Ultimate Guide for SMEs about Stock & Inventory Reconciliation | TranZact

Sep 24, 2021 in Inventory Management



There is one misconception in the market that inventory management is only a need for E-commerce retail operators. All the solution regarding this heading is about them. But there is one significant sector of players for whom it is of equal importance matter of concern. That not many people are talking about and it is our Manufacturing sector. It has much more need for inventory management and inventory control measures. We are trying to help them, plus other small businesses, in their inventory management, stock reconciliation, and many more needs. And with this ongoing pandemic situation, stock management and physical inventory reconciliation have become very important. As businesses weren't able to function at entire capacity, these activities were becoming difficult to manage.

Inventory Reconciliation and Stock Reconciliation

So in this article, we will help you know all about inventory reconciliation. Accordingly, you can implement these techniques in your organization to ease out your business operations and achieve better results.

What does Inventory Reconciliation mean?

stock reconciliation system

Inventory or stock reconciliation is the process of matching the physical quantity of stocks in warehouses with the quantity of inventory in the books.

This process is done in many stages. And it helps in determining that whether there is any discrepancy in the stock and its value. This can happen because of many reasons like human error, theft, fraud, etc.

So after learning about the meaning of stock reconciliation. We can move forward by learning about how to perform this process.

How to do Stock Reconciliation?

The next step after understanding Inventory Reconciliation. Everybody wants to know about is how to do this stock reconciliation process. Because it just does not involve randomly entering the stock quantity numbers to meet with the stock levels in multiple stores and warehouses. But to identify the reason behind these discrepancies. To avoid this in the future as it ultimately affects the data-driven decision-making powers of the business management. So these are some steps that businesses can follow to reconcile their stocks.

1. Check or Recount the Physical Inventory quantity.

The one thing which every business when hears of stock reconciliation comes into mind. It is doing the physical counting of the stock items. And many organization conducts this particular process just before fiscal year-end.

This is done by closing down their warehouses and stores to count the inventory. Because it is possible that while calculating them if any movement of stock happens. Then this whole process will become a failure.

Additionally, recounting more than once or twice will remove the possibility of any mismatch or misrecord.

2. Match the Physical Inventories and quantities with Inventory Records.

By finishing the first process, you will have the details of physical inventory and its quantity present at your warehouses.

Now the second procedure is to match all these details with the Inventory Records of your books. In this matching process, every stock item should equate with its particular serial or batch numbers. And match with its physical inventory there.

Additionally, this information should balance with the supplier's invoices and the company's own sale invoices.   

3. Look out for the Discrepancies & Find the cause behind them.

With the help of the above process, any discrepancies in our physical stock while matching the book records will become clear. And then the next thing which you need to find out is what is the reason behind this discrepancy.

So these will maybe some possible reasons behind this difference. 

  1. Human Error.
  2. Misplaced or Missing Paperwork.
  3. Mathematical Errors.
  4. Backflushing.
  5. Supplier's Fraud.
  6. Unlisted Items in Warehouses.
  7. Shrinking or Theft of Inventory Items.

Therefore you need to find out the exact reason. So you can avoid this in the future.

4. Do the Reconciliation of the Inventory Records.

Then after finding discrepancies and the final physical inventory count. The next step for you all is to update the Inventory Records in your books accordingly. Further, the write-offs and Financial Reporting need should be done.

My advice to you all is to conduct this process of stock reconciliation regularly at some time intervals. And not to just do it on the financial year-end. Because through this you will avoid the possibility of shrinkage problems. Also, will help you in reducing your inventory holding costs managing your Inventory Control needs.

Read More about - Inventory Control: Six Best Techniques To Follow

5. Match the New Inventory Reconciliation with Previous Statements.

Subsequently, after preparing this year's inventory reconciliation statement, you can match it with the previous year's statements. This will help in knowing about the earlier trends of discrepancies, clarifying the patterns in them. And will indicate the areas to focus more on.

How to Streamline Inventory Reconciliation Process?

From our above discussions, you all might be thinking that this inventory reconciliation process will be happening manually only.

But what if I tell you it is not the situation you can do this process with a good inventory management software solution. Then this is the case actually which almost every company in different industries is practicing with.

By using the software solution, the companies are performing all the activities involved in this process apart from physical stock counting. And there is one software solution that helps SMEs and manufacturing concerns called TranZact. That helps them in their inventory control and reconciliation needs.

How TranZact helps SMEs with their Inventory Reconciliation needs.

TranZact is a cloud-based platform that offers an Inventory Management system for SMEs to digitize business processes right from customer inquiry to dispatch.

It is just not an inventory management solution. But a digital transformation tool that helps in digitizing the core business activities. And companies can choose it or any other software if it satisfies all their needs.

Now coming back to inventory reconciliation methods. These are some of them which you can use as whichever fits best with your business's structure.

1. ABC Inventory Method.

ABC Inventory is a widely used method of categorizing your product inventory into what sells best and what does not. 

This inventory analysis helps categorize those items so we can understand which ones should receive our full attention.

ABC analysis in inventory management

As the name suggests, this inventory categorization technique groups your inventory into three buckets: AB, & C.

  • A -items are the most important to an organization. This material should receive your complete focus due to its high usage rate or a high price (or both).
  • B -items have a lower dollar volume and are thus less important than the items in A-category.
  • C -items are the lowest on the ladder. Out of the three groups, you will have the highest number of C-items. But they will account for the lowest portion of your inventory value.

And on the basis of these categories, businesses can prioritize their inventory reconciliation items in the cycle count process.

2. Checking Inventory Regularly.

Small businesses can design a method of regularly checking and updating all their stock items. And this method is very much suitable for single product-line companies. As they don't have to categorize their products first.

So SMEs and Manufacturing concerns can use any of these methods for performing their reconciliation process. And to help them with that can use any software solution which suits them the best.


TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.