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Having an accurate view of your business’ finances is an integral part of making the right business decisions. Finance reconciliation is just one process that requires timely completion. Whether your business has few or many transactions in any given month, you can rely on automation tools to help accurately reconcile accounts quickly. 

Let’s dive into everything you need to know about finance reconciliation and how to manage it properly. 

Coming Up

1. What is Reconciliation?

2. Why You Should Reconcile Your Accounts

3. Understanding Account Reconciliation

4. Reconciliation in Business Accounting

5. Finance Reconciliation Process: Step-by-Step

6. Reconciliation Methods

7. Best Practices

8. How Automation Helps Finance Reconciliation

9. Wrap Up

What is Reconciliation?

Reconciliation is an accounting process that looks at internal records against external financial records, like bank statements, to find and resolve discrepancies. In its simplest terms, reconciliation ensures that money leaving an account is being properly spent and that the bank records accurately reflect the transactions. 

If your business finds that two records are mismatched between financial records or account balances, then account reconciliation is useful in figuring out why. Sometimes, differences are easily explained by timing differences or processing delays. However, when significant discrepancies happen that are unexplainable, then it could be a simple way to highlight fraudulent charges or a business that is “cooking the books.”

Businesses reconcile accounts either daily, weekly, monthly or annually or a combination of all of these. 

Why You Should Reconcile Your Accounts 

For starters, account reconciliation helps to make sure that your financial statements are correct. Balance sheets represent all the money you spend and all the assets you buy, so this is highly contingent on the accuracy of account reconciliation of accounts. 

Furthermore, account reconciliation can save your business money by potentially reducing overdraft fees and preventing improper spending. While some differences will naturally occur because of timing, finance reconciliation can highlight errors and spot overcharges promptly so you can take action to fix such charges. Finance reconciliation automation tools can run reports and compare transactions in the matters of minutes to point out anomalies in the transaction patterns. 

If you run a public company, then account reconciliation is mandated. If it’s inaccurate, you can face penalties when you get audited. So, to reduce compliance risk and protect your finances, account reconciliation is something that should be carefully managed and taken seriously. 

Understanding Account Reconciliation

Generally Accepted Accounting Principles (GAAP) set the required standard use of double-entry accounting. This means that every transaction is input into the general ledger in two places. This way, it’s easy to spot errors on either side of an entry. Companies will post a transaction in both the income statement and balance sheet. One will be recorded as a debit, and the other will be recorded as a credit. 

With double-entry accounting, it is also possible that just the balance sheet is affected. One example of this could be if your business takes out a loan. The loan is debited on the cash account (which is an asset on the balance sheet) and then credited in the long-term debt account (as a liability on the balance sheet). The goal is so that credits and debits balance each other out on the balance sheet. If they don’t, then there’s a problem because the sheet isn’t balanced! 

Reconciliation in Business Accounting

As a leader in business, you undoubtedly understand the importance and necessity of reconciling your accounts. You also probably do so on at least a monthly basis. As such, your accounting team may be spending time manually comparing books and statements to avoid balance sheet errors and check for fraud. 

The swift nature of business demands accurate accounting processes. To reconcile your cash flow statement, income statement and balance sheet, you can leverage automation tools that will compare records for you automatically. This way, you can limit human error and free up your team’s time to work on high-level analytical tasks. The role of the finance department is shifting to provide business leaders insights to make business decisions. By automatically reconciling accounts, you can boost your competitive advantage and allocate resources optimally. 

Finance Reconciliation Process: Step-by-Step 

The account reconciliation process follows straightforward steps, whether or not it’s performed manually or automatically. Here’s how it works.

Compare: The process begins by comparing all transactions noted in your internal ledger against your bank statement. 

Identify: Identify all payments that are recorded in the internal cash register, but are not reflected in the bank statement. These payments should be deducted from the bank statement because they are cash payments. For checks deposited into the bank, there may be a delay for when they are reflected. As such, you want to be sure to identify these types of transactions because they could be cause for the discrepancy.

Confirm: Once you’ve identified these types of transactions, they must be recorded. If you have receipts from the cash register that are not reflected in the bank statement, add them, and vice versa. 

