A balanced account is a hallmark of good business. But how do you know your account is balanced? You might keep your receipts or keep it all on an organized spreadsheet, but are you comparing it to your actual bank statements?
If you are, you’re already practicing the essential business process of payment reconciliation. Let’s dive deeper into the meaning of payment reconciliation to get a better idea of what that entails.
Table of Contents
- What Is Payment Reconciliation?
- What Is the Payment Reconciliation Process?
- How Often Should You Reconcile?
- The Benefits of Payment Reconciliation
- The Drawbacks of Payment Reconciliation
- What Is Automated Reconciliation?
- Automate Your Reconciliation Today
What Is Payment Reconciliation?
Payment reconciliation is the process of comparing bank statements to your billing statement to ensure your records are accurate and up-to-date. It verifies that a payee appropriately paid what they owed. This should be a part of every business’s revenue management strategy.
Think of payment reconciliation as a more robust form of bookkeeping. It will help you reconcile your accounts daily to ensure there are no discrepancies or errors as you move forward in your financial plans.
What Is the Payment Reconciliation Process?
Whether automated or performed manually, the payment reconciliation process is pretty much the same. That’s because it’s a simple three-step process:
1. Internal Review
After a transaction is posted through a billing notification or scheduled payment, the company that received or made the payment will record the transaction. It may be recorded in a spreadsheet, accounting software, or any other form of record retention.
You can save the paper receipts and physical invoices, but we don’t recommend using this as your main reference for reconciliation. It’s better to use those paper methods as a backup source of information to support your digital solution.
2. External Review
Banks also record transactions, displaying every withdrawal and deposit made in an account. These transactions can usually be accessed through a browser or a bank’s mobile app.
3. Internal-External Comparison
Once you have both records at the ready, you can compare the two to find any discrepancies. You may see that you were overcharged or that there was a transaction on the bank record that you don’t recognize. Or, you may find that you input something incorrectly in your internal review.
This comparison stage helps you verify all transactions and ensure your accounts are secured and well-maintained.
How Often Should You Reconcile?
You should usually complete payment reconciliation at least once a month. Since banks most commonly send out monthly statements, you can use those as your basis of comparison. However, if your bank sends out weekly or even daily statements, you can reconcile equally as often.
The Benefits of Payment Reconciliation
Above all else, reconciliation gives people the peace of mind of a balanced checkbook. But that’s not the only benefit of payment reconciliation. The reconciling process:
- Reduces fraud: While fraud isn’t particularly common, reconciliation provides security. By frequently checking and comparing invoices to bank statements, you can quickly identify fraudulent charges and contact your bank.
- Avoids accounting error issues: Deposit mistakes happen, usually through human error. Although reconciliation can’t stop errors from happening, it can prevent them from causing unwanted damage.
- Saves money: Managed money is saved money. When you have an eagle eye on your accounts, you may realize some of those transactions are for unneeded or unused services. You can quickly cancel those payments and save money.
- Simplifies regular bill payments: Reconciliation helps you stay aware of your recurring payments so you’ll never be blindsided by a charge and get hit with a late fee.
- Clarifies current debts owed: You may notice that, after sending an invoice, you still haven’t been paid. Reconciliation makes sure no charges slip through the cracks.
The Drawbacks of Payment Reconciliation
Really, there are no drawbacks to payment reconciliation—it is entirely advantageous to have a better understanding of your accounts. However, there are drawbacks to manual reconciliation, meaning the reliance on manual data entry and paper copies to keep track of cash flow.
Here are a few drawbacks to using manual reconciliation:
- Susceptible to errors: As we mentioned before, human error is the primary cause of accounting errors. If you rely only on manual entry, you’re bound to get reconciliation errors and have to run around to find the missing money.
- Takes too much time: The frequent crunching of numbers demands your time. Your employees may spend multiple working days every month just on reconciliation, which could be done in seconds with automated reconciliation.
- Lacks contextual data: Most modern digital forms of reconciliation allow their users to view robust data relating to their transactions. Doing it manually usually loses that extra data. When you check back later, you’ll miss out on heaps of data that supply needed context behind each transaction, leaving your accounting team befuddled.
Fortunately, you can largely avoid all of these drawbacks by simply switching to an automated solution.
What Is Automated Reconciliation?
Automated reconciliation is the same as the reconciliation process mentioned above, only completely digital and much faster.
Benefits of Automated Reconciliation
Automated cash reconciliation offers all of the same benefits of regular reconciliation plus:
- Reduced personnel hours needed to complete the task
- 50 percent decreased input errors
- 80 percent improved employee productivity and efficiency
- Decreased stress from meeting month-end reporting deadlines
An automated reconciliation service allows you to view all of your accounts from a single platform. No more jumping between different spreadsheets to get an idea of your accounts’ wellbeing—you can see all of your accounts and compare them to bank transactions from a single webpage.
Automate Your Reconciliation Today
If you’re ready to create payment reconciliation reports on a faster timetable and with improved accuracy, it’s time to consider adopting an automated solution. CORE’s reconciliation service makes it easier than ever to reconcile and manage your organization’s financial accounts. Contact us today to see firsthand what automated reconciliation can do for you.
