Long term financial stability is paramount for every business, and every CEO looking to keep their business thriving for the long run will be aware of the importance of automated bank reconciliation.
Bank reconciliation is the process of matching the balance in the bank’s monthly statement with the balance in the cash account in the general ledger so that the correct amount is reflected. Such matching helps to detect unusual financial transactions as well as identify errors and discrepancies so that they can be fixed. Only when the two balances match can the books be considered as having been reconciled. Before we dive into the question of how to do bank reconciliation and identify its do’s and don’ts, it’s helpful if we first understand its importance.
The process of bank reconciliation is ultimately done to protect the business from losses. Its various benefits are as follows:
Solvency is important to any business, and errors in financial transactions can negatively impact business solvency. While you may be able to identify many small errors within your cash transactions at present, if these errors continuously stack up without being corrected, you will suffer from cases of bounced checks and overdraft fees. Doing proper bank reconciliation allows you to ensure you are not losing cash in error or due to neglect and enables you to address the causes early on
Effective financial management requires accountants to have transparency in all financial transactions of the business. The cash flow statements, income statements and balance sheets are dependent on the reconciliation of both the bank and book balances. That’s why it would be impossible for you as a business owner to make any decisions or projections without having access to accurate data made available through bank reconciliation. It gives you access to all the transactions made or received by a customer for the month and makes it a lot easier to accurately perform other tasks such as managing income invoices, putting payments into categories, and accounting for any outstanding bills. You can trust that you’ll be making more sound business decisions once you know how to do bank reconciliation correctly.
Going through your statements to detect any fraudulent activity is necessary for the survival and growth of your business. You could find unauthorized checks, missing deposits, unexpected transfers, and even amended checks when you review your statements. By actively reviewing whether your bank balance matches your cash balance, you will be able to detect errors and fraudulent activities more easily. This makes the process of bank reconciliation all the more critical and an essential business activity.
If your internal processes aren’t operating efficiently, wouldn’t you like to be alerted about it? Knowing how to do bank reconciliation correctly, you will be able to identify any errors and weaknesses in internal processes so that you don’t lose sight of important business transactions. It could be errors relating to the recording of invoices or even incoming payments, that can transform into even trickier issues come tax period.
Noticing such repeated errors in your business operations will demand you to take effective action to make sure the process of your bookkeeping is improved. This ultimately translates to more efficiency in business operations and sequentially, more productivity and stable revenue generation.
As you may have guessed already, the process of bank reconciliation can be quite tedious if done manually. Especially with businesses using payment services and having several bank accounts. Matching every bank statement transaction to every cash account transaction takes up precious time.
The massive amount of time that manual bank reconciliation requires also increases the likelihood of human error. Human blunders are extremely difficult to avoid and can significantly impact the accuracy of the entire process. In such cases, correcting discrepancies that arise also becomes a huge challenge. So, how do you do effective & efficient bank reconciliation for your business?
To overcome the inherent errors of manual bank reconciliation processes, automated bank reconciliation through virtual services such as Monily has become increasingly popular. Outsourcing your bank reconciliation significantly speeds up the process, reduces the number of errors possible, and steers your business towards better financial management.
Choose an automated bank reconciliation service. When you sign up for the service, you will be required to give the credentials. You can set up the information using bank feeds or enter it manually. You can even import bank statements and spreadsheets so that the process happens even more smoothly.
Several intuitive automated bank reconciliation services allow for multiple bank accounts to be added, which makes it all the easier to relax with a peace of mind knowing a professional service is taking care of and streamlining your business accounts.
The automated service will integrate all the financial transactions carried out for the month and compare them to the balance in the bank statement so that it reflects the correct balance. Any purchases you make towards the end of the month that don’t show up in your bank statements until the next month will also be corrected. The same will again happen for the following month so that your balances reconcile seamlessly. Happy days! This frees your time to focus on revenue generating activities & growing your business. That’s a win win!