4 Challenges of Reconciliation and How to Overcome Them

One of the main tasks of the finance team is to keep every part of the business running smoothly. Ensuring that all incoming and outgoing payments are proceeding as expected and the data you have is accurate plays an essential part in this, which is why reconciliation processes should be an important part in any finance team's activities.

This involves comparing internal records such as Accounts Payable invoices with bank statements to confirm that they match. This is often the only way for finance teams to be sure that what’s actually taking place within the business lines up with what should be happening.

Learn more: 4 Types of Invoice Discrepancy (and How to Resolve Them)

Indeed, research by Adra Match suggests less than a third of finance professionals (28%) trust their month-end numbers, so reconciliation is essential in providing key insight into an enterprise's cash flow. But there are many other reasons for making this a priority.

Why effective reconciliation matters

There are a range of benefits that businesses can see as a result of effective reconciliation processes. For example, it can alert you to any potential risks within the business, such as late payments. Reconciliation activities should be able to quickly identify any unusual activities and exceptions, such as expected payments that haven't been made, or where amounts differ from the norm.

Without good reconciliation, you’ll have no way of determining which expected payments haven't been made. As well as detecting fraud, this allows you to swiftly spot any potential disruptions to your cash flow.

Reconciliation also allows you to be more proactive in your future planning by helping you identify important trends. For instance, if your reconciliation activities flag up that a certain client always pays their invoices late, you can take steps to address this, or factor it into your accounting figures so your forecasts better reflect the reality of your cash flow, not simply what it should be on paper.

Despite these benefits, reconciliation is still often regarded as a time-consuming, resource intensive activity - especially if you still rely on manual labor and solutions such as spreadsheets to complete it. This can lead to a range of challenges that you’ll need to tackle in order to make these processes work as effectively as possible.

Here are four issues that need to be addressed:

1. Slow data input processes

In many companies, reconciliation is still a slow, tedious process. It may involve, for example, going into a banking system, downloading a statement and uploading it into an ERP system before transactions can be compared. But as banks will have different formats, this will first require a user to align and standardize files before the upload. This is time-consuming, and for large firms with many transactions, can quickly drain a finance team's resources, leaving them less time in the day for other important activities.

2. Error-prone inputs

Another consequence of these manual inputs is they become prone to errors. Mistakes can slip in at any stage when data is being manually moved and re-entered between systems, and the more steps in the process, the more likely this becomes. Downloading, uploading, file standardization and record matching all offer the potential for errors, and this can give you an inaccurate impression of your cash flow and cost more money to set right later.

3. Potential for fraud

While detecting fraud is one of the most important reasons for conducting reconciliation, if these processes don’t have adequate oversight, they could also be used by unscrupulous employees to hide evidence of misdeeds within the company. For instance, when statements are downloaded and moved to ERP systems, an employee doing this manually could potentially amend the statement to cover the tracks of someone committing fraud.

4. Effective archiving and auditing

Once reconciliation processes are complete, the records themselves will need to be stored securely and be available for auditing if required, but this can pose its own headaches. If reconciliation results are still being stored in physical formats, it not only takes up space, but is more expensive, much harder to search through, and has limited traceability.

Getting the right solutions

To avoid these four issues, it's important to have effective reconciliation software. These tools can take many of the manual processes out of the hands of finance professionals and use automation to cut out the potential for errors and interference, as well as providing full, searchable digital records of all activities.

There are a range of solutions to choose from and, while you’ll have to factor in costs such as staff training, in the long run, these technologies can make your cash flow forecasting much more accurate and ensure your firm is prepared for whatever growth may add to future reconciliation demands.