Find errors: It’s unlikely, but possible, that the bank has made a mistake. This could be in the form of duplicate records, incorrect records of transactions, commissions, etc. To reconcile the bank statement to be correct, you must modify these errors by notifying the bank. 

Balance records: Once you’ve found discrepancies or resolved errors, ensure that the records are balanced and accurate. 

Account reconciliation software performs all these steps automatically by pulling data from every source of financial information, including bank statements, merchant services, credit card processors, and ERP systems. 

Reconciliation Methods 

Performing account reconciliation regularly and continuously is needed to maintain accurate statements. For whatever method you want to use, account reconciliation software can do so automatically and quickly. 

Two main methods are used to reconcile accounts, including: 

• Document review: This involves reviewing transactions and documents to make sure that recorded amounts were spent. In most instances, businesses will use accounting software to perform document review. 
  

• Analytics review: To pinpoint irregularities or fraud, analytics review leverages previous account activity frequency and history to provide an estimate of where the account should stand today. Since businesses use forecasts to estimate future revenue, analytics review can highlight when the numbers seem off from what was expected. 

Best Practices

Naturally, given the importance of financial reconciliation, there are established best practices that should be followed to get it right. Consider the following:

• Accuracy: Documenting accurate records of transactions requires a sound internal control system. For every activity, it’s best practice to define what will be recorded and the source documents that are needed to compare statements. When you implement an automation solution, you have to set up the process and will likely have an approval process to define. For example, if an employee needs a reimbursement, then you will first want to determine what information is necessary (i.e. source documents and receipts, the employee’s name, the reason for the expense, exact amount, etc.) 
  

• Error correction: No matter the reason for errors, they must be identified and resolved. To do so, this requires timely correction and processing. Again, it is best practice to outline a plan for how you will fix errors when they come to light. Everyone involved in the process should understand what’s expected from them. 
  

• Matching to the source: Transactions are a source of data. It is useful to store source documentation for the reconciliation process securely. The best way to do so is in an organised manner, so receipts and information are easy to find. An automation software tool can help to organise and store financial data securely and connects to all your data systems, including legacy systems. 
  

• Documenting the process: Because account reconciliation falls into the realm of audits, it’s required to document the process. Not only is documentation of the process relevant for external auditors, but it’s also pertinent for internal control and understanding of who is responsible for what. You should include the steps of the process, who performs each step, timing and procedures. One tool to use for process documentation is a flowchart or a visual representation of the process. 
  

How Automation Helps Finance Reconciliation 

Automation tools are helping businesses thrive and maximise their efficiency across departments. Within finance departments, automation tools are particularly useful because the nature of the business perfectly meets the criteria for automation - repetitive, data-heavy and time-sensitive tasks. 

Automation can help finance reconciliation by providing a multitude of benefits, spanning:

• Reduces manual error: Any process that requires data and manual entry is prone to error. But, if you utilise an automation tool, you reduce the opportunity of inputting incorrect information because the software pulls data directly from the various sources. 
  

• Maximises time and productivity: Reconciliation can be performed in a matter of minutes. Whether its document review or analytics review, you will be alerted to any anomalies or discrepancies as they are found. This way, your team can focus on the work they need to get done as the tool does the detail-oriented tasks. 
  

• Centralised data: All data can be securely stored in one centralised place. Say goodbye to financial documents across desktops and spreadsheets and notes all over the place. 
  

• Access controls: Grant access to the people within your organisation that need to review or approve transactions and accounts. 
  

• Auditing and compliance: Rest assured, knowing that all data that moves within the system is stored and recorded for audit trails. You can reduce compliance risk as the exact process remains documented within the system and is standardised. 
  

Finance reconciliation is a standard process within every business. Since it follows a set flow of steps and is repetitive, it’s a perfect fit for automation tools. Automation software can manage your reconciliation process with greater control and accuracy, providing you with the reports you need promptly. You will be able to reduce human manual error, speed up the process and store data in a centralised location with a finance automation tool like SolveXia. 

