Managing a company’s finances requires time and attention. After all, each demand must be met efficiently so that internal accounts are up to date. The bank reconciliation process is one of the demands of the financial area. To optimize it, many businesses decide to adopt a system.
We can say that this type of technology is essential not only for improving efficiency, but also for the financial health of the company. To reinforce this understanding, in this article, we will show several benefits obtained with automated bank reconciliation.
In addition, we will give you tips on choosing the best system to meet this important demand. Stay tuned for the next topics!
Importance of the bank reconciliation system in financial management
For clarification, bank reconciliation is a financial management process that aims to compare the inflows and outflows recorded in the bank statement with the company’s internal control .
This way you can understand whether the available balance in your account is the same as what has appeared in your business internal records. In short we can say that the reconciliation system of the bank helps:
- In identifying internal fraud;
- In controlling financial transactions;
- In improving cash flow forecasting;
- In optimizing budget planning;
- In the guarantee of a reliable bank balance.
In addition to these advantages, the bank reconciliation system helps managers to have an accurate view of the company’s finances. Therefore, these professionals can make strategic and accurate decisions about expenses, investments, financial planning and budgeting.
Challenges of manual bank reconciliation
The opposite of implementing a bank reconciliation system is the consolidation of a culture of manual services. When this internal tendency exists, managers have great difficulty in organizing and planning their finances. Below, we list the main challenges brought about by manual processes.
Possibility of errors and forgetfulness
Whenever input is done manually in a paper-based book of account for transactions and comparing on a bank statement, incorrect details may occur, that is, incorrect numbers, for example, amount figures and dates.
The accounting record may input the same transaction twice resulting in reconciling error, and third, in large volumes some transaction may go un recorded and forgotten.
This creates discrepancies. Not to mention that it is possible to forget to include bank fees, interest and other expenses. The result is an incorrect representation of the company’s finances.
Lack of efficiency
In comparison, manual bank reconciliation also has many inherent inefficiencies in it. For instance, the larger the transactions are for a business, then the more complex the time taken for the manual reconciliation will be.
This will be difficult to scale to a financial operation. On the other hand, real time can never be envisioned with a manual process of this type so cash flow monitoring is hampered along with improper finance management.
The time spent
For companies that handle a lot of transactions, manual reconciliation can be a laborious procedure. Productivity may suffer as a result of the time required to compare documents and verify every transaction.
Since the manual process requires repetition of tasks (such as checking records, comparing dates and values, and calculating balances), it can lead to fatigue and reduced motivation among the team involved.
Benefits of automatic bank reconciliation
With the assistance of technology managing the company’s finances, it is much easier to optimize bank reconciliation. All the problems mentioned in the previous topic are eliminated. Below, we point out several advantages of implementing a bank reconciliation system.
Increased process speed
Automatic reconciliation gives a company real-time views of its finances. This is the key to informed decision-making and efficient cash flow management. Automatic reconciliation provides an extensive audit trail, which the system offers, thereby making internal and external audit processes more efficient and transparent.
Greater accuracy in information
Automated solutions are able to quickly identify differences between accounting records and bank statements, allowing the company to take corrective action more quickly.
In general, technologies have built-in analytics capabilities, allowing companies to identify trends, patterns and opportunities for financial optimization – more easily.
More time to focus on other activities
Automation reduces the need for specialized knowledge from specific individuals, reducing the risks associated with dependence on key personnel. Another advantage is that managers gain time to dedicate themselves to more strategic activities that are aligned with the business purpose.
Always up-to-date data to help with decision making
With accurate and up-to-date financial information available, management can make smart, fast and strategic decisions. This possibility is of great value in today’s business environment, where changes happen very quickly and require positioning at the same speed.
How to choose the best bank reconciliation system?
When analyzing the market, we discovered that there are several types of bank reconciliation systems available. However, it is important to evaluate carefully before implementing any specific technology. Ideally, you should consider whether the software has the essential functionalities. What are they? We will list them below.
Automatic import of bank statements
This functionality allows the system to automatically obtain bank statements directly from financial institutions. Automatic bank integration eliminates the need for manual data entry, saving time and reducing errors.
Automatic reconciliation
Transactions in your bank statements and your company’s accounting records are compared automatically. The reconciliation procedure is accelerated by the system’s automatic identification of matches and discrepancies.
Automatic download of accounts payable and receivable
This functionality automates the process of writing off accounts payable and receivable when corresponding transactions are identified in bank statements. This ensures that account balances are always up to date.
Categorization of expenses
The system can automatically categorize expenses based on predefined rules or patterns identified in transactions. The result is that it is easier to perform expense analysis and prepare financial reports.
Profit and cash reporting
Allows you to generate detailed profit and loss and cash flow reports that provide insights into the financial health of your business and its operations.
The management and finance team can use them to make well-informed decisions on expansions, cost reductions, investments, and changes to sales tactics.
Integration with accounting systems
Integration with accounting systems allows reconciled information to be automatically updated in the company’s accounting records. This ensures that financial data is always in sync.
Integration helps maintain compliance with accounting standards and regulations because financial information is consistent across both systems.
Security
Security is an important aspect of a bank reconciliation system. In practice, security refers to the protection of financial data, user authentication, and measures to keep it away from unauthorized persons. Besides, security can record user activities and trace them by producing an audit trail for easy detection of suspicious transactions.
Ease of use
Even someone who is not extremely tech-savvy may quickly complete duties with the help of an easy interface, which is essential for an efficient bank reconciliation system.
On the other hand, users may more easily modify the system to fit their workflows and preferences thanks to the ability to customize the interface, preferences, and settings.