Financial businesses are characterised by the transactions they make: money coming in and going out in the shape of investments is why employees turn up to work in the morning and what makes the business tick.
Yet, the more transactions take place, the more reports you will receive at the end of a financial period – and it pays you to reconcile that information with that of your internal ledgers to ensure nothing is amiss.
In a financial setting, reconciliation is an accounting process by which you can check whether the records provided to you by an external source, such as a bank or a broker, correspond to your internal ones.
Such a process is incredibly important as it gives you the opportunity to flag up any discrepancies with the source.
Of course, some discrepancies can easily be accounted for, like when the time stamps on a transaction differ, which may be down to a large number of transactions hitting the server at the same time. But it is not unknown for transactions to be completely missing from a source’s statement even though the money has left your account, or for some transactions to be processed twice.
Either way, such discrepancies can cost you money and not help you further your goals, which is why financial reconciliation is considered to be one of the Generally Accepted Accounting Principles (GAAP).
There is one issue with reconciliation, however, and that is that it tends to be a time-consuming and error-prone process.
This is not difficult to see why.
In the digital age, financial companies receive numerous statements from multiple sources on an almost daily-basis. These can be bank statements, broker statements, statements from ERP systems, and even statements from merchant services.
Most of these sources give you a set timeframe during which you can check them and flag up any discrepancies. That timeframe can be just 24 hours, which may seem like a good enough amount of time until you realise that if these statements are being checked manually, then employees need to go through each line of every statement and cross-reference it with the company’s internal ledger within a day’s work.
In other words, workers have to handle hundreds of figures, often in small print, for hours each day. It is easy, therefore, to understand how mistakes can happen, but it’s also understandable that some companies, particularly small-to-medium enterprises (SMEs) that don’t have enough people on board to undertake such a task, often don’t reconcile their statements.
That’s the great news: there is a solution to this that can deliver better results with fewer mistakes in a shorter span of time. Yet, as our experts explain in a separate article, there is a problem with data reconciliation software…