Optimizing your finance processes: why you should consider automating reconciliation
Published: June 15, 2023
In the fast-paced world of business, where cash flows are the heartbeat, maintaining financial stability becomes a challenge. According to the McKinsey Global Payments Report some of the biggest pain points of finance teams are cash forecasting, currency risk, invoice processing and payment reconciliation. Payment reconciliation is an essential process that ensures the accuracy and integrity of an organization’s financial records. By mastering it, the organization ensures the accuracy of financial statements and compliance with regulatory requirements. Specifically, subscription businesses who deal with a large amount of invoices and payments will benefit from automating the reconciliation process. Let’s dive deeper into the topic to understand how your finance processes can be optimized by automating your reconciliation activities.
What is Payment Reconciliation?
Payment reconciliation is the process of comparing and matching financial records related to incoming and outgoing payments to ensure accuracy and identify any discrepancies or errors. It involves matching various sources of payment data, such as bank statements, invoices, purchase orders, and payment receipts, to verify that all transactions are recorded correctly and that the amounts are properly accounted for. Businesses can reconcile their accounts daily, weekly or monthly.
Account reconciliation – more than an anomaly detector
Experts advise businesses to reconcile their payments at least once a month, depending on the type of business even more often. What is critical for all organizations is to establish an efficient account reconciliation process early on that scales as the business grows and the number of payment methods and currencies increase. Besides its primary function as an “anomaly detector”, account reconciliation helps to avoid any kind of discrepancy, hereby the main important ones:
- Accuracy of financial records: Account reconciliation helps ensure the accuracy and integrity of an organization’s financial records. This accuracy is crucial for producing reliable financial statements and reports, which are vital for decision-making, regulatory compliance, and stakeholder confidence.
- Fraud detection and prevention: Discrepancies in transactions, unauthorized withdrawals, or unexpected charges can be early indicators of fraudulent behavior.
- Regulatory compliance: Companies have a legal obligation to maintain accurate financial records and comply with accounting standards and regulations. The reconciliation process provides an audit trail and documentation of the company’s financial transactions, enhancing transparency and facilitating regulatory audits or reviews.
- Cash flow management: account reconciliation ensures that cash inflows and outflows are accurately recorded and accounted for. It helps identify any missing deposits or unrecorded payments, enabling businesses to have an accurate understanding of their cash position.
- Error identification and resolution: account reconciliation allows businesses to identify and rectify errors in their financial records. It could be a simple data entry mistake, a misclassified transaction, or a discrepancy between the company’s records and the bank’s records.
- Financial decision-making: Reliable and accurate financial information is crucial for making informed business decisions. This information empowers management to make data-driven decisions regarding investments, expenses, borrowing, and overall financial strategy.
Why should you automate account reconciliation?
Subscription businesses need to consider automating reconciliation. With all of the different products, packages, invoices and payments things can get messy very quickly. The key benefits of automated account reconciliation include:
Process efficiency
| Automatic | Manual |
|---|---|
Import bank statements automatically, match transactions and reconcile accounts with no manual intervention. Which means that manual errors will no longer exist for your company. | Manual account reconciliation involves manually reviewing bank statements, comparing transactions, and manually matching them with the corresponding entries in the company’s accounting system. This process is time-consuming, labor-intensive, and prone to human errors. |
Did you know?
Companies with around 100 invoices per week spend 1-2 hours per week on bank reconciliation, if they do it manually and there are still some manual errors!
Talk to us about reducing the error rate in your organization.
Time and resource savings
| Automatic | Manual |
|---|---|
| Automated Automated reconciliation significantly reduces the time and resources required to complete the process. This allows finance teams to focus on other value-added tasks, such as analysis and financial planning. | Manual Manual reconciliation is a time-consuming process, particularly for businesses with high transaction volumes or complex banking relationships. Companies that can’t reconciliate in time, may lose money and have a negative impact on their cash. |
Scalability and Flexibility
| Automated Your business is growing? Your invoices are growing consequently. Automated reconciliation systems can handle large volumes of transactions efficiently, making them suitable for businesses with high transaction volumes or complex financial operations | Manual Manual reconciliation may become impractical and inefficient for businesses with significant transaction volumes. It may require additional staff or extended working hours to handle the workload effectively. Which will result in additional costs and a drop in profitability. |
Timeless and Real-time insights
| Automated Automation enables real-time or near real-time reconciliation, allowing businesses to have up-to-date and accurate financial information. | Manual Manual reconciliation often introduces delays in obtaining and processing bank statements and transactions. This delay can impact the accuracy and timeliness of financial reporting and decision-making. |
How do you automate your reconciliation?
There are different ways that allow you to automate account reconciliation. We will introduce some of the most relevant ones below.
EBICS – Electronic Banking Internet Communication Standard
EBICS, which stands for Electronic Banking Internet Communication Standard, is a secure and efficient communication protocol widely used in Europe for electronic banking transactions. This standardized system enables seamless and automated data exchange between banks and their corporate clients.
How does EBICS work?
With EBICS, companies can automate the exchange of financial data between their internal systems and banking institutions. This automation facilitates the timely and accurate transfer of transaction details, such as payments, receipts, and account statements, directly into the company’s financial management or enterprise resource planning (ERP) systems. This integration eliminates the need for manual data entry and significantly reduces the chances of errors or discrepancies.
What are the benefits of EBICS
- European standardization: it’s a current and common standard in European payment transactions
- Ensures a high level of security
- Your financial processes are optimized.
Virtual IBANs
Virtual IBANs, are virtual account numbers that are not tied directly to a physical bank account, meaning that your company possesses several virtual IBANs that are linked to one physical IBAN. They are designed to simplify and optimize financial operations for businesses by providing a more flexible and efficient approach to banking.
By using virtual IBANs, companies can automate reconciliation by associating each virtual account with a contract (or a customer). This enables the automated matching of incoming payments with the virtual IBANs, eliminating the need for manual intervention. As a result, companies can reconcile their financial records more efficiently and accurately.
How Virtual IBAN empowers automated account reconciliation
Companies can automate the process of associating virtual IBANs with transactions and updating the reconciliation records in real time. This automation eliminates the manual effort required to track and match transactions, reducing the risk of errors and discrepancies.
Moreover, it provides enhanced visibility and control over all financial operations. Your incoming payments can be reconciled in real time, meaning that it doesn’t rely on text provided by a customer but with the received payments. Companies can easily track and monitor incoming payments associated with specific virtual IBANs. This level of transparency helps in maintaining accurate financial records and streamlining the reconciliation process.
Find out how Billwerk+ supports your account reconciliation, set up a first free consultation meeting with one of our experts today.
