How to Reconcile Accounts Receivable

Accounts receivable reconciliation involves matching all issued invoices with the payments received to ensure your records are accurate and up to date. This process starts by gathering invoices, payment records, and any credit memos or adjustments. Each invoice is compared to payments to identify discrepancies such as partial payments, overpayments, or missing funds.

Gather All Relevant Data

Collect all documents and reports needed for reconciliation:

• Invoices issued: Include all sent invoices for the period.
• Payment records: Bank statements, payment processor reports, or client payment confirmations.
• Credit memos and adjustments: Returns, discounts, or write-offs applied.
• Previous AR balances: Ensure continuity from the last reconciliation.

Example: A construction company gathers invoices sent in August, bank statements showing deposits, and any adjustments for discounts offered to clients.

Compare Invoices to Payments

Match each invoice with the corresponding payment received. This identifies discrepancies such as underpayments, overpayments, or missing payments.

Tips for effective matching:

• Use invoice numbers or client references for quick identification.
• Highlight partially paid invoices for further investigation.
• Separate unpaid invoices for follow-up.

Example:

Identify and Investigate Discrepancies

Discrepancies are inevitable, but identifying them early prevents long-term accounting issues. Common issues include:

• Partial payments: Client paid less than invoiced; contact them to clarify.
• Overpayments: May need a refund or credit on future invoices.
• Missing payments: Check bank deposits or payment gateways.
• Incorrect data entry: Invoice amounts, dates, or client info may be entered incorrectly.

Example: A contractor notices invoice #102 was partially paid. A quick call reveals the client withheld $1,500 pending completion of a minor task.

Update Your Accounting Records

Once discrepancies are resolved, update your accounting software or ledgers to reflect accurate AR balances:

• Record partial payments and track remaining balances.
• Apply adjustments for discounts, returns, or write-offs.
• Ensure the AR ledger matches your bank or payment reports.

Tip: Automate this process where possible to reduce errors and save time.

Reconcile Aging Reports

Compare your AR aging report with your reconciled ledger to confirm that all invoices are accounted for correctly.

Aging report categories:

• 0–30 days
• 31–60 days
• 61–90 days
• 90+ days

Example: After reconciliation, a landscaping business notices two invoices in the 61–90 day category were already paid but not recorded. Updating the ledger corrects the report.

Document and Review

Maintain a record of the reconciliation process for internal audits or external financial review. Include:

• Reports used (invoices, payments, bank statements)
• Notes on discrepancies and resolutions
• Final AR balances after reconciliation

Example: A contractor files a reconciliation report monthly, including notes like “Invoice #205 partially paid, balance to be collected next month.”

Implement Regular Reconciliation Practices

Reconciliation shouldn’t be a once-in-a-while activity. Regular AR reconciliation prevents errors from accumulating:

• Reconcile AR weekly or monthly, depending on invoice volume.
• Automate matching and reporting when possible.
• Use reconciliations to improve cash flow forecasting and collections efficiency.

Use Automation Tools

Modern accounts receivable automation software simplifies reconciliation by automatically:

• Matching payments to invoices
• Highlighting discrepancies
• Updating ledgers in real-time
• Generating aging reports

Examples: DepositFix integrates payment and invoice data to streamline AR reconciliation.