Accurate accounting depends on careful reconciliations. In doing so, you ensure that the amount and direction of every dollar that has flowed out of the business matches the amount and direction as recorded in an external system, with the documentation to prove it. Reconciling your internal records with outside sources reveals errors, omissions, and possible fraud.
However, month-end close, and the associated reconciliation work, is often named as the most stressful task for many accounting teams. One study found that 87% of finance professionals work overtime to finish their monthly close. And perhaps the more discouraging news is that the same survey found that only 55% feel fully confident in the numbers they report every month.
This may suggest that those doing the reconciling do not trust the process itself, which is not a surprise, since it remains a largely manual and chaotic one. When a finance team doesn’t have complete visibility into all transactions, they’re often left guessing, or chasing employees for answers, in order to reconcile multiple systems. And following up with employees has become even more difficult with the move to remote teams.
Nonetheless, many companies remain mired in dated processes, even at the expense of accuracy and efficiency.
In Airbase’s independent survey of 745 accounting and finance professionals from small to midsize companies, 55% of respondents reported that they manually conduct bank reconciliations, and 36% said that they manually reconcile credit card statements. A majority from this same group (66%) claimed to invest significant amounts (10% to 50%) of the accounting team’s total time doing manual tasks. Another study of over 700 finance professionals found that two thirds of respondents still depend heavily on spreadsheets during their month-end close. So, it’s not surprising that only 20% said they are happy with their current monthly reconciliation process.
These numbers all add up to one indisputable fact: The processes behind bank and credit card reconciliations are ripe for an overhaul. An intelligent spend management system makes it possible with a continuous sync to the GL, and full insight into all transactions and all payment types.
Problems that arise in reconciliations.
Timing: Double-entry accounting in a GL reflects the reconciliation process, so a GL should be a snapshot of the movement of funds at a moment in time. However, problems arise when the timing of a payment authorization and settlement don’t align exactly. That makes it difficult to determine exactly how much money is available, and if and when any adjustments should be made during reconciliation.
Multiple payment types: When each type of payment relies on a different external system to be reconciled to the GL, each with different processes and different ways of handling exceptions, you run the risk of an increased number of manual processes to make sure your transactions are consistent.
Categorizations: Many factors can lead to an employee miscategorizing an expense, which might not seem like an issue, or even be noticed, until it’s time for reconciliation.
Lack of context about a transaction: The more people in an organization with authority to execute transactions, the greater the need for accounting to have additional information about each one. If a charge appears without any context, or any documentation, it’s difficult to find the answers that finance teams need to accurately reconcile that transaction.
Data precision: When disparate systems treat data differently, reconciliation is made more difficult. Take, for example, some legacy bill payment systems that consolidate a day’s worth of bills, then withdraw that total lump sum from the bank. As a result, finance teams have to sort through individual bills in order to reconcile them with the bank statement, before entering the transactions to the GL. A more modern billing system makes bank withdrawals for each bill paid, so the movement of funds can be precisely traced.
How to make reconciliation easier.
There are two methods of reconciliation: with a documentation review or an analytics review. A documentation review involves matching documents, such as receipts, to the corresponding line item. In an analytics review, historical account activity is compared to the balance. For either method, some best practices can reduce the risk of errors or delays.
- Ensure all external ledgers, such as bank statements or payroll systems, show results on the same basis.
- Don’t rely on one specific person as your only support for resolving technical issues that arise within any automated processes.
- Determine a certain dollar amount or percentage threshold for unreconciled amounts at which your team is alerted.
- Build a process for alerts any time a transaction from an unknown counterparty arrives in your bank account, and create a process for resolving those cases.
- Recognize that your reconciliation process is always a work in progress.
Integrated systems reduce the need for reconciliation.
With a comprehensive spend management platform, virtual or corporate credit card reconciliation essentially takes place in real time as purchases are made, since a purchase can automatically sync to the GL.
Because the required information, such as categories and tags, is entered at the time of approval, the information has already been verified as correct before spending happens. When correct data is enforced up front at the approval stage, it is no longer necessary to make adjustments during reconciliation. Plus, supporting documents, like receipts or invoices, upload into the purchasing event, so all required documentation for all spending is captured by the system as it happens. This produces an audit trail at any point in time.
As an example, let’s take a look at how credit card transactions flow from Airbase to the NetSuite, Sage Intacct, Xero, or QuickBooks GL. When you create a virtual card in Airbase, you can set the line tags, transaction tags, and the GL vendor name. You can also check a box if you want transactions for that vendor to sync automatically to NetSuite. If you’ve checked the box, once a physical or virtual card transaction for that vendor is posted in Airbase, a corresponding vendor bill and payment is created inside of NetSuite. From the NetSuite entry, you can click on a link to go back to the Airbase ledger entry. Even amortized transactions are booked automatically without the need for reconciliations. For prepayments, the sync to NetSuite happens in two steps: a journal entry in NetSuite when the transaction takes place through Airbase, and then an amortization amount based on the contract start and end date as entered into Airbase.
Bill payments also sync easily to the GL in Airbase. GL information, such as Category, GL Vendor, and Transaction Tags, are entered as a bill is created, so that all information flows in the correct line of the GL. To further save labor, this information will populate automatically for existing vendors. Once a bill is approved, it can be synced to the GL, and when payment is made, the payment syncs automatically to the GL.
How others have reduced reconciliation demands.
Moving to an intelligent spend management system was a solution to reconciliation headaches at San Francisco startup Affinity. “Reconciliation involved a lot of manual work,” remembers Michael Zheng, Affinity’s Head of Finance. “Employees had to draw up expense reports, tag expenses, keep the receipts. If they forgot, their reimbursements were delayed. They had to put a lot of time and effort into spending.”
Since the company moved to a comprehensive spend management solution, he estimates they’ve saved up to five hours a week on credit card reconciliations alone. As a result, he has more time to focus on higher-value projects.
Amer Ali, Head of Strategic Finance and Business Operation at Netlify, had a similar experience. “If we didn’t have Airbase, this would be 20 people using 20 personal cards and creating expense reports after the fact,” he says. “Now reconciliation happens in a click because Airbase consolidates all that information.” Amer is also happy about the extra time afforded by these almost-instant reconciliations. “When I hire a new full-time person, I know Airbase will help [the new hire] spend less time closing the books and more time on strategic and analytical work.”
If you would like to learn more about how a comprehensive spend management platform can ease the pain of credit card and bill payment reconciliation, talk to Airbase.