How to Streamline Your Account Reconciliation Process

In the business world, just about everyone is looking for ways to optimize processes, save time, save money, and in general, do more with less. Time is, after all, money. So when a process is slowing down decisions, or even worse growth, it’s time to explore where the friction points are and investigate ways to improve. Thankfully, the modern business world is all about optimization, particularly when it comes to technology.

The ongoing advancements in technology are impacting all areas of business, including accounting, where processes like account reconciliation can require a lot of manual labor. Fortunately, there are a few best practices you can use to speed up your account reconciliation process. What you’ll learn about in this blog: 

• What Is Account Reconciliation?
• Why Businesses Need to Reconcile Accounts
• 4 Best Tools Companies Use for Account Reconciliation
• 4 Steps in the Account Reconciliation Process
• How to Streamline Your Account Reconciliation Process

What Is Account Reconciliation?

Reconciliation, as an accounting process, is the act of comparing records to ensure they match. More specifically, it identifies that money leaving an account, as with accounts payable, matches external invoices and internal payment records. It’s a way of validating accounts and ensuring financial accountability. There are typically six types of account reconciliation.

Bank Reconciliation

Bank reconciliation is the most common reconciliation. Companies will compare their bank statements and transactions to the transactions noted in their accounting software. Matching transactions and reconciling with the bank ensures that funds leaving a bank match the invoices and transactions noted by accounts payable.

Credit Card Reconciliation

Much like bank reconciliation, credit card reconciliation requires examination of credit card statements. The goal is to verify that transactions on the credit card statement match those in the general ledger in both number and amount. 

Customer Reconciliation

Customer reconciliation is really only used by companies that offer credit to customers. This reconciliation process matches incoming funds (accounts receivable) to the accounts receivable control account typically recorded in the general ledger. Because the general ledger only records totals rather than individual transactions, reconciliation here requires that individual totals meet the overall total to account for all incoming funds.

Vendor Reconciliation

Vendor reconciliations compare vendor invoices and statements to the general ledger to ensure that individual payments to said vendors match the overall totals.

Intercompany Reconciliation

In the case of large companies where there is a parent company and any number of subsidiaries or smaller companies under the larger umbrella, intercompany reconciliations may be required. Typically, the transactions being reconciled involve cash transactions between companies (one lends another money). The numbers in both ledgers should match; however one company will have the funds listed in the credit column and the other in the debit column.

Business Specific Reconciliation

In some industries or businesses, there may be other reconciliations required. For businesses with large sales teams, reconciliation typically occurs between individual expenses and the accounts payable budget for that team or department. For businesses in the financial sector, reconciliations may be required more frequently to ensure the proper handling of client funds.

Purchase Order Reconciliation

The purchase order reconciliation process, commonly known as PO recon, is the process that closes purchase orders that meet certain criteria, including POs that have been fully vouchered, and matched, as well as POs where the due-date has passed. POs that have had no activity for a certain time-frame will be marked complete. Industries such as retail rely on purchase orders to request inventory from suppliers, then must match the invoices to those POs when it’s time to pay the bill and post the invoice to your ERP.

Why Businesses Need to Reconcile Accounts

The simplest reason to give for reconciliation is to catch errors and mistakes before they potentially become much larger problems. Not only does it enable accounting and financial teams to catch small errors, but it’s the first step in stopping larger cases of fraud. Account reconciliation is a process that acts as a loss prevention mechanism, but it can be invaluable as a predictive tool as well. Businesses can use reconciliation to track cash flow and identify where money is going. As a cost saving measure, this means businesses can identify any unnecessary expenditures and look for areas where spending can be re-prioritized if necessary. Finally, reconciliation is vital for auditing and reporting. Every organization, from public and private companies to non-profits and institutions, may be required by law to have a yearly audit performed by an outside agency to ensure proper handling of funds and verify financial reports. Failure to perform regular account reconciliations can not only make this process more difficult, but may result in action taken by regulatory agencies.

The 4 Best Tools Companies Use for Account Reconciliation

To start, it’s important to note that the features you’ll need, the functionality of the software, its interface, reporting, and integration abilities will depend largely upon the size and nature of your business. There are a lot of options out on the market, and the software you choose will depend upon your needs and whether you have an ERP or accounting system in place.

1. Sage Intacct

If you’re a midsize business with expansion plans or a larger business who loves reporting, then Sage Intacct is your solution. Much like others in the large business category, functionality, which is robust and significant, comes at the expense of ease of use, but unlike other solutions, reconciliation can’t be forced. Between the reporting and data integration, this is a full service solution loved by those seeking software that scales with them.

2. Xero

For medium to large businesses who need unlimited users (and there are, reportedly, currently one million users across 16,000 firms) and robust features like customer management, full budgeting, time tracking, and advanced security, Xero may be the way to go. Users love this cloud based accounting solution for its flexibility and features (including over 800 integrations) but lament a learning curve (attributed to its advanced features) and price point that may put it out of reach for some.

