Bank reconciliation is a high priority if you want to maintain financial accuracy and ensure that your financial records match bank data in your statements. That’s likely why CFOs around the world are investing in improving the bank reconciliation process – it prevents costly errors, improves cash planning and helps keep financial records accurate. In this article, we'll explore best practices that can help you streamline bank reconciliation. We’ll also outline how advanced software can accelerate and improve your reconciliation process.
What is bank reconciliation and why is it important?
Bank reconciliation (and credit card reconciliation) compares the balance on your company’s bank statement with the balance recorded in your accounting system or general ledger. The goal is to ensure that these two sets of records match, and when they don’t, to identify and resolve any discrepancies. Bank reconciliation is necessary for sound cash flow management and accurate record keeping.
Without regular reconciliation, it’s difficult to discover the errors, missing transactions and fraudulent activity that can skew your finances and put your business at risk. But that’s not an issue when you take control of your true cash situation by reconciling your bank and general ledger balances frequently. Doing so also gives you the data you need to make informed decisions about investments, payroll and other financial commitments.
A bank reconciliation example
Let’s consider a hypothetical business, Shasta Automotive, which is performing a bank reconciliation at the end of January. According to their bank statement, the company’s account balance is $88,500. However, their internal accounting records show a balance of $97,100. That’s when the company’s accountant steps in to identify and resolve this discrepancy.
Upon reviewing the bank statement, the accountant found $150 in bank fees that were not yet recorded in the company’s accounting system. Additionally, they find $8,750 worth of deposits in transit in the form of three check deposits that have not yet cleared the bank. To reconcile the accounts, the accountant adds bank reconciliation statements to the general ledger entry to account for the deposits in transit and unrecorded bank fees.
Common challenges in bank reconciliation
While bank reconciliation is straightforward in concept, as shown in the example above it can also create several challenges, each of which presents a unique risk to your business:
Timing differences
Transactions like outstanding checks or deposits in transit that haven’t cleared the bank can cause mismatches in your financial records, leading to decisions based on inaccurate cash data. This can lead to insufficient funds for critical payments or missed opportunities due to an incorrect view of available cash.
Unrecorded transactions
Missing or delayed transactions, like those in the bank reconciliation example above, can keep you from understanding your true cash position and lead to financial penalties or overdraft fees. As unrecorded transactions pile up, it becomes even harder to track cash flow accurately, which can derail long-term planning.
Manual entry errors
Errors in manual data entry can cause a cascade of problems, from incorrect financial reports to decisions made on inaccurate figures. Over time, these errors erode trust in your financial data and can lead to compliance issues or strained relationships with your vendors and other financial stakeholders.
Multiple accounts and currencies
Managing different accounts and currencies adds complexity in bank reconciliation, especially for global businesses. Small errors in one account can snowball into broader financial discrepancies and make it difficult to get a clear view of your company’s overall financial position.
Best practices for bank reconciliation
Implementing best practices for bank reconciliation improves cash flow accuracy, bolsters the efficiency of your financial operation and reduces the risk of financial discrepancies. By adopting the right strategies and tools, you can streamline the reconciliation process even further while maintaining clear oversight of your organization’s cash flow. Below are some key best practices to help you mature your reconciliation efforts.
Automate the bank reconciliation process
Manual reconciliation is time-consuming and prone to errors, which compound as your business grows. By automating reconciliation tasks, such as matching transactions, importing bank data and handling multiple accounts and currencies, you can reduce the risk of errors and give your team extra time for high-value activities.
Establish a regular schedule
Performing reconciliations regularly helps you catch errors early while keeping the process manageable. We recommend high-volume businesses reconcile more frequently – ideally daily – while low-volume businesses can opt for a weekly or monthly cadence. Communicating clear deadlines and assigning responsibility can bring added consistency and accountability to your bank reconciliation efforts.
Use high-quality transaction data
Accurate and timely data speeds and simplifies your bank reconciliations. To improve your data quality and avoid discrepancies, record transactions promptly in your accounting system and consider using real-time data feeds from your bank. To reduce the likelihood of errors and maintain an audit trail, double-check your data entry and keep consistent records.
Investigate and resolve discrepancies quickly
Discrepancies between your records and bank statements are inevitable, but when they happen your team needs to recognize and address them promptly. Prioritize significant issues and establish clear protocols for investigating and resolving discrepancies. Quick action helps you prevent small problems from escalating and improves the accuracy of your financial records.
Centralize financial operations
Managing multiple accounts, cardholders, subsidiaries or currencies can complicate your bank reconciliation process. By centralizing your reconciliation efforts in one system that integrates natively with your enterprise resource planning (ERP) system, you’ll have access to all the right data – all in one place – which can help you reconcile faster and more accurately than ever before.
Tools and software for bank reconciliation
When you’re ready to overcome the challenges of manual bank reconciliation, you’ll find the right tools and software can make a significant impact. By automating key steps in the bank reconciliation process, such as matching transactions and reconciling multiple accounts, these solutions help you save time, reduce errors and improve the accuracy of your financial records.
Automation tools are particularly useful if your business manages multiple subsidiaries, currencies and accounts. They simplify reconciliation tasks that would otherwise require extensive manual effort, allowing your team to focus on more strategic activities such as cash flow forecasting and financial planning.
Simplify and streamline bank reconciliation with ZoneReconcile
For businesses using an ERP system like NetSuite, ZoneReconcile offers a powerful solution to automate and simplify bank reconciliation. With ZoneReconcile, you can:
- Automatically match transactions: ZoneReconcile allows you to upload bank and credit card statements or set up transaction feeds directly from your financial institutions. The software then automatically matches transactions in real time, eliminating the need for manual data entry and the errors that come with it.
- Handle complex transactions effortlessly: Whether dealing with foreign currencies, payment batches, closed transactions or direct debits, ZoneReconcile makes the reconciliation of complex transactions quick and easy, even across multiple subsidiaries and accounts. It can even handle transactions such as direct debit reversals and transaction fees simply and efficiently.
- Reduce reconciliation time: By automating key reconciliation tasks, ZoneReconcile helps you complete your reconciliation processes in minutes rather than hours, freeing up your time for value-added activities like forecasting.
- Improve accuracy: Automation reduces the risk of manual data entry errors, ensuring that your financial records remain accurate and up to date, even when your transaction volumes are high.
By integrating a tool like ZoneReconcile into your reconciliation process, you can significantly reduce the time and effort it takes to maintain accurate financial records while ensuring that your finance team operates at peak efficiency.
Conclusion
Improving your bank reconciliation process doesn’t have to be a daunting task. By following modern best practices and leveraging advanced tools, you can streamline your financial operations, reduce errors and keep your financial records accurate and up to date.
When you’re ready to learn more about how ZoneReconcile can help you automate your reconciliation process, contact an expert from Zone and Co.
