When your ledger and theirs disagree
Balance confirmations never agree the first time. Reconcile events rather than totals, classify every difference by cause, and the argument becomes arithmetic.
You send a balance confirmation. It comes back with a different figure. Two organisations that have transacted with each other all year, from the same set of events, are holding two different numbers.
What happens next in most offices is a phone call in which two totals are read out at each other. That call never resolves anything, because a total is a sum of many events and no two people can subtract sums in their heads.
The rule is short. Never reconcile totals. Reconcile events.
The method#
Four steps, in order. The order matters more than the effort.
- Agree a cut-off date first. Before a single document is compared. Without it, half the differences you find are just the two sides looking at different windows, and you will spend an afternoon discovering that.
- List every document each side holds up to that date. Bills, payments, credit notes, debit notes, adjustments. Both lists, laid side by side, with dates and references. Not summaries. Documents.
- Tick what matches, and isolate what does not. Most lines match. The reconciliation is only ever about the residue.
- Classify each remaining difference by cause. One cause per item, from a short fixed list. This is the step that turns an argument into a worklist, because each cause has a different owner and a different fix.
Do not debate the items while classifying them. Classify all of them first. An item argued in isolation takes twenty minutes; the same item, sitting in a group of six with the same cause, resolves in two.
The causes#
There are not many, and nearly every difference is one of them.
- Timing. The document exists on both sides but falls in different months, or a payment is genuinely in transit. Nothing is wrong. It clears itself next period.
- A document one side never received. A bill posted and lost, an invoice emailed to somebody who left. One ledger has an event the other has never seen.
- A deduction one side made and did not communicate. The largest category, and the subject of the next section.
- A payment applied to a different bill. The money agrees; the allocation does not. Your ledger shows one invoice settled, theirs shows a different one settled and the first still open.
- A debit or credit note raised silently. Issued, posted internally, never sent. It moves your balance and nothing on their side moves with it.
- A rate or quantity difference on a single line. The bill was booked at the rate that was ordered, or at the rate that was invoiced, and those were not the same rate.
- Rounding, or a unit difference. Small and constant, or large and structural. Both look identical in a total.
Anything that is none of the above is a genuine error, and there are always fewer of those than either side expects.
Deductions are the biggest single cause#
Because of what a deduction is. It is a decision made by one party, taken unilaterally, and communicated as a smaller number.
The payer knows exactly why the figure was reduced — short supply, damage, a rate correction, recovery of an advance, a set-off against another account, a quality disallowance. The payee receives a payment that is less than the bill and no explanation, and has to guess. So they post the receipt against the bill, leave a balance open, and chase it.
Both ledgers are now internally consistent and mutually contradictory, and they will stay that way for months. A year of this produces a confirmation that is out by an amount neither side can decompose. The conduct that prevents it is set out in paying less than agreed, and where the reduction is money owed the other way, the mechanics and consequences are in set-off.
Two practices remove almost all of it.
Every deduction carries a reason and a reference on the advice. Not in the accounting system, where only your side can read it. On the document the other party receives, against the specific bill it reduces.
Every payment states which bills it settles. In full or in part, named by number. An unallocated payment is a difference waiting to be born, and it becomes the same problem on the receiving side that an unidentifiable credit in the bank statement is on yours — the identification work described in matching a bank line.
Do both, and the confirmation exercise stops being a negotiation. It becomes a tick-off.
What to do with what will not resolve#
Some items survive the classification. A deduction the other side disputes. A note one party insists was never received. A rate difference where each side holds a document supporting its own figure.
Do not net them into the balance. Netting a disputed item makes the total agree and destroys the record of the disagreement, and in six months nobody will be able to say what was conceded, by whom, or in exchange for what.
Record disputed items as disputed, on both sides, individually, with the amount, the reason and the date the dispute was raised. The agreed balance is then stated as the reconciled figure plus a listed set of open items. That is an honest confirmation, and it is a far stronger position than a clean number that quietly absorbed a concession.
Some of those items will eventually be conceded or abandoned. When that happens it is a decision with an author and a date, taken deliberately — the discipline in writing off money — not a figure that softened while nobody was watching.
Reconciling often also shortens the collection cycle, because most delayed payments are not refusals. They are documents nobody could match, which is half the ground covered in getting paid on time.
What we changed on our own side#
Deductions were the cause we could design against, so we did.
Recording a stage payment below the agreed figure now asks why less? before it will accept the number. The shortfall and the reason sit on the stage row itself, not in a comment somebody may or may not read. And when the last stage of a schedule is settled, the order's total corrects itself to what the stages actually recorded. We swept the same rule backwards over schedules that had already closed.
It is a small prompt and it was not popular for a week. What it buys is that six months later, the gap between what was agreed and what was paid has a sentence attached to it, written by the person who decided, on the day they decided. That is the whole of what a reconciliation is trying to recover, and it is far cheaper to capture than to reconstruct.
The short version#
Agree the cut-off, list the documents, tick what matches, and classify every residual difference by cause before arguing about any of them.
Most differences are timing, a missing document, an unexplained deduction, a misapplied payment, a silent note, or a single line's rate. Deductions dominate, because they are decisions communicated as a smaller number.
Put a reason and a reference on every deduction, name the bills on every payment, and record what cannot be resolved as an open dispute rather than folding it into the balance.