Bank Reconciliation Problems & How to Fix Them

Knowing your numbers– it’s rule number one to running a successful business. As you grow and as transaction volume increases, bank reconciliation problems often rear their ugly head. But, these problems can be quelled with the help of automation software that handles bank reconciliation processes for you.

Let’s take a look at the most common bank reconciliation problems, how finance automation solutions can serve as a savior, and ways to ensure that your bank reconciliation statement is in working order at all times.

Coming Up

What is a Bank Reconciliation?

What are Bank Reconciliation Steps?

What are the Most Common Bank Reconciliation Problems?

How Can Automation Reduce Bank Reconciliation Problems?

How to Fix Bank Reconciliation Problems?

Bank Reconciliation Made Simple

What is a Bank Reconciliation?

Bank reconciliation is the relatively straightforward process of matching bank statement data to internal company data (from the cash account and general ledger).

Ultimately, the ideal goal is for your internal documentation to match that from a bank so you know that your financial information is all correct. When everything is aligned, you can close the books and generate your financial statements for the period with confidence.

If you choose to perform your bank reconciliation manually, it’s time-consuming and often more complex than it should be. This is because it takes a lot of time to collect data, format it as needed, and compare records line-by-line.

In the next section, we’ll review the common bank reconciliation format and steps to better understand where problems tend to occur.

What are Bank Reconciliation Steps?

To complete bank reconciliation, follow these steps:

1. Access Bank Records

Firstly, you’ll need your list of transactions from your bank statement or online banking account. This includes business credit card statements,too.

2. Access Business Records

Secondly, and for comparison sake, you’ll need your ledger of incoming and outgoing transactions. If this is stored in spreadsheets across desktops, the process of collection can take some time. Alternatively, if you use software and a finance automation solution, you can connect your systems and access this data easily.

3. Perform Transaction Matching

Check each transaction line-by-line to ensure internal and external documents match. As you can imagine, the heftier your transaction list (and use of payment processors is), the more time this will take to do manually.

4. Record Withdrawals

Be sure to record all withdrawals on your books, including accounting for bank fees and items that aren’t as obvious.

5. Confirm Matching Balances

Once you’ve cleared and confirmed all transactions match, the business bank balance and your business account balances should match. This matching starting point will lead off your next period’s bank reconciliation process.

What are the Most Common Bank Reconciliation Problems?

Although the process of performing bank reconciliations is a straightforward step-by-step ordeal, it tends to not always go exactly as planned. This is because there are discrepancies and common investigative work needed to understand why these discrepancies exist (because sometimes, they are justifiable).

Here’s a look at common bank reconciliation problems (or we should say, hurdles that can be overcome):

1. Cash in Transit

Moving cash isn’t always immediate. As such, when deposits have been made, whether it be via electronic payment, check, wire transfer, cash, etc, the bank may not have processed it at the time you’re performing your reconciliation. This could show a gap in your funds as the bank has to clear the record of the cash in transit.

2. Outstanding Cheques

The same delays can occur with cheques. If a cheque is issued, but has yet to be deposited, it’ll show in your outgoing funds in your internal records, but not taken from your bank account just yet.

This may necessitate carrying the check balance to the following month to balance accounts. If you’re going to have to do this, then you need to be sure you keep track of the record that needs to move across periods.

Manually doing so can lead to mistakes and forgetfulness, whereas a software solution can automatically carry transactions for you.

3. Errors

While it’s less than optimal, it’s definitely probable that recording errors may have occurred which can throw off your balances.

For example, if someone improperly records a deposit value, then your reconciliation will need extra work to find and fix the mistake. These can happen on the business or bank side (although banks rarely do make these types of mistakes).

4. Bank Fees

It’s easy to overlook bank fees, such as withdrawal fees or overdraft fees. Naturally, these must be accounted for because they contribute to the ending balance.

If you are able to perform bank reconciliation consistently, it’s easier to include these fees in a timely manner. With bank reconciliation software, it’s simple to perform reconciliation as often as daily without any extra effort required.

