Reconciling Invoices with Suppliers

"We have an entire FTE devoted to reconciling invoices with our suppliers. They catch enough discrepancies each month to pay for themselves.”

This is a direct quote from one automotive aftermarket seller who dropships with 10 of today’s largest Automotive Wholesale Distributors and processes thousands of orders each month. While many WDs have worked hard to develop systems that support and automate POs and invoices to accurately bill their customers, the error rate for charges can be astronomical. Since vendor payments account for the largest cash outflow for most sellers, incorrect charges can hit your margins hard and make a big impact on your bottom line.

Why are incorrect charges so common?

As you may be aware, many wholesale distributors in the automotive market offer tiered pricing and sales incentives among their dealer base. Those that produce large volumes of orders have stronger buying power to purchase items, even drop-shipped orders, at a lower cost. But when invoices go out, this customer-based pricing doesn’t always translate into reality.

For example :

Let’s say that Cool Kids Auto Shop has been a loyal customer of Big Ol' Auto Warehouse for the last 3 years. They consistently do $30k in bulk purchase orders for their Performance Shop and have started selling placing an additional 150-200 dropshipped orders/month, accounting for an additional $450,000 in orders for the past 6 months. Seeing a lot of success in recent months, Cool Kids Auto talks to their rep to get more competitive pricing. They are offered Tier 2 pricing, which reduces cost by 2-5% on their most popular items.

Cool Kids Auto doesn’t have a big ol' accounting department, so they always just had their bookkeeper process invoices as they were received from Big Ol' Auto Warehouse. After receiving new pricing, they started to notice that their margins weren’t improving much. After looking closer, they noticed about 40% of their invoices were not reflecting their new pricing. After reconciling invoices from the past 30 days, they realized they were overcharged by a whopping $4,000.

The challenges experienced by Cool Kids Auto are not unique. It’s for this reason most growing sellers hire Accounts Payable Managers to go through hundreds of email to reconcile vendor statements. While time-consuming and often overlooked, this simple addition can save even small sellers THOUSANDS of dollars a year.

So how can your company manage invoice reconciliation?

Many sellers rely on a good old-fashioned spreadsheet to make sure what you expect to be charged and what you are actually changed match up.

An easy way to get started is to :

1. Create a master spreadsheet that records every order received by your company.
2. Create columns for critical information such as Date, Order Number/ID, Price, Vendor, Vendor Order ID, and Expected Cost. You may have a cheat sheet to look up expected costs or can do so within the vendor portal.
3. As orders come in, insert information across each one of your critical data points. You can do this daily, weekly, monthly, or automate it with existing systems. You may want to create a separate line for each item, rather than for the order itself.
4. As invoices come in, match each with the appropriate order.
5. In the final column, run a formula that shows the difference between “expected cost” and “invoice/item amount.”
6. For those items that show a difference, you will likely need to reach out to your supplier to make the adjustment. We recommend doing this before you pay the invoice, if possible.

Does this sound like a lot of work? Well, it is. But the impact will be obvious quite quickly. If you aren’t reconciling invoices, you are almost certainly leaving money on the table. The good news is that there are a number of ways to streamline invoices reconciliation that can drastically reduce the time (and errors) for your accounting department.

The easiest shortcut is to create a stream of consistent, regular data feeds from either the source of your sales (website, marketplace, etc) or from the supplier directly. Many suppliers offer to send their invoices over API, FTP, or even to an email drop. Software providers like FeedStation can then turn around and send this data to whatever source you need, be it a spreadsheet or your own accounting solution. Once you have a single master feed, reconciliation becomes easy. You can take each order/item, match it with the expected cost, and find errors in a fraction of the time.

Does a single invoice feed sound attractive to your company?

FeedStation is now seeking beta customers for this new addition to our software solution. By becoming a FeedStation beta customer, you will receive exclusive pricing and the opportunity to shape product features and functionality.