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Account reconciliation is a mandatory business process. While every business has its procedures, it follows a pretty standard process of matching transactions across ledgers and bank statements to ensure financial accuracy of accounts. Reconciliation tools help teams maximise their productivity and save time in what would otherwise be a very timely process of account reconciliation. 

But, how do you find the tool that is right for your business? It begins by understanding what account reconciliation software is and then comparing the features/pricing of the best tools on the market. This guide aims to help you cover all the bases! 

Table of Contents

1. What is Account Reconciliation Software?

2. What Features Should Be Included?

3. Making a Choice: 5 Best Reconciliation Tools

4. Benefits of Automation Reconciliation Software

5. Wrapping Up

What is Account Reconciliation Software?

Bank account reconciliation software centralises the financial close process and automates it for businesses. The software pulls data from the general ledger and compares it to bank statements and invoices to quickly reconcile accounts. Then, the software allows the preparer to electronically sign off upon completion and send it over to the approver for a final review. Once it’s approved, the software stores the data in the centralised database and provides your business with a secure audit trail. 

Most software systems allow for teams to upload supporting documents, view company policies, electronically sign off on reconciliations and leave comments, if needed. It also allows for controls to be set up so that processes are gated between employees for audit and compliance requirements. Additionally, the tool may provide users with a dashboard or a visual representation of current financial standing. 

What Features Should Be Included?

When looking for reconciliation software tools, you’ll want to make sure the following features are included:

• Reporting: A statement can be produced to highlight any records that are unmatched between the GL and bank statement. The system should also be able to compare financial reports from previous historical periods in time. 
  

• Issue management: If there’s an issue, the tool should identify the exception and be able to roll the forward problems into subsequent periods until it’s been resolved. You can also leverage a clean-up method to resolve issues manually. 
  

• Transaction matching: This is the crux of the tool. Here, the data can be pulled from various sources, compared and matched. You can establish matching rules for each account separately or create company-wide matching policies. You should also be able to define tolerance levels for a variance. 
  

• Classification: Records should be able to be classified and attributed to their type classes during the matching process. This could be performed manually or automatically. 

Making a Choice: The 5 Best Reconciliation Tools

Choosing the right reconciliation tool means considering both the upsides and the downsides. Let’s take a look at what some of the best tools on the market have to offer. 

SolveXia: 

SolveXia is a Digital Work Platform for Finance Automation. Many organisations use SolveXia to automate their account reconciliations, with a critical benefit being significant (10x) gains in team productivity. SolveXia’s enterprise-grade automation suite provides data processing, reporting, data persistence, audit trails and more. It can pull information from your general ledger and disparate data sources like banks, suppliers and more to reconcile your accounts quickly. 

SolveXia is powerful with an ability to ingest data in any format and perform complex data matching. Your team can instead spend their time analysing and investigating exceptions rather than manually preparing data for the reconciliation. The software will also provide alerts and notifications for variances and exceptions and allow for workflow for staff, to correct and adjust for exceptions. 

SolveXia runs securely on the cloud and can seamlessly integrate into your current set-up. The software can be up and running fast, in less than 30 minutes, with the ability to add new users instantaneously, and can be managed and updated without tech support or coding. If you need to run SolveXia in-house and host it internally, that is also an option, but not a necessity. Furthermore, SolveXia is uniquely extensible, with an ability to automate any data-intensive Finance task or workflow.

What sets SolveXia apart most from other tools is it is more extensible than financial close vendors because it has data transformation and enrichment capabilities. You go beyond just your GL or Bank data and produce analytics using more integrated data, for example, overlap with rebates and commission calculations or management dashboards. 

You can request a free SolveXia demo and get a customised quote to meet your business needs. 

Xero: 

Xero’s online accounting software allows you to see your cash flow in real-time through an easy-to-use interface. Some of its features include bank reconciliation, online accounting, invoicing, tracking inventory and paying bills. It also provides your team with reporting and links to all transactions. Xero can be accessed from anywhere with an internet connection and uses encryption to secure your data. 

The tool is well-made for mid to large-sized businesses. One of its most significant advantages is that it has unlimited users on every plan. In contrast, many other software tools will require a minimum amount of users and can cap maximums. Users can try Xero with a free trial and begin paying for a plan for as low as $27.50 a month. 

