Vendor statement reconciliation: how to match a supplier's statement to your ledger

Vendor statement reconciliation means you check each line of a supplier's statement against your own books. Each invoice, credit and payment on it should match an entry in your accounts payable (AP) ledger. When a line doesn't match, you find out why and fix whichever side is wrong. Then you and the supplier agree on what you owe.

Some teams call it supplier statement reconciliation, and the steps are the same. The worked example below follows one supplier's September statement from the first match to an agreed balance.

What a supplier statement shows that your ledger doesn't#

A supplier statement is the supplier's own record of your account. Depending on its type, it lists every transaction for a period or only the unpaid invoices, and the balance the supplier says you owe. What a statement of account shows explains each part.

Your AP ledger holds only the documents that reached AP. The statement can also show an invoice that was emailed to the person who ordered the goods instead of to AP. It can show a credit memo the supplier issued but never sent, or a payment the supplier applied to another customer's account. Two-way and three-way matching can't find these, because both check only the invoices you already have.

Differences have a short list of causes. ACCA, a professional body for accountants, lists them in an article for its exam students. The first is a payment the supplier hasn't received yet, which is only a timing difference. The others are errors. An invoice may be posted to the wrong supplier, or a credit or debit note may never be processed. A discount may be recorded wrongly. Or two digits may swap places when someone keys an invoice, which accountants call a transposition error.

How to reconcile a vendor statement in six steps#

Run these steps for each supplier on your list, at the same cut-off date every month.

1. Get statements as of your cut-off dateAsk each supplier for a statement dated at your month-end, so both records cover the same days.
2. Check the opening balanceIf the statement shows one, it should equal the closing balance you and the supplier agreed on last month. If it doesn't, an old difference is still open, so find and fix it before you match this month's lines.
3. Match every line to your ledgerMatch invoices, credit memos and payments by reference number and amount. Mark each line that matches.
4. Find the reason for each line left overEach one is a timing difference, an error on your side, an error on the supplier's side, or a document that never reached AP.
5. Fix your side and ask about theirsPost missing invoices and credits once they're checked and approved. Reverse duplicates, correct keying errors, and send the supplier a list of the items you dispute.
6. Write up the reconciliation and keep itShow the statement balance, your ledger balance and every item between them. A reviewer signs it off, and next month starts from the agreed balance.

One supplier's September statement, worked through#

Kettlebrook Carton Co. sends a balance forward statement. It lists everything posted to your account that month, and the balance at the end. On September 30 the statement shows $21,890.50 owed, and your AP ledger shows $20,247.50. The table puts each line side by side.

Five lines explain the $1,643.00 gap. The September 30 payment is a timing difference. You sent it on the statement date, so it should appear on Kettlebrook's October statement.

Two lines are errors in your own ledger. INV-20871 was posted twice, once as INV-20871 and once as 20871. A duplicate check that looks only for identical references missed the second posting. INV-20915 was keyed as 4,152.50, but the invoice copy shows 4,125.50.

Two documents never reached AP. INV-20944 for $2,310.00 isn't in the AP inbox or the approval queue. Kettlebrook issued credit memo CM-1182, for damaged cartons, but never sent it to you.

The duplicate could cost the most if nobody spots it. One copy of INV-20871 was paid on September 30. The other copy is still open, so the next payment run would pay the same invoice a second time.

The reconciliation statement shows how the two balances come to the same number. You adjust the statement balance for timing differences and for the supplier's own errors. You adjust your ledger for your own errors and missing documents.

Both sides now come to $15,410.50, which is what you owe Kettlebrook once your September 30 payment reaches it. In a spreadsheet, use the same two blocks. ACCA's example uses the same idea. It starts from the balance in your own records for the supplier and corrects that balance until it matches the statement.

Kettlebrook's statement has no errors of its own. If it had one, such as a credit the supplier forgot to apply, it would go in the statement block. You'd also ask the supplier to correct it.

How to match lines when the references differ#

Step 3 sounds simple until the two records use different references. These rules help with the lines that don't match on the first try.

• Know which kind of statement you haveAn open item statement lists only unpaid invoices, so compare it with your open items. A balance forward statement lists the period's invoices and payments, so check the opening balance as well.
• Clean the reference before you compareRemove prefixes, spaces and leading zeros on both sides. INV-020871, INV20871 and 20871 can all be the same invoice.
• Fall back to amount and dateSome suppliers quote your PO number instead of their invoice number. Look for the same amount within a few days of the invoice date.
• Treat credits as negative amountsA credit memo lowers the balance. Some statements print it with a minus sign, and others put it in its own column.
• Match payments by their totalOne payment can clear several invoices. Check the total first, then which invoices the supplier applied it to.
• Check discounts and short paymentsIf you paid less than an invoice's full amount, such as after an early-payment discount, the supplier may still show the rest as open.
• Set a tolerance for small differencesDecide how much rounding you'll accept, such as a few cents, and log every difference above it.

What to do with each kind of difference#

Lines left after matching usually fit one of these five patterns. Pick the one you found.

Our take. We'd judge any statement reconciliation tool by what it shows your team. Lines that match the ledger shouldn't need a person at all. Each line that doesn't match should say why, and show the statement line it came from. A reviewer who sees "INV-20944, on the statement, not in your ledger" can ask the supplier for a copy without rereading the statement.

Which suppliers to reconcile, and how often#

Suppliers you pay every month need a reconciliation every month. For suppliers you buy from a few times a year, a quarterly check is usually enough.

Some statements need a look right away, whatever the schedule. One example is a past-due balance you didn't expect. Others are a credit you don't recognize, or a note that your account is on hold.

If you reconcile only your largest suppliers because matching by hand takes time, nobody checks the smaller balances. A lost invoice from a smaller supplier then stays hidden until the supplier calls about a late payment. A missing credit stays hidden too, so you pay more than you owe.

Which steps software can do for your team#

Most of the manual work in a reconciliation is reading and matching. Someone types or copies each statement line, then searches the ledger for it. Software can do both, so your team starts with the differences.

When you try any tool, include a statement whose references differ from your ledger's, such as 20871 for INV-20871.

Docsumo matches vendor statements to the ledger. Statements can come in by email to Docsumo's inbox, by upload or through the API. Each supplier's statement looks different. OCR software reads the characters. Then large language models, a type of AI that reads text, put them into fields. So Docsumo isn't limited to the document types it has pre-built models for.

Tables that run across pages are joined into one table, with the headers mapped. Fields it's unsure about go to a person for review. Clicking a field highlights the line on the statement it came from. Extracted data downloads to Excel or goes to your ERP through the API and webhooks.

For the invoices themselves, Docsumo's invoice processing flags invoices that duplicate one already received. On the Business plan, it routes invoices for approval by the rules you set and escalates any invoice not approved in the time you set. Docsumo doesn't pay vendors, so payments still go out from your own systems. The accounts payable automation page covers the rest of the AP workflow.

Start with the suppliers you pay every month#

Reconcile those suppliers' statements at this month-end, and keep each reconciliation statement. Next month then opens from a balance you've both agreed on. Watch for differences that come back, such as credits one supplier never sends or invoices that wait too long for approval. Each repeat points to a step you can fix before the next statement arrives.

Book a demo with last month's statements from two or three suppliers, or start a free trial.

Frequently asked questions#