In the banking sector, reconciliation is broadly categorized into two types: account reconciliation and transaction reconciliation. Account reconciliation encompasses several aspects, including the setup of new accounts, management of sub-accounts, handling of account transfers across different business units, and the consolidation of accounts facilitated by new brokers or agents.
Conversely, transaction reconciliation involves various tasks such as internal transfers between accounts, settlement of transactions based on documentation, and other financial activities essential for business operations. In this blog, we will explore the challenges with bank reconciliation, and how bank reconciliation automation is the answer to these challenges.
Challenges with the Bank Reconciliation Process
Some of the challenges that the banking industry struggles with maintaining reconciliation are-
One of the foremost challenges encountered in bank reconciliation revolves around acquiring the necessary data. Managing high volumes of transactions becomes especially problematic due to differing references between the bank and the General Ledger (GL). When references don’t align, matching transactions becomes arduous. Moreover, if there’s no apparent correlation between items on the bank statement and the GL, reconciling can be challenging. Compounding the issue, large monetary amounts on bank statements might comprise multiple transactions in the GL, or vice versa.
Furthermore, slight variances between supposed matching amounts can occur. Consider payments that were believed to be made but were subsequently reversed or canceled, such as checks. The multitude of data sources adds to the complexity, including credit card sales, online transactions, cash payments, and location-based cash collections.
Reconciling data simultaneously poses its own set of challenges. Ensuring accurate opening and closing bank balances might seem straightforward, but any discrepancies can throw off the entire reconciliation process. Checks recorded in the ERP system but not yet processed by the bank can lead to discrepancies. Unpresented checks and lodgements need to be carried over into future reconciliations, adding complexity.
Credit card timing delays can also be problematic. While transactions appear immediately in the GL, they may take weeks to appear on bank statements due to finalization delays in credit card payments. Such delays can result in reconciling multiple days of sales against a single day recorded in the GL. Timing issues stand out as one of the most pressing challenges in bank reconciliation.
Once data and timing are aligned for bank reconciliation, documenting and validating the process becomes crucial for internal and external audits. Recording the exact date, time, and personnel involved in each reconciliation step is essential. This information ensures accountability and transparency, especially during audits conducted on short notice. Storing this detailed reconciliation information securely is paramount. Manual reconciliation methods often involve a cumbersome array of Excel sheets, paper documents, and bank statements scattered across folders or filing cabinets.
This is Where Bank Reconciliation Automation Help
While Excel Macros can aid in automating tasks on a smaller scale, the overall process remains cumbersome, with not all employees comfortable with this approach. This is where bank reconciliation automation steps in, simplifying tasks and offering a more efficient solution, particularly in the banking sector.
Bank reconciliation automation involves the use of Intelligent Document Processing solutions equipped with cognitive capabilities, including Optical Character Recognition (OCR), RPA, and AI. These technologies excel at analyzing and evaluating large volumes of data and executing repeatable tasks with unparalleled accuracy, speed, and efficiency.
Once the bank reconciliation automation is set up, they perform a series of crucial tasks to streamline the bank reconciliation process:
Downloading Bank Statements
This automation and AI bots can securely access your online banking platform, navigating through security measures to retrieve and download bank statements efficiently. This ensures that the latest financial data is readily available for reconciliation.
Reconciling Daily Transactions
The bots interface with your desktop or web-based ERP system, meticulously comparing the transactions listed in the bank statements with those recorded in your ERP. This comprehensive comparison ensures that each day’s transactions are accurately reconciled, minimizing discrepancies and errors.
Logging Transactions and Reconciliation Status
For transactions that match between the bank statements and the ERP, the AI bot indicates it is a successful match. Conversely, transactions that are present in the bank statements but not recorded in the ERP are further processed for investigation and action.
Generating Reconciliation Reports
Following the reconciliation process, the AI bots can compile detailed reports summarizing the reconciliation status of each transaction. These reports are then emailed to your accounting team on a daily basis, providing visibility into any outstanding or unreconciled transactions requiring attention.
Benefits of Bank Reconciliation Automation
Bank reconciliation can be a cumbersome task, often plagued by errors and time-consuming manual efforts. However, automated bank reconciliation software presents a solution that streamlines the process and offers several key advantages.
Automated reconciliation drastically reduces the time needed to match bank transactions with accounting records. Instead of laboriously sifting through spreadsheets, the software swiftly identifies matches, enabling reconciliation within minutes. This frees up valuable resources for more critical business activities.
Manual reconciliation is prone to human error, leading to discrepancies and additional work. In contrast, automated systems offer algorithmic precision, swiftly detecting anomalies and flagging discrepancies for review. This enhances accuracy and efficiency while minimizing the risk of errors slipping through the cracks.
Automated reconciliation provides greater visibility and collaboration throughout the process. Team members can track progress in real time, eliminating the need for constant updates and meetings. This transparency fosters better communication and alignment, especially in complex global operations or businesses with multiple entities.
Automate Bank Reconciliation with AutomationEdge
At AutomationEdge, we understand the challenges that come with the bank reconciliation process. With automation and AI solutions, AutomationEdge enables the banking industry to automate multiple types of reconciliation like cash reconciliation automation, account reconciliation automation and many others seamlessly. This empowers the banking industry to evolve and expand seamlessly. Further, AutomationEdge’s intelligent document processing banking operational team can gain more visibility in their data and minimize the risk or error in the bank reconciliation process. To kick start faster reconciliation, do contact us for a demo.