Blackline: 

Blackline is a cloud financial close software system that aids in supporting continuous improvement in your business. Blackline has features that cover: financial close process management, including reconciliations and accounting automation. You can set up approval and review processes to ensure that your global company’s financials are accurate across different currencies and geographies. 

Blackline has helped businesses comply with industry regulations because of its capability to hold a massive amount of data and store information in various formats. To learn more about pricing, you have to get in touch with their team. 

Bank Rec: 

Treasury Software’s product Bank Rec reconciles accounts automatically through transaction management. You can set up matching rules and allow the system to do the work so your team can focus on human analytical tasks and decision-making. Unmatched records will get rolled forward until they find their match. Some of the tool’s features include: identifying, tracking and resolving matches, recording type classification, importing and automation and high-speed matching of accounts. 

With Bank Rec, there are no set-up fees, and the product can be paid for monthly through a subscription model starting at $99.95/month or purchased entirely upfront. Either way, you can include five users. 

ReconArt: 

Like SolveXia, ReconArt is entirely web-based and can be hosted on-site, if desired. ReconArt is reconciliation software that helps businesses with bank reconciliation, credit card reconciliation, balance sheet reconciliation, financial close, accounts reconciliation, variance analysis, journal entry and intercompany reconciliation. 

You can purchase ReconArt with five minimum users starting at $1,500 a month. Unlike SolveXia, ReconArt is a software system designed for the single solution of reconciliation. SolveXia offers more automation benefits beyond reconciliation. 

Benefits of Automation Reconciliation Software

Account reconciliation software saves your team time. More than saving time, it offers many necessary businesses like providing consistency, accuracy and clarity plus it reduces compliance risk, which can ultimately save you money, prevent fraud and maintain your entire company’s reputation. 

Here’s a look at some of the significant benefits of account reconciliation software. 

• Fully automated and fast: One of the essential benefits of reconciliation software like SolveXia is that it is fully automated. This makes it easy to complete the financial close process in no time. Many finance teams spend the majority of their time inputting data, trying to understand variances and wasting time on manual and repetitive tasks. With account reconciliation software, the process is managed automatically, freeing up your team to focus on high-level work, while improving accuracy and insights while improving controls and reducing audit risks. 
  

• Uniform approach / standardised process: The reconciliation process should happen monthly. At the very least, it will take place quarterly, so it helps to standardise the process to ensure its accuracy. With account reconciliation software, the system will run reconciliations according to the automated process the same way, every time. This is particularly useful if your reconciliations take data from different systems, and there is complex and varied mapping and data cleansing involved. Reconciliation software removes automated this process, saving time and improving accuracy. 
  

• Reduce errors & enhance internal controls: Reconciliation software allows for enhanced internal controls because leaders and stakeholders can see how the process is functioning and rest assured that it’s running smoothly every time. It also prevents any actions outside the process, while alerts can also be set-up for any unusual variances or activities. By reducing manual human inputs, and with automatic mapping, you are also able to reduce errors. The software is trained to be accurate, which will prevent many potentially costly mistakes from occurring, while alerts will help identify problems as they happen in real-time. 
  

• Recorded history: The software stores all data history and reconciliations. This is useful not only for audit trails and compliance but also for historical information. You can check in on how much something costs in the past and help to forecast future expenses. This way, you can better budget and manage financials in your business. 
  

• Delegated responsibilities: With account software, you can assign roles and manage access controls. In this way, every person on your team is aware of their position and responsibilities. When reconciliation needs to go through an approval process, then the system will automatically assign the next step to the approver as required. 
  

Ultimately, any business will have to perform financial close and account reconciliations. As a public company, these processes are highly regulated, and if done incorrectly, could cost you your business. For small and large companies alike, performing accurate reconciliations can reduce fraudulent charges and help identify mistakes in financial processes. Having an up-to-date view of your business’ cash flow is directly correlated to making wise business decisions. 

All in all, using an account reconciliation tool will save your team time, allow every person to understand their role and responsibility better, and provide you with a convenient and secure location to store recorded financial history.