Financial close in accounting requires that organizations maintain accurate business records and for accounts payable. The multi-bank reconciliation effort is a major process. Bank data must match what is in the books (e.g. ERP, accounting software, etc.) to have an accurate view of the company’s funds and outstanding payments for the benefit of cashflow management and reducing the risk of duplicate payments and overpayments.
Challenges to Bank Reconciliation
Businesses conducting payments in multiple methods and currencies have unique challenges during the payment reconciliation process.
- Payment service disparity – Each payment method (ACH, paper check, wire transfer, PayPal, global ACH, etc.) individually returns unique payment status data that can be cryptic and confusing.
- Currencies affect reconciliation – For every foreign currency that is managed, which may also be in different banks, can also hinder timely reconciliation.
- Errors in manual reconciliation – Because of the varied systems, payment reconciliation data is often done in spreadsheets by hand which can take hours to normalize the data and match payments.
- Solitary analysis – Because they’re often done in spreadsheets line-by-line, it is almost impossible to work collaboratively with other staff as there are risks to transposing numbers or losing track of changes. This also means that a single person is often the major obstacle to completing the task faster if there are thousands of transactions to validate.
- Limits ability to new initiatives – Without adequate and timely reconciliation, organizations cannot adopt advanced accounts payable strategies such as dynamic discounting and early payment programs.
While most businesses reconcile payment details manually, there are some strategies to streamline and even automate this time-consuming effort.
- Centralize payment controls – Work from a central console to initiate and monitor payments. In many cases, this may require a third-party solution or custom developing a payment portal for the organization to remit payments to.
- Regularly poll bank account data – Queries to bank statements and payment status are required to update account information. Note that the software will need to normalize data from various banks and payment services for proper reporting.
- Include fee information – Fees related to remittance and currency conversions need to be accounted for as part of the payment status.
- Connect to ERP – Reconciliation data should feed back to the organization’s ERP / accounting platform to minimize friction to general ledger updates.