at a company.


AP to AR Reconciliation with Statement Audits

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


Technology and automation have enabled a new way to approach statement auditing. 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, identifying credits and anomalies on an ongoing basis. For the company, or customer, this means discovering more dollars due back to the bottom line.  For the supplier, this means cleaner AR and resolution of outstanding credits.


Best Practices for Statement Auditing

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


1.     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 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.

2.     Drive supplier compliance across multiple communication channels: Supplier compliance 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.

3.     Use technology to capture and validate supplier statements: With the mass volume of outreaches, statements and supporting documents, and verifications involved in a statement audit, 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.

4.     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.

5.     View statement auditing as an ongoing process, not a project: Transactional errors with suppliers occur every day. A statement audit helps you find anomalies that your organization does not resolve in the first 120 days. Identifying and resolving issues on an 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.


Ongoing AP to AR Reconciliation Benefits Both Customers and Their Suppliers

Automated, comprehensive statement audits drive 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.

       Suppliers maintain cleaner AR: Suppliers can resolve outstanding credits with their customers on an ongoing basis, ensuring customer satisfaction and loyalty.

       Proactively resolve process issues: Both customers and suppliers can identify process issues for repair to reduce future reconciliation issues and build stronger relationships.


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.




Author Contact:
Joe Flynn, CEO/Founder

About Author
A recognized expert in the field of P-to-P processes, Joe Flynn is the CEO and founder of Lavante, a leading provider of on-demand supplier management solutions, including recovery auditing and supplier information management.


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