Next-Level Dropshipping With Automated Accounting Reconciliation
Retailers often overpay as much as $120 to $150 per purchase order due to preventable issues, such as fixing inventory errors, tracking down missing paperwork, incorrect pricing, paying flawed invoices, and more. Automated accounting reconciliation can reduce or eliminate these mistakes altogether.
Purchase order to invoice matching and reconciliation requires valuable time and resources, but if something is incorrect, you may miss out on worthwhile discounts—or pay for products that your customers never receive. This is why automation of the purchase order process is so essential to the success of your dropshipping business.
When dropshipping, the number of purchase orders you send—and invoices you receive—makes reconciling POs to report on profitability significantly more challenging.
Most of the complexity stems from purchasing an item after you’ve already sold it to a customer. When dropshipping, there can be surprises related to both product and shipping costs. Even worse, depending on how often your supplier invoices, you may not know whether an order was profitable for several weeks after the sale.
Sure, you can lessen the risk of shipping cost unknowns by using your own carrier account. But this eliminates the advantage of shipping with a large distributor that has access to better rates. In some cases, your suppliers may only agree to ship products from their account and bill you for the cost later.
You’re not at as much risk of these issues if you’re selling goods out of your own warehouse versus dropshipping. The only way to lessen the chance of surprise when dropshipping is to implement intelligent systems while working with suppliers with reliable processes.
Keep reading as we discuss how to automate accounting and reporting processes with the goal of more effectively—and accurately—exchanging transaction information with your vendors.
Manual vs. Automated Accounting Reconciliation
Purchase order to invoice matching is a basic transaction reconciliation process that retailers use to approve payment to a vendor, supplier, or wholesaler following the completion of an order.
The process typically involves a:
- Buyer’s purchase order
- Seller’s purchase order acknowledgment
- Seller’s purchase order change request
- Seller’s invoice
- Advance ship notice or inventory receiving sheet
- Many suppliers have archaic invoicing processes, which makes it almost impossible to automate. It’s easy to accept the loss and move on to another task.
Without automation, you must manually analyze and compare these documents. More often than not, records will get lost in the shuffle, which means you could pay the wrong price or shipping costs.
If you can’t pay and reconcile invoices fast enough, you chance missing out on discounts and promotions for timely payments.
Automating Invoice Matching via EDI
EDI allows you to exchange transaction information digitally, so it’s one solution that retailers turn to when automating the purchase order to the reconciliation process.
With EDI development, all vital documents are standardized and match each parties’ requirements. Purchase orders, purchase order acknowledgments, invoices, and advanced ship notices can all be sent digitally, even if you and your suppliers use different software and systems.
You can simplify the transaction reconciliation process and invoice payment process with a three-way match—automatically approving or setting documents aside for review. The only time you or someone on your team will have to review a document is if something doesn’t match.
When using EDI to transmit this information, most invoices pass the matching process without issue. You can take back time to focus on more valuable items that could save you money, such as those that relate to payment terms, price, or quantity.
While EDI can’t solve all of your money problems, it can dramatically reduce mistakes associated with the purchase order payment process.
What If EDI Isn’t an Option?
If you’re considering an automated accounting reconciliation process, you’ll have to speak with your supplier about the options they provide when sending invoices. If you receive a blank face in response, you may be out of luck when it comes to turning to EDI as a solution.
Often, you’ll receive PDF invoices via email or be forced to download them manually through a reseller portal supplied by your vendor.
If you’re lucky, your supplier will supply you with invoices in CSV format. In the best-case scenario, they send this file as an email attachment. Then, you can automatically map and reconcile these email attachments into your ecommerce operations platform.
If you receive a PDF with line-itemized invoices, you can take advantage of automated conversion services. This software can convert these invoices into an acceptable format and import them into your preferred system.
The Importance of Data Quality in Automated Accounting Reconciliation
Automated invoice and purchase order reconciliation can provide a real advantage for dropship organizations—when it works.
It’s not as simple as implementing the solutions. You must ensure that there’s a reliable connection between you and your vendor’s software. Total success depends on complete data synchronization, which can only happen if your data is available in one central location.
The business world, and ecommerce especially, is ever-changing. You must ensure that your data is available in real-time, which is the premise of true automation. As you onboard new vendors and product prices and inventory levels change, incorporate automatic invoice matching to stay efficient and ahead of your competition.
Automate the Boring Back Office Work
Automated accounting reconciliation workflows can eliminate repetitive, time-consuming methods that are likely riddled with human errors.
By automating the order to invoice reconciliation process, you can potentially and significantly add to your bottom line without making drastic changes in how you operate your dropship business.
Are you evaluating your dropship automation options? Talk with one of our experts to discuss where you are in your automation journey and what to do next.