With this in mind, it becomes clearer why some companies have opted to automate the statement reconciliation process.
But what does this entail?
In a nutshell, automating the reconciliation process means getting software that can download, normalise, and reconcile data from statements with that in your ledgers automatically and autonomously.
We explore this in further detail below, but even at this point, we can agree that by utilising dedicated software to do the bulk of the work for you, you can:
- save time;
- lessen running costs;
- reduce your chance of errors; and
- ensure that your inflow and outflow of cash are properly monitored and above-board.
This is why so many of the world’s biggest software solution companies now offer automated statement processing software in one form or another. But, sadly, our experience has shown us that most of them do not work for Small to Medium Enterprises (SMEs).
Before we can explore why, we need to look at what such software would need to do to truly be a solution.
Multiple Data Delivery Sources
The first thing that needs to be said is that companies can receive statements from many different entities.
These can include:
- banks;
- brokers;
- prime brokers;
- custodians;
- depositaries; and
- fund administrators.
That means that your company will probably have large volumes of statements to reconcile. But that is only the beginning, as many of these entities have their own way of sending their statements, too.
Technology has had a huge impact on the statement reconciliation process. This is because companies and individuals no longer just receive their statements in paper format. Instead, there are now a plethora of formats in which these statements may be sent to you.
So let’s look at each of the most common formats you may come across, shall we?
By Email: Bank and broker statements are often sent to clients in this way. This would either be included in the actual body of the email or else as an attachment, which may be a CSV file, an EXCEL sheet, a PDF, a structured XML, or even a JPEG/PNG.
Files via SFTP: The Secure File Transfer Protocol allows for files to be transferred, accessed, and managed safely through a secure network. This usually improves efficiency, especially since it has functions that let users schedule tasks and uploads.
Web Portal: Numerous banks and brokers now have websites that clients can log onto to access their statements. This, in a way, makes the process a more seamless one, as the statements are usually uploaded on the same day and at the same time.
API: Application Programming Interface is a system by which you can request the data that you want and need directly from the broker or bank. This is great in terms of understanding the inflow and outflow of funds from your accounts, and it even gives you the opportunity to query your data directly.
FIX: Another novel way for banks and brokers to share their statements with you is through the Financial Information eXchange. This is a data and information protocol which allows for real-time exchanges.
Live Web Data: Some data, which may be required for your reconciliation process will only be displayed live on a website for a certain amount of time. This is especially true for including intraday data. Such statements may be lost if they are not retrieved and saved within the allocated period.
OCR: As we mentioned in the Email section above, sometimes you may receive statements in an image format like JPEG or PNG. For this data to be used in the automated reconciliation process, an optical character reader (OCR) is needed so that it can ‘read’ the text and numbers in the images.
Multiple Transformations Required
Because of all this, statement processing software that can truly help accountants in their reconciliation processes needs to be able to conduct multiple data transformations, which means the data has its format, value, or structure changed.
Among the transformations data needs to undergo for accurate reconciling are:
- Conversion: As we have seen, data can come in numerous formats (Email, FIX, EXCEL, etc.), but the likelihood is that your internal system only operates in one of those formats (just EXCEL, for example). Moreover, even if the statement and your internal ledgers are in the same format, it is unlikely that the fields converge; for example, the bank may place the timestamp in the first column, while you may place it in the last. This can lead to issues in automatic reconciliation, and so the software must convert the statement into a format that can be compared to your ledger before it can even begin its ultimate job.
- Filtering: Not all the data in a statement is necessary for the reconciliation process. A human being would automatically know what needs to be checked and ignore what’s not relevant, but software will check whatever is fed to it. For that reason, the software first needs to filter the information to ensure that only the relevant data is making the final reconciliation process.
- Grouping: Some data in statements may not make much sense when compared to your ledger unless it’s grouped with that from other transactions or even from other statements. This is another transformation automated statement processing software must undertake in order for the process to be successful.
- Ordering: Data rarely comes in an ordered manner, which means that for Automated Statement Processing software to do its job properly, it must first organise it into the appropriate sequence that will match your internal system. In fact, while this type of transformation is usually overlooked, it is a crucial component in the reconciliatory process.
- Calculations: Sometimes a transaction may be more complicated than it first appears. Transactions in a different currency or from a different time zone are two such examples. For that reason, the software would need to conduct its own calculations before it can reconcile it with the data in your own ledgers.
- Exception Management: Automated statement processing software also needs to be ‘intelligent’ enough to understand and learn when exceptions need to be applied. Without this function, your reconciliations will not be accurate, leading to incorrect reporting or else further work for you.
- Normalisation: Finally, the data you’ve received needs to be ‘normalised’, which means that it is transformed into something that can work with your own system. An example of this would be normalising all timestamps into your local time zone; or all currencies into your preferred currency.
