Account reconciliation is a critical element of any business. It helps an organization ensure the completeness and accuracy of all its financial statements. It is done to substantiate the balance stated in the general ledger by comparing the general ledger balance to independent systems or third-party data, or any other type of information.
It is carried out after the close of a financial period. It is mandatory for a business to reconcile its accounts to authenticate its financial data and issue financial statements.
Account reconciliation is a tedious and complex process because it entails verifying each entry in the general ledger, identifying discrepancies, and addressing them. The complexities of the process grow as the business grows.
For years this process was done manually by accountants. As technology advanced, account reconciliations were performed using spreadsheets. Spreadsheets addressed some of the shortcomings of legacy systems. However, innovative technologies like cloud computing, Robotic Process Automation (RPA), and Artificial Intelligence (AI) have revolutionized the manner in which account reconciliations function.
- Manual Account Reconciliation Process
- What are the Shortcomings of a Manual Account Reconciliation Process?
- How Automation Works in Account Reconciliations?
- How Automation Enhances Efficiency of Account Reconciliations?
- What Features must the Account Reconciliation Software Include?
- The Auxiliobits Advantage!
- Final Words
Let us look at how automation has transformed the account reconciliation process in three steps:
Step1: How does manual reconciliation function?
Step 2: Shortcomings of manual reconciliation
Step 3: How Automated reconciliation overcomes these shortcomings?
A Manual Account Reconciliation Process goes through the Following Stages:
- Accountants compare general ledger entries against independent systems, third-party data, and other documentation such as bank or credit card statements, etc.
- They check each entry in the general ledger for its completeness and accuracy.
- In case any discrepancies are found, accountants, analyze them.
- Corrective action to resolve the discrepancies is taken.
- All the data collected, analyzed, and corrective action taken is stored for audit purposes.
What are the Shortcomings of a Manual Account Reconciliation Process?
Managing Large Volumes of Data
Account reconciliations require large volumes of data to be gathered and analyzed. This can prove to be daunting for accountants.
Prone to Human Errors
In the manual account reconciliation process, the accountants need to manually tally each entry. They need to verify the accuracy of the entries, ensure that they do not miss out on any entries and that there are no repetitions. All these processes are tedious and there is a likelihood of errors in the entries or the tallying process.
If there are any discrepancies in the entries, corrective action is taken by accountants. There is a possibility of errors in this process as well.
The accounts reconciliation process is complex because of factors like data received in the form of bank statements, international transactions, different forms of payment received from customers, and more.
Limitations in Managing New Data Sources
Legacy systems work based on a static pre-configured framework for reconciliation. These systems cannot effectively manage new data sources or new entries in a reconciliation file.
Different Formats of Payment
In the digital age, there are multiple payment options available to customers. Many of these payment methods do not include invoices and other details of the payee. Reconciling this type of data is difficult in the manual process.
The end-to-end account reconciliation process can take a lot of time if done manually. This is because the different steps like making entries, verifying them, and resolving discrepancies need to be done and checked and rechecked to ensure the accuracy of data.
Most of the tasks involved in the accounts reconciliation process are repetitive. In other words. they go through the same cycle over and over again.
Difficulties in Collaboration
Account reconciliation requires a team effort, collaboration is one of the vital aspects of this process. In a manual setup, it is difficult for team members to collaborate from different locations. The effective collaboration had become a cause for concern during the pandemic (when people were working from remote locations) for businesses that had not adopted digital transformation.
How Automation Works in Account Reconciliations?
Automation assigns rule-based, repetitive tasks to bots.
Automation software seamlessly connects and extracts data from different sources like ERP systems, bank records, credit card processors, and more and matches it across multiple platforms. After collecting the data, the bot compares balances between the different sources and identifies the discrepancies.
Based on standardized templates, pre-defined workflows, and rule-based procedures, the software automates the process of sending alerts for errors and exceptions.
Automation bots ensure that the right tasks are assigned to the relevant personnel. This streamlines the process, saves time, prevents oversight, segregates duties, and enhances the efficiency of the process.
How Automation Enhances Efficiency of Account Reconciliations?
- Automation helps a business move away from spreadsheet-based processes of substantiating balance sheets. It streamlines and standardizes the process eliminating errors and minimizing risks.
- Automation bots can also reconcile payments that do not contain payee details with the help of AI.
- The automation software streamlines the process of reconciling statements from suppliers and vendors with journal entries. Bots can easily recognize process statements from multiple vendors in different formats without errors and delays.
- Machine Learning (ML) can be deployed at key data reconciliation points to speed up the process, reduce operation costs, and ensure compliance. Machine Learning Technology learns from different data sources and patterns and analyzes the data for likely matches across multiple data sets and identifies discrepancies.
- The predictive analysis feature of AI enables staff to predict exceptions and take necessary corrective action in time.
- In effect, the automation software and humans collaborate to perform account reconciliation. This man-machine collaboration minimizes human effort and eliminates inherent human errors in legacy systems. It builds a more reliable and faster process and relieves professionals for other high-skill tasks.
- Automation of account reconciliation has become an essential requirement for businesses in a digital marketplace. There are several account reconciliation automation tools available in the market. Make sure that you choose the one that best meets your needs!
What Features must the Account Reconciliation Software Include?
- Ensure that the system is Cloud-based as it facilitates quicker deployment.
- Task flow is a feature that helps manage sequencing, completion, and review of processes while offering visibility.
- It should include a dashboard that helps track KPIs, the number of unreconciled transactions, and other data.
- Make sure the automation tool supports collaboration between teams and team members.
- Choose an automation software that not only identifies the discrepancies but also takes corrective action.
- Ensure that the software has a user-friendly interface in which matching rules can be written as and when required.
The Auxiliobits Advantage!
- We build customized automation bots for your business.
- Our automation software integrates easily with your existing systems.
- We provide a single unified platform that can manage end-to-end reconciliation at the enterprise level.
- Our platform includes features like data import, data enrichment, data matching, and discrepancy management.
- It supports all types of existing digital/non-digital payment options with features to onboard new payment channels.
- Our platform provides a detailed audit trail that can be easily accessed by authorized personnel.
In the digital-age automation in account reconciliation is not an option but a necessity. End-to-end enterprise-level automation of account reconciliation enables businesses to manage a large influx of transactional data, enhances speed, addresses compliance needs, and facilitates risk mitigation.
If you are ready to automate your account reconciliations, connect with the experts at Auxiliobits!
Our professionals will develop the perfect solution for your business!
Watch this space to know more about what processes we can automate for your business!