FIFO application

FIFO application is the default rule in customer and supplier account matching, and it exists for a plain reason: most incoming payments do not say which invoice they settle. The remittance description is empty, the advice carries only a company name, or a single transfer covers several months of invoices at once. Something has to be done with that money, and the most defensible order is to start from the oldest open item. The rule is used in both directions: allocating collections across your receivable invoices, and predicting which lines your own outgoing payment closed on a supplier's statement. Where an invoice number does appear in the description, FIFO is unnecessary. A specific invoice reference always beats a sequence assumption.

In reconciliation, FIFO decides the lines rather than the balance. Two parties working from the same set of payments can agree on the total and still disagree on every line, simply because they applied different ordering rules. Your FIFO closes the oldest invoice, while the counterparty booked the same receipt against the invoice whose amount looked closest. Because the balance ties, the reconciliation is assumed to be finished, yet the aging report, any late-interest calculation and the question of which invoice is still open all answer differently on the two sides. iFinances runs FIFO alongside reference-based application, partial-payment splitting and bulk-payment distribution, writes down which rule produced each match, and leaves the final call to the user.

Two confusions are worth naming. First, FIFO is an allocation assumption, not an accounting entry: until clearing is posted in the ledger it settles nothing and binds no counterparty. Second, FIFO and clearing are not the same thing. Clearing is the operation inside an ERP that links open items and takes them off the open list; FIFO is only the rule that decides the order in which those links are proposed. And FIFO is not always right. A disputed invoice, an item offset by a credit note, or a document subject to Turkish VAT withholding can be allocated to the wrong invoice purely because of date order, leaving a settled invoice open and an open invoice apparently paid. The output of FIFO is a proposal that a person still has to confirm.