Invoices received from suppliers can be a little more difficult to organise. They each look different, the invoice numbers are in different formats and even the paper they are printed on can be different sizes and thicknesses making any file full of purchase invoices rather messy to look through.
There are several ways to organise them which will be dependent on the software you use to record them and how many you receive each month.
For low numbers of invoices you could use an A-Z divider in a lever arch file and file all invoices alphabetically throughout the whole year in one file. With this method when searching for an invoice that is several months old, you will just need to look under the correct letter to find the current year’s invoices for that customer. If you add the latest invoice to the top every time the invoices will also be filed by date so you will be able to easily find the one you are looking for.
If you are processing a larger number of invoices each month, you may need an entire file for each month, or maybe 2-3 months. In this instance keeping the invoices filed by month and then alphabetically could be more suitable. With this method when searching for an invoice that is several months old, you will need to know the date of the invoice. This information will be available on your accounts software.
For much larger numbers of invoices, that fill several files each month it could be more sensible to assign each invoice a reference number. You can purchase sequential number stamps which can be stamped onto each invoice and recorded as a reference in your accounts software when you record the purchase invoice – some accounts packages will handle this extra piece of information better than others so please check the capabilities of your chosen software before proceeding.
With this method, when trying to find an invoice that is several months old, you will need to find the assigned reference number in your accounts software first, once you have that number it is very quick to find the correct invoice in the file as they are all numbered sequentially and should be filed as such, with the lowest number at the back of the file and the highest number on top.
Another benefit for a sequential system is that it is much easier to see if an invoice has been removed from the file, and equally if an invoice is discovered in the wrong place it is easy to identify where it belongs and to also confirm on the system if it has been processed already.
In this modern age we should all be aiming for the “paperless” office, so if you only receive a small number of purchase invoices each month and most of them arrive electronically, don’t print them off! You can create identical filing systems as described above for your computer files instead of physical files. And ones that arrive through the post can be scanned in to the computer and added to this filing system and the original recycled, keeping your physical paperwork to a minimum.
and when they happen. The bank reconciliation checks that you have accounted for all transactions. Anything that shows on your bank reconciliation that isn’t in your accounts should have corresponding paperwork that has been overlooked. Anything that is in your accounts but does not show on your bank statement should be investigated.
There is a reason that larger companies “close down” their accounts each month. By going through an exercise of making sure that all invoices, purchases and expenses have been added to their accounts system and then checking those transactions against their bank statement they are then able to generate reports on vital information about the health of their business and to create a cashflow forecast for the coming month. This is something that every business should be doing, not just larger ones!
The reports generated will include:
Also known as the Aged Creditors Report or Aged Receivables Report. This is a list of all invoices that have not yet been paid. Usually the report is split into periods or months, which shows what is currently unpaid but not overdue, and then what was due to be paid during the last month, and the previous month and finally anything older. These customers can then be contacted to request payment be made.
Also known as the Aged Debtors Report or Aged Payables Report. This is a list of all purchases that have not yet been paid. Again it will usually be split into periods or months. With this report you will know which of your suppliers need to be paid during the next month.
It is important to know if any cheques have been raised but not yet cleared the bank. Your supplier will have up to six months to cash a cheque so to avoid any nasty surprises you need to know which cheques remain uncashed as you move into the next month.
When you have all of the above information you can create your cashflow forecast. This is basically a summary of how much money you have in the bank, how much money you are expecting to receive and how much you need to pay out over the course of the month. This will then give you your available funds so you know how much money you can afford to spend, regardless of what is currently sitting in your bank account.
How often should you reconcile the bank?
It depends on the size of your business and how many transactions you have. Larger firms will reconcile every day, some businesses once a week and others once a month. It is important that it is done at least once a month, if you leave it any longer it will become more difficult to track errors.
Jamie has spent many years working in administrative roles, she has also spent time as a stay at home mum and now loves the flexibility of working from her home office and being available for her family whenever they need her.