Bank Reconciliation Process: Expert Tips for Success

In business, it’s best practice to perform the bank reconciliation process at least once a month. However, with the lengthy and time-consuming process of doing so manually, many companies glance over the need or struggle to do so by each month's end-close deadline.

To overcome the challenge of the data-heavy and time-intensive process, companies are turning to finance automation software to streamline their reconciliation needs.

We’ll look at how you can use automation software to rapidly create an accurate bank reconciliation statement monthly, and if you so wish, even as frequently as daily or weekly.

Coming Up

What is Bank Reconciliation?

Why is Bank Reconciliation Important?

What are the Steps in the Bank Reconciliation Process?

What are Key Terms in the Bank Reconciliation Process?

What are the Benefits of the Bank Reconciliation Process?

What are the Challenges of the Bank Reconciliation Process?

What are Best Practice Tips for the Bank Reconciliation Process?

What are the Benefits of Bank Reconciliation Software?

Wrap Up

What is Bank Reconciliation?

Bank reconciliation is the accounting process of comparing internal financial records with your bank statement’s records to make sure that they are in alignment with one another. During the process, if you come across records that do not match, part of reconciliation requires that you investigate the discrepancy and remedy it so that your financial statements will be reliable.

Why is Bank Reconciliation Important?

As you know, account reconciliation is incredibly important for any business. It’s part of the month end close checklist that ensures your financial statements and records are reflective of reality and free of mistakes.

By performing bank reconciliation, you are able to:

1. Reduce Fraud

When you perform the bank reconciliation process on a consistent basis, you’re able to see if there has been any suspicious transactions or fraud. By detecting this early on, you can stop it in its tracks.

2. Maintain Accurate Records

It’s crucial to know what money you owe and what money you are owed. With the bank reconciliation process, you can keep track of your accounts payable and accounts receivables.

3. Fix Issues

In some cases, your bank account or internal accounts may be missing payments or show the wrong transaction amounts. With the bank reconciliation process, you’re able to locate these errors and right the wrongs.

4. Understand Cash Flow

Bank reconciliation provides a better understanding of where the business makes and spends its money. It also allows you to keep track of bank fees and payments.

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Automating the bank reconciliation process becomes increasingly necessary as your transaction volume grows and you utilise the convenience of multiple payment processors. Take a look at the 5 best reconciliation tools to see how they can help streamline and enhance your process.

What are the Steps in the Bank Reconciliation Process?

While every business uses their own software, spreadsheets, and systems, the bank reconciliation process must move through the following steps to pull everything together:

1. Attain Bank Records

Most banks send monthly bank statements. You can also obtain these records online or request it from the bank as you need it. If you have a business credit card account, be sure to also get your hands on that so you can perform the credit card reconciliation process.

2. Collect Business Records

In order to conduct transaction matching, you’ll need the other set of records for which you want to cross-check your bank statements against. This is your internal general ledger. If you’re keeping track of everything manually, then you’ll have to pull together various spreadsheets.

If you’re using multiple software systems, again, it’s necessary to collect the data in a single location. This is particularly challenging if you have a high volume of transactions coming from multiple payment providers like Amazon, ebay, Worldpay, Paypal, Stripe and so on.

When you implement a solution like SolveXia to automate your account reconciliation process, the software will automatically connect to your systems including payment providers and centralise all your data in real time for you. So, you can essentially consider this step done as soon as you start!

3. Start Comparing

Locate where you left off from the month prior. This reflects your starting point for this accounting period. It’s now time to reconcile!

4. Review Income

You’ll want to check that every deposit shows as income in your accounts. Make sure that the transaction amounts are correct. Additionally, each entry that’s noted as income in your accounts should also be reflected as deposits on your bank statement.

5. Review Expenses

Just like you ensure your income is right, you also need to check that your withdrawals on bank statements are showing up as expenses on your books. If there’s something missing, investigate why as it could be a timing delay with the bank statements.

6. Check End Balance

After cross-referencing every record, it’s time to see that your business bank balance and the total in your business accounts match up. If not, then repeat the steps again. If so, you’re one step closer to closing the books and can mark this as your starting point for next month’s bank reconciliation process.

What are Key Terms in the Bank Reconciliation Process?

In whatever way your bank reconciliation format is executed, keep in mind these key terms as you run through it:

NSF Check

In some cases, companies attempt to deposit a check from a customer with insufficient funds. As a result, the transaction fails, and it’s called non-sufficient funds (NSF), which is more commonly known as a check bouncing. This could create a fee for both the payer and the recipient.

Deposit in Transit

Oftentimes, you’ll notice you deposited money but the money isn’t showing up in your bank statement yet. This could be because the transaction is still pending, which is called deposits in transit.

