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Ways to automate your business’s bank reconciliation

Posted by Kanika Sinha

May 12, 2022    |     4-minute read (788 words)

One of the most time-consuming and tedious financial tasks that your business must routinely deal with is bank reconciliations. Each month, your finance team must scrutinize every bank account record and ensure that each transaction has been accounted for, is consistent and has been recorded accurately. 

But this manual approach to reconciliation costs your team a lot of time and your business a lot of money. Some 30% of a finance team’s time is spent collecting data and reconciling it between systems, according to a 2017 PwC report on finance effectiveness. Additionally, the manual method is less likely to detect fraudulent activities or any differences.

However, this doesn’t have to be the case. There is a cost-effective way to increase the functionality of reconciliation and make it less of an ordeal with the help of automation. It helps maximize efficiency in all financial aspects of your business besides allowing your business to focus on what’s important — the results rather than the process — and ultimately drive better outcomes.

Delve deeper

What is bank reconciliation? This process entails a comparison of a business’s accounting records to its bank statements and records. Bank reconciliation is an internal control for most companies. It’s a way to identify discrepancies, detect fraud, make necessary adjustments and prevent errors from occurring and most importantly, to validate that the cash on the balance sheet is accurate.

How does it work? Bank reconciliation is a standard accounting process that is typically done every month or possibly every quarter at the close of the period and after bank statements have been received. Generally, a business’s accountants substantiate the transactions recorded in the general ledger by matching that data to the bank statements.

Why is it important? While bank reconciliation might seem like a cumbersome task, it is an integral part of running a financially sound company. It is an essential internal control tool that ensures you are able to identify any unusual financial transactions caused by fraud or accounting errors. Also, the practice can also help with cash flow management, optimizing internal processes and spotting any inefficiencies, including missed or double entries.

How to automate your business’s bank reconciliation

Automated bank reconciliation leverages technology to replace the manual task of monitoring and comparing a business’s bank statements to its accounting records. The process allows businesses to increase speed and accuracy, and to eliminate an enervating bookkeeping task, allowing the finance team to focus on other, more important tasks such as actionable analysis and strategy.

Using accounting software. This type of application software lets small or medium-sized firms process transactions, both remotely and locally, and further, fetch transactions from their bank accounts to perform reconciliation to ensure the right amount of inflow and outflow transpired.

Leveraging RPA. Robotic Process Automation is the set of software programs that utilize the technology of machine learning to mimic the actions of employees. Instead of generating a set of processes/programs to use, RPA learns from human behaviors in using the graphical user interfaces in order to replicate the same set of tasks. This ultimately reduces human effort in repeatedly typing in accounting entries and further minimizes errors that are caused by potential fatigue.

Utilizing cloud computing. This works much like the traditional method of bookkeeping, wherein all the books are required to be kept in one place for access, but with a digital twist. Cloud computing allows all financial data to be kept in digital form on the cloud and available to use at any time. As the database for the reconciliation is identical when accessed from any location, it makes it much easier to perform checks in between, rendering the entire process less prone to errors. Additionally, it helps detect fraud in real time by initiating periodic reconciliations.

Steps to automate your bank reconciliation process

Here are three steps to get the full benefit of automation:

Assess your business’s needs and capabilities. This involves taking into account all financial activities of your organization and how this labor is being handled. This will help you identify processes where there is room for growth and how automation can enhance them.

Carefully evaluate your options. There are several automation software options available in the market for business accounting and reconciliation. Carefully evaluate these choices to make the best decision for your particular organization.

Effectively manage the integration process. A major concern for businesses when embracing automation is the staff training that it necessitates. Make sure to equip your staff with the proper skills and knowledge so that they feel confident about using the new system. While this preparation may require time and effort, the increased productivity and efficiency associated with automation will be worth it.

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