Reconciling the bank and credit card records with internal ledger entries is the standard procedure for cash management in any business. It is not only complex but also is arduous and is time taking process that requires focussed efforts since accuracy is paramount in this process.
If you are a small business owner who is already donning several hats, then you must understand the importance of bank reconciliation, recognise the challenges you might encounter reconciliation process and know ways to improve your business’s reconciliation process. And Outsourced Bookkeeping is here to help. In this blog we give you the basics of reconciliation, let you know the common challenges faced by small and medium business and help you improve your reconciliation process. Read on:
What is Reconciliation? Why is it important for businesses?
Reconciling in simple terms is matching the internal general ledger entries of the business with external bank and credit card records.
An accurate and systematic bank and credit reconciliation process identifies financial discrepancies at early stages, avoid potential payment problems, and optimizes payment processes while giving you an accurate picture of a business’s financial standing. Performing bank reconciliation on regular basis also helps you take corrective measures, execute effective credit control policies, helps you make better financial decisions, and also demonstrates financial accuracy and accountability for interested parties, like investors. And yet the majority of small and medium business face difficulties in extracting maximum value from bank and credit card reconciliation due to a variety of factors.
Bank Reconciliation – Common challenges faced by businesses:
Bank reconciliation is the straight forward process of matching the bank statement records with internal records of the company’s general ledger and yet can turnout into a complicated process for businesses due to the following problems:
Multiple accounts, banks and currencies: Making use of multiple banks for different purposes and transaction and process types can be helpful only when the whole process is efficiently managed. Now add the possibility of multiple accounts and multiple currencies, the complexity of reconciliation with a lump of bank statements shoots-up significantly where oversight and reconciliation errors creep-in.
Data and format problems: Having the data set with the right references is crucial for reconciliation and often the reference seems to go off the road. If the references on the general ledger and banking side are different, especially when it comes to high volume transactions, the complexity shoots-up in bank reconciliation. Add this to the variation in amounts that are being matched due to cancellation or reversal of checks especially when the volume of transactions run high from credit card sales, cash payments and online sales, it’s going to be an arduous process for your team.
The difference in timing: The timing difference in the transactions is one problem that commonly plagues bank and reconciliation across all businesses. Though the data is at hand, having the right closing and opening is almost always impacts the accuracy of the statement and sets a domino effect on the subsequent statements too. Un-presented lodgements and checks presented or paid at one side, credit card timing delays are also common issues that tick wrong boxes when reconciling the statements.
High volume data: When Data in multiple currencies from multiple accounts, at different timings and with unmatched references load in heavy volumes per day, it obviously can be a back-bending task that demands a lot of time, efforts and expertise from your accounting personnel to reconcile in a given time.
While large business employee multiple teams, advanced software and tools (expense management tools, auto-reconciliation) for reconciliation purposes, most small and medium businesses face many challenges to accurately reconcile their bank and credit card transactions.
Especially small and medium business experiencing a surge in the transactions from versatile channels may find it difficult to solve the reconciliation problem which roll-over and make a mountain of un-reconciled data triggering a slew of problems and risks. However, if you are in a similar boat, you can save a lot of time, money and efforts by simply outsourcing bank and credit card reconciliation to remote accounting firms like Outsourced Bookkeeping.
With a team of expert accounting personnel with decades of experience in a diverse range of reconciliation services that include internal financial records, bank statements credit card statements, vendor invoices, general ledger and more. We follow a tried and tested process-oriented approach for our outsourced bank and credit reconciliation services that help us offer the most accurate, efficient and timely reconciliation services for small and medium business. You can find us here: https://outsourcedbookeeping.com/
That said, if you are looking for bank and credit card reconciliation tips that your in-house accounting team can adopt for better bank and credit reconciliation, you can find them in our next blog here.