What are the Benefits of the Bank Reconciliation Process?

The bank reconciliation process is an inherent part of the corporate accounting world. By performing bank reconciliation on a consistent basis, your business can:

1. Spot Errors

While it is uncommon, it’s not impossible for the bank to make a mistake. When they do, your organisation can pinpoint the error by checking its internal documentation. If there’s truly a mistake, you can notify the bank to reverse the error.

2. Understand Cash Flow

With a set schedule to perform the bank reconciliation process, your business is in the best position to understand its cash flow and notice any cash flow issues so you can take action before it becomes a problem to the business.

3. Perform Accounting Responsibilities

The bank reconciliation process can help to simplify accounting processes, especially if your company uses the cash accounting method, in which case it records transactions at the same time the bank does.

Bank reconciliation is also crucial for the more popular accrual method of accounting, so you can ensure the accuracy of accounts.

What are the Challenges of the Bank Reconciliation Process?

You’ve probably experienced your fair share of challenges when moving through your bank reconciliation process. Some of the most common frustrations when doing so include:

1. Returned Deposited Checks

If a payment doesn’t end up being processed by the bank, then you’ll end up with a return deposited check.

This could be because the customer had insufficient funds (NSF) or because there’s been a stop order on the check because it’s missing a signature, for example. Return deposited checks call for adjustments to be made within your internal ledgers.

2. Bank Fees

It could be the case that your bank is charging fees for different services. In many instances, you won’t know the fee amount until they hit your account. These amounts have to be taken into consideration when updating your own books so that the balances match up at the end of the period.

3. Voided Checks

If you void a check, but it was still cleared by the bank before, the charge has to be recorded. The bank reconciliation process is a major need to catch these cases.

4. Interest Income

When interest is added into your bank account, it requires the amount to be added into your bank statement before you are able to add that into your company’s books. As such, the bank reconciliation process is needed to keep track, but timing also matters. It’s yet another record that you wouldn’t want to miss as it affects your financial statements.

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As you can tell, there are many moving parts within how banks will reflect activity in your account. With timing differences and all the different circumstances that take place, it’s a lot to keep track of manually.

Many times, items will slip through the cracks, especially as your accounting team is so busy taking care of their responsibilities. Account automation software like SolveXia can rollover exceptions, notify you of mismatched records, and be on the lookout for all of these nuances so that you don’t have to worry about them.

What are Best Practice Tips for the Bank Reconciliation Process?

To streamline your bank reconciliation process, the biggest change you can make is to automate it! Along with automation, here are some best practices to try put into action:

1. Have a Set Schedule

Perform your bank reconciliation process consistently. If it’s not done on a regular basis, you’ll lose out on its benefits. Monthly, weekly, and sometimes even daily bank reconciliations will help your business stay on top of its financial health. This is especially true for businesses with a heavy volume of transactions.

2. Centralise Data

If you have inactive accounts, consider moving the funds to an active account. At the same time, have a way to centralise all your data. A finance automation tool like SolveXia can do this for you as it connects to your legacy and existing systems.

Automate!

The bank reconciliation process quickly becomes complex and time-consuming. Software like SolveXia can streamline and automate every step so that your team can focus its time on high-level value add tasks.

What are the Benefits of Bank Reconciliation Software?

Finance automation software, such as SolveXia, can automate your complex finance processes. When it comes to executing your bank reconciliation process, bank reconciliation software help to:

• Save time
• Reduce errors
• Spot fraud or suspicious activity early on
• Centralise data
• Connect systems
• Store data securely
• Increase internal control
• Enhance visibility into processes
• Prevent key person dependencies
• Remove bottlenecks from occurring

Since SolveXia is a no-code/low-code solution, you can have it up-and-running in less than 30 minutes. The software provides you with a library of pre-built functions so you can automate workflows with a single click. If you prefer to visualise and customise your own processes, you can do so using drag-and-drop functionality to create action items and triggers.

This is incredibly valuable for any business, but especially so for those that deal in high transaction volumes and use multiple payment providers.

SolveXia allows you to save time, improve accuracy, and focus instead of generating and providing greater insights so you can make informed business decisions on the spot!

Along with executing the bank reconciliation process, SolveXia makes it possible to conduct regulatory reporting, expense analytics, APRA reporting, rebate management, along with other crucial accounting needs.

Wrap Up

Whether you’re dealing with a low or high volume of transactions, the bank reconciliation requires time and close attention to detail. Rather than manual collecting and comparing benefits, take advantage of automation solutions that will manage the process with complete accuracy and ease.

To see an automation tool like SolveXia in action with regard to the bank reconciliation process or any other finance need, feel free to request a demo! You’ve got nothing to lose, and truly everything to gain.