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Bank Reconciliation: “Necessary Evil” or Better Cash Flow with Bank API-Driven Instant Reconciliation?

By Jim Hawthorne

FinLync | May 20, 2022

Finance professionals around the world have worked extremely hard to get where they are. Top grades at school and University followed by countless hours studying for those professional finance exams. Imagine the pain after accomplishing all of this, you start working at your dream blue chip company and you are tasked with extracting data into excel and matching bank transactions with your company’s internal finance system, manually. Not what I studied finance for now is it?

The Purpose of Bank Reconciliation and why it’s important

The process of reconciling the bank is 100% necessary. Finding the outliers between what your companies finance system says has been paid or received, vs what the bank statement says. Bank account balances are reflected on a company’s balance sheet, the snapshot of a company’s health on a given period of time, therefore the bank reconciliation must be completed before a company can certify the integrity of its financial information. This ties in with regulatory policy, for example SOX controls where companies are legally required to reconcile their bank accounts.

Automatically reconcile transactions and reconcile payments with fewer errors, and in far less time  

Bank reconciliation is known to be that month end task all finance professionals don’t want to do! Its tedious, time consuming and frustrating. This process is usually left till the end of the month for this reason, and quite often goes past the financial close, leaving accountants investigating transactions that are over a month old! Imagine trying to explain a cash transaction you made last month!

With companies scaling across the globe, this process has only gotten harder. Transaction volumes and bank fees across the globe have multiplied extensively, leaving accountants looking for the needle in a haystack! That needle however, could save the company from fraud, overpaying, audit risk, shareholder dissatisfaction or even company bankruptcy.

Why is bank reconciliation often so labor intensive? 

So why is this process so labor intensive? Well, companies core ERP/Finance systems were not designed specifically to find these outliers. Yes, many systems will happily reconcile the “easy” transactions that fit perfectly against the internal systems documents, but what happens when you have incurred bank fees, FX fluctuations and payments with little reference to whom it came from and why it is there. This is manageable when there are a few transactions, but when we think about scale, large companies using many banks across the globe, with thousands of transactions every month. Each bank will provide their own format for providing the company with a bank statement. Some electronic, some paper based, this process leads to accountants extracting data into legacy technology like excel and creating heavy VLOOKUPS and formulas to match the bank transactions with that of their own internal system.

For accurate and timely reconciliation, software must be embedded in your ERP

So what are accountants looking for? What problems does Bank Reconciliation find? If we think about the bank reconciliation as a jigsaw puzzle, we want to find which pieces are missing, incorrect or in the wrong place. We need to have as many pieces available so that we can have a better overall view. This means for example, receipts are all provided and invoices for goods purchased are in the right place. Payments is a great example, many are still done manually which incurs human risk when inputting numbers, duplicate transactions can happen all too easily, and unallocated cash will only sit on a suspense account until investigated and applied. These are only internal issues that an accountant may find during the bank reconciliation, believe it or not…. Banks also make mistakes, These problems need to be investigated, raised with the bank and corrective action needs to be implemented. The corrective action is what we want our accountants doing, adding value as a finance professional not extracting data and matching “good transactions”

On-demand reconciliation to improve the process — and remove the angst

With the global pandemic, came increased cost cutting measures for corporates and with finance predominantly considered as a back office function, the squeeze is only getting tighter. Also came along the “great resignation” highly skilled finance professionals do not want to be doing boring laborious tasks anymore, they want to be business partners, analyzing and helping the business move forward. This has spurred many companies onto a digital transformation, and Bank Reconciliation is very much a quick win in which technology can help alleviate capacity for more value-added work, analysis and investigation into the problematic transactions. Companies that automate the bank reconciliation process achieve benefits of increased employee satisfaction, greater confidence in their financials and increased retention rates for their staff.

With embedded SAP applications one does not need to export any data out of the ERP and into a spreadsheet or any other third-party system in order to run the accounting reconciliation process. They will be working off the most up to date general ledger information. Since FinLync connects to the banks in real-time via APIs, that means that companies are able to do a reconciliation process throughout the day. 

They will be able to catch discrepancies as they happen. Since all the data is the most accurate, latest information, they will have ability to drill-down to the details. This is something they can’t do if exporting to a third-party vendor like another accounting reconciliation system or a TMS. This gives them full transparency/visibility to be able to address any data discrepancies more easily instead of going on a hunt to track where the error occurred.  

Better cash flow management with Bank API automation

A company’s financial close is typically a very repetitive and overwhelming task with accounting teams spending hours each day reconciling the general ledger balances with information from the bank statement. Typically, there is a rush to close the books at the end of the month to begin all over again and get going on the next month. If the company is managing this process in spreadsheets, they are pulling data from their accounting system or ERP and pulling statements from bank portals manually. The analyst will take the list of transactions and begin to comb through the data one by one.  This means that the process is prone to errors, like mistyping and accidentally adding extra digits, which are not easy to track.  

For companies with more automated solutions where general ledger entries are exported from the Enterprise Resource Planning (ERP) system, and imported a separate solution, this means that there are extra steps involved before the team can begin the reconciliation process.  

An automatic solution using advanced machine learning will help them make sure they have a documented review and approval process and help them address any discrepancies in real-time instead of waiting until it becomes a major problem.

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