Accounting

6 Problems with Manual Reconciliation

No business can adequately function, much less remain in compliance, without reconciling their accounts. 

Reconciliation has long been a manual process, requiring hours upon hours of tedious data entry each month. Even today, with emerging technologies designed for this function, an average of six in ten finance organizations still rely heavily on manual reconciliation. 

In addition to being time consuming, manual reconciliation has several other pitfalls that magnify with each passing month. So, before surveying yet another spreadsheet, check out these six problems with manual reconciliations, so you can solve for them and improve your reconciliation process in the future.

It’s error-prone

Be it an entry made to the wrong account, omission, compensating error, or another kind of inaccuracy, manual reconciliation is prone to human error. This results in either additional time spent fixing mistakes or producing inaccurate books.

Beyond simply providing inaccurate information, errors can also be a barrier to catching fraud. According to a 2016 global fraud study, the typical organization loses 5% of annual revenue as a result of fraud.

There’s guesswork involved

In addition to manual human error are the inaccuracies that result from best guess accounting. Accountants often receive incomplete information and fragmented data, which means there’s quite a bit of guesswork involved in the reconciliation process.

As the number of accounts, transactions, and data increases with company growth, reconciliation becomes more complex. This results in even more guesswork and errors, as well as more open items with missing information in your accounts. 

There’s no control

Discrepancies often emerge between the company’s books and transactional records, whether due to an incorrect product delivery, a project that runs over, or simply different operating structures within different departments of your organization.

Without real-time visibility into transactions, finance teams are left flying blind. They lack the context necessary to accurately align different data points, formulas, and records. To keep pace in today’s business world, accountants need access to real-time, error-free datasomething that is virtually impossible with manual reconciliation. 

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It frustrates your finance team

The reliance on manual reconciliation means that employees are caught between delivering reports in a timely manner and being 100% accurate. It can be difficult to strike a balance, which can cause employee stress.

Furthermore, your accountants likely enjoy tasks that allow them to exercise their analytic skills and grow in their career. When manual reconciliation takes up much of their time, they can feel frustrated, stuck in their role, and lacking growth opportunities, which can negatively impact talent retention.

International transactions complicate the process

A company may cater its processes to its native currency, while maintaining vendors using different currencies. This creates imbalances between company systems and the corresponding bank documents. 

Fees will often modify the transactions themselves, as banks and other intermediaries may record and output the data as a lump sum. Manually sifting through which financial institutions are lumping together ABC fees on top of XYZ transactions is laborious and error-prone. 

Time differences are not always reflected in the transactional data. Because the balance sheet reflects a specific moment in time, manually adjusting for this can impact the timeline and accuracy of a company’s reconciliations.

It’s inefficient

Manually entering, sharpshooting, importing, and exporting data take timetime that could be spent on other more strategic tasks that could impact the future of the business. You hired your finance for their strategic know-how and analytical skills, so wasting their energies on data entry drains valuable talent resources.

We touched on this before, but it’s worth mentioning again. Given that tools exist to automate this tedious process, it is simply inefficient to rely on manual reconciliation.

So what can you do?

Automating reconciliation improves control and empowers employees to remain in compliance. Leveraging finance automation software will free up your accountants’ time to focus on more strategic tasks, which will positively impact employee motivation, team productivity, and the business’ bottom line.