3. NetSuite

NetSuite is designed as a far more robust application that, as an ERP, handles far more than your accounting needs. While users report it’s fairly easy to use and integrates well with other applications, customers are paying for the entire platform. For some, that means it may be more feature and functionality heavy than some users need. Because it doesn’t specialize in any one process, users report issues in some areas. All that said, it features some customization and if you need more than accounting software, looking into NetSuite may be an option.

4. Quickbooks

For as long as it’s been around, Quickbooks has been the standard accounting bearer for many organizations and so it’s got the name recognition that keeps it in the forefront. While best suited for smaller businesses, it provides significant functionality that’s scalable and suitable for a variety of uses. However, despite its longevity, users report issues with the new online iteration and integration with other products, even those in the QB line. 

4 Steps in the Account Reconciliation Process

While the steps for reconciliation will depend on the type of reconciliation process you’re completing, there are, essentially, a few steps that line up regardless of which type of reconciliation you’re doing.

1. Match internal records to external records

The first step in the reconciliation process is to compare your internal records to, typically, bank records to see if the transactions, both payment and deposit, match. This is also where you can identify transactions that do not match or do not have complete records (such as a payment that appears only in your ledger or only in the bank’s).

2. Identify mismatches or missing records 

Having missing records that are trackable is likely and possible. For example, your bank may have deductions for fees that do not have receipts or are not recorded in your ledger yet. Similarly, you may have deductions for pending payments on your book that have not registered with the bank. 

3. Make needed corrections to the appropriate ledger

Once you’ve identified any discrepancies, you’ll want to make sure you adjust the appropriate ledger to reflect necessary corrections. At this time, you’ll also want to make note of any discrepancies that cannot be adjusted for so you can track or troubleshoot them if they exist. This may require tracking down additional invoices, receipts, and/or employees who may have not submitted necessary accounting reports or paperwork.

4. Ensure the ledgers match

Reconciliation is all about matching your internal records to external records. Once you’ve handled any concerns identified in steps 2 and 3, the bottom line account totals should match in both sets of records.

4 Tips to Streamline Your Account Reconciliation Process

Ask any business about internal goals and likely one of the top answers is looking to find ways to optimize processes or improve employee utilization. Because both of these have the potential to save money and create opportunities for new initiatives or simply to do more with less, it’s no doubt that these goals are crucial. 

Your finance and accounting team is no different in terms of freeing up their time and available resources, so let’s take a look at ways you can streamline one of these processes.‍

1. Use the cloud

There are few industries who don’t see benefits or gains from cloud utilization. In accounting, cloud based applications and integrations with other existing data sources (like your bank or vendors or even across internal teams) means you can collect data in real time. 

In short, real time access to accounting information and data means there’s no waiting till the end of the month to start the matching process reconciliation requires. Further, cloud access means this work can be done from anywhere and multiple team members can access the same data regardless of their location.

2. Use applications that integrate 

Across the board, integration is the way to go. Not only do you want applications or services that seamlessly integrate with existing systems, but you want something that integrates with bank feeds and allows for the kind of data collection referenced above. Regular (daily) checking of feeds allows you to take minutes a day to reconcile accounts, identify discrepancies, and address issues rather than waiting for a lengthy process at the end of the month.

3. Find the right software

We mentioned a few options above, but there are a lot of tools on the market that can assist with your accounting functions. Reconciliation is only one part of the overall accounting picture and so finding a tool that has the functionality you need, delivers the tools that are valuable to you, and suits both your budget and size is crucial. 

4. Invest in automation

In addition to finding the right software, you’ll want to find ways to automate the account reconciliation process and other accounting tasks. That means letting feeds populate fields as needed and having data move right into your ledger. Automation takes the human hands out of data collection and saves you time in the process.And, if you’re ready to move beyond automation and let tech optimize your accounting processes even more, automation can go one step further with artificial intelligence (AI). AI has come a long way, and there are great options on the market that enable you to automate processes that used to require human intervention and that integrate with your existing tech stack. In fact, some tools, like Vic.ai’s offerings, continue learning on the job, increasing its value over time. Humans make mistakes, but some technology, like Vic.ai’s, surpasses human accuracy as well. The time you save on tasks that can be automated can then be passed on to your clients and to your team ensuring that you’ve got the resources you need to grow without sacrificing service. If you’re ready to talk about how automation and artificial intelligence can revolutionize and optimize your accounting processes, get in touch with the Vic.ai team today.

Streamline your AP Process

Automation has been an integral part of invoice processing over the last decade, but you might still not reap the full benefits even if you have some automation in place. Did you know 9 out of 10 AP teams report being underutilized and feel like resources could be spent on more initiatives supporting growth and the company's future?

Watch our AP Intelligence Discussion, “4 Ways AI streamlines the AP process,” to learn how AI can take your accounting processes to the next level and reduce costs + manual tasks. You can also catch a demo of Vic.ai in action.

Dive into ways your finance team can: 

• Process invoices more efficiently & accurately
• Create an agile finance team structure
• Reduce costs by utilizing technologies
• Eliminate unnecessary errors