Consistent premium payable reconciliation ensures accurate financials, reduced risk and confidence in what the agency owes — or is owed — is correct and defensible with reports generated by Applied Epic, not an Excel spreadsheet.

The premium payable is the net amount due on an agency bill transaction, which is the gross premium less the agency commission.

Premium payables are directly tied to the general ledger (GL) every time an agency-billed transaction is invoiced, a payment is made, a refund is deposited or a journal entry is posted. Any time money “touches” a premium payable GL account, the related transactions must be reconciled. Failing to reconcile transactions creates out-of-balance conditions that require extra cleanup and increase financial and operational risk.

Why Reconciliation Is Critical

Reconciling premium payables in Applied Epic is essential for several reasons:

1. Accurate general ledger balances: Without reconciliation, it’s impossible to produce a report that lists unpaid items matching the GL balance. This makes financial reporting unreliable.
2. Improved cash flow management: Reconciled premium payable reports allow agencies to track items paid to carriers but not yet paid by clients; items paid by clients but not yet paid to carriers; and the aging of unpaid items.
3. Premium Trust Fund compliance: The Premium Trust Reconciliation report is only accurate when payables are reconciled consistently and on time.  When used properly, the report will display the minimum amount that should be in the premium trust bank account at the time the report is run.
4. Early detection of billing errors: Reconciliation exposes invoicing mistakes by the agency, carrier or broker before they become serious financial or legal issues.
5. Better visibility at the customer level: Staff can see payment details (check number, deposit reference, dates) directly on customer transactions.
6. Reduced Errors & Omissions (E&O) exposure: Reconciling highlights situations where clients have paid for coverage that carriers haven’t billed for, raising concerns about coverage validity and claim risk.

How Premium Payables Are Created and Paid

Agency-billed invoices are included in month-end journal entries and appear as unpaid items on premium payables reports. Reconciliation itself does not affect the GL unless commissions are adjusted or amounts are written off.

Paying Carriers or Brokers

What happens to the general ledger when a disbursement is issued?

• Cash is credited
• Premium payable or Voucher Payable (if Vouchers are used) is debited

Refund deposits reverse this effect. If reconciliation is skipped, the GL may appear correct only if many assumptions hold true — such as correct commissions, timely payments, accurate statements and properly coded transactions. In practice, these conditions rarely all exist, which is why reconciliation is necessary.

What Reconciliation Does

Reconciliation “flags” transactions as paid or refunded, associates them with the correct GL items and finalizes statements. This removes items from unpaid lists but does not change the GL (unless commission adjustments or write-offs are made). Once reconciled, agencies can run accurate paid, unpaid, suspended or finalized premium payables reports.

Common Causes of Out-of-Balance Payables

• Premium payables become out of balance when agencies:
• Pay premiums without billing clients
• Pay or deposit refunds without reconciling
• Reconcile without issuing payment
• Misapply direct bill commissions
• Close or suspend statements without proper GL association

Auditing Premium Payables: Three Key Steps

1. Confirm payables are in balance: Generate journal entries through the current month, then run the Month-End Balancing Current Premium report. A zero difference means balances align.
2. Match the balance sheet: The total GL account balance on the Premium Payables report must equal the premium payables total on the balance sheet. Differences indicate orphaned GL balances that need investigation.
3. Review age of unpaid items: Use the Aged Current Premium Payables report to identify items that are overdue. Long-unpaid items may signal billing errors, missed carrier payments or E&O exposure.

Cleaning Up Premium Payables

Cleanup involves associating all statements to GL items and finalizing them, creating zero-dollar journal entries to close statements with no balances, resolving suspended, unpaid and closed statements and investigating misposted deposits, commissions or title account balances.

For agencies that have never reconciled consistently, a fresh start or “line in the sand” cleanup may be needed.

To begin, agencies should establish a cutoff date agreed upon with ownership and the accountant. All prior items assumed as paid or refunded should be reconciled and associated to a GL item.

Post-cutoff unpaid items should be cleaned-up accurately. Additionally, a temporary “Premium Payable Cleanup” GL account should be created to use when doing a journal entry to force the “true” premium payable balance from the final report to the GL balance. 

Best Practices Going Forward

To keep premium payable clean:

• Always invoice before accepting payments or paying carriers
• Reconcile premium payables before issuing carrier payments
• Properly reconcile and associate all refunds
• Remember that any time a premium payable GL account is touched, reconciliation is required

Call to Action

Start reconciling properly today, and deal with the old unreconciled or out of balance items when you are ready and understand the process.

Want to learn more about Applied Epic and premium payable reconciliation? Check out this learning center course:

• Cleaning Up and Balancing Premium Payables in Applied Epic