5. Unauthorised Withdrawals

It’s an unfortunate, but sad reality that unauthorised withdrawals can occur. Fraud can wreak havoc on a business, so it’s of utmost importance to catch it before it gets out of control.

By performing bank reconciliations consistently, it’s easier to spot when transactions take place that shouldn’t have. Banks offer protection to freeze accounts in such cases; it’s the business’ responsibility to take action and make that call.

6. Voided Cheques

It could also be the case that you’ve sent a cheque to a recipient that was then voided and reissued. In some instances, the payee could still cash the original cheque, and if the bank clears it, then you’ll have a double entry where there should only have been one. To inhibit this from taking place, it’s best practice to void the check through the bank and inform them about it.

7. Currency Conversions

If your business has an account in your country’s currency, but receives payments from other currencies, there could be mismatches due to the different currency conversions across systems.

8. Bulk Transactions

The ultimate complexity can occur if your bank statement presents transactions as bulk items, rather than individual records. This makes it nearly impossible to go line-by-line manually to compare records. However, with an automation solution, you can compare more records in less time and make it easier to spot discrepancies, even with bulk translation values listed.

9. Complex Records

In the case of complicated internal processes and multiple data sources, it can become difficult to keep track of each record and where it is noted. There are different transaction relations, such as one-to-one or many-to-many.

Logic is needed to figure out how to match such transactions, as well as having connected data systems. Automation solutions provide for reliability and accuracy that humans may struggle with given the various exception items and data sources.

How Can Automation Reduce Bank Reconciliation Problems?

Even when you have total control of your bank reconciliation formula and process, challenges arise, as mentioned above. It’s often inevitable, so having automation software in place to help reconcile can completely transform your workplace for the better.

Here’s what automation can do to reduce your common bank reconciliation problems:

1. Connected Data

As a starting point, you can easily collect and combine your financial data from multiple systems and sources using an automation software solution. With the use of APIs, automation software can even connect to legacy systems, so none of your necessary data gets lost in the shuffle.

2. Carrying Records

For transactions that need to be carried or exempt from one financial accounting period to another, manual bank reconciliation will naturally become messy in such cases. With an automation solution, the system will track these exceptions and carry data

3. Transaction Matching

With automation software, transaction matching is made easy. The software is designed to handle even the most complex transactions, along with a high volume of transactions. This is especially useful for multiple payment providers such as Amazon, ebay, Stripe, Worldpay and Paypal.

The system will connect data, transform it into the required formats, and perform the process of reconciliation. Should you need to be notified of an exception or anomaly, you’ll be made aware. Otherwise, you’ll be able to review, sign-off, and continue closing your books as usual.

How to Fix Bank Reconciliation Problems?

With this knowledge of automation software, you can understand how the most straightforward and surefire fix to bank reconciliation problems is to use the technology!

Before we dive a little deeper into the value of automation software, consider the following best practices, too:

• Ensure that your opening balance matches your bank statement so you start reconciling for the right amount

• Be sure to check the prior period’s reconciliation records to see that there aren’t any extra transactions pending that need to be moved into this period

• Run the bank reconciliation process more often to avoid mistakes, catch fraud in its tracks, and keep your records in clean order

You guessed it again– the implementation of a finance automation solution that automates your bank reconciliation process will correct all of the above issues and make constant reconciliation possible. With a solution, you can streamline and standardise any type of reconciliation.

Your business increases its visibility and internal control, reduces compliance risk, and controls having any key person dependencies. With drag-and-drop functionality and customisable workflows, you can initiate any finance process to be run without hassle and without mistakes.

That way, your team can maximise their productivity levels and focus on high-level tasks, instead of being stuck on data entry and manual transaction matching activities.

Bank Reconciliation Made Simple

Bank reconciliations are vital for proper business functioning and to make informed decisions. When dealing with bank reconciliation problems, your business will find itself wasting time and potentially losing money (in ways that are otherwise preventable).

Manual errors are humanly impossible to prevent entirely, so it makes the most sense to make use of a finance automation solution as your problem-solver!

This way, you can automate, standardise, and execute bank reconciliation (along with additional solutions) in minutes instead of days and free your time for providing more value ad insights to the business.