A part of year-end closing is always confirming balances you have in your balance sheet. When we say „confirm“, we do mean agreeing them with the other party the balances are owed to or to be collected from.
Whereas we have discussed the confirmation procedure and even shared a template with you, what we would like to stress with this post, is that it’s not just confirming, i.e. sending out the letter, but also making sure the correct balance is as a result in your accounts.

The replies which come back may or may not agree with your records. If they agree, it’s all good and you can just make a “check” behind the balance since it’s confirmed. However, in case the reply is not exactly what you expected, the difference needs to be sorted. Usually they come with a few comments stating invoices missing or saying some invoices are recognized in another period etc. When this is the case, you always need to remedy it in a way that you either request or resend the invoice, or moreover just rethink whether any adjustments are needed into your accounts.
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Provided that you haven’t used the sentence similar to “If we don’t receive your reply, we do consider our balance correct and confirmed by you” you really need to get the majority of the confirmations back. Simply sending them out and hoping to get everyone to reply in reality is just, to be blunt, naïve. People forget, they don’t see what’s in it for them or they don’t even receive the request. Be the reasons what they may, you need a structured approach to all non-responses.

First off make sure you have one person in charge for the whole process. The replies are delivered to one person who initially collects them and enters all required information to one table (i.e. name, contact, confirmed balance, any relevant comments etc.) This way all the information is accessible from one source.
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The first step in preparing for the confirmation procedure is making the template for the letters. It’s best to have it done prior and even better if once and for all. Having nice and orderly templates ensures you’ll have all necessary bits covered; everything looks similar and is easily understandable to others.

Fields which are a must:

– Contact information obviously to whom the reply should be sent to;
– The date or period the balances are confirmed as at;
– The reason for the confirmations are done in first place;
– Whether your confirming receivables or payables;
– Your balance obviously;
– Place for comments (especially needed when there are differences).
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As a general rule the management is obliged to ensure the balances are always correct. In practice the balances are confirmed mostly once a year though, and as such you want to make sure it’s as close to year end as possible.

The best option would be to confirm the balances as at year end date. This way you ensure the statements you sign off are in fact correct. If this for whatever reason is not possible – either due to very tight reporting schedule or odd end of financial year resulting in year-end closing procedures to be in a very busy season, etc. – as close as possible to the financial year end date is the second best option.
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As the year end is getting closer, it is also the time to start thinking about doing confirmation letters – both for accounts receivables and payables. Whilst some may think that it’s the supplier’s problem to confirm their receivables, it in fact isn’t so. It is the management’s responsibility to ascertain all assets and liabilities balances are shown in correct amounts.

However the question of who to send the letters to still remains. As most things in life and in accounting, it depends. In case where you have numerous clients with different balances from very small to very considerable amounts, it makes sense to leave out those that are very small. The same approach applies to payables balances, however please note that it only makes sense in case there are hundreds of those balances. Just decide on a limit over which you confirm all balances and make sure that those below the set limit don’t compose a considerable amount in total.
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