Pros and Cons of an Automatic Reconciliation Process
Accounting reconciliation is one task that can save you a lot of your precious time and money when performed accurately. The process is conducted with one primary purpose – to assess the accuracy of a company’s financial records by reconciling them with bank records. It helps you confirm whether money leaving the organization was the same as the actual money spent. It prevents theft and provides consistency and accuracy in a company’s finances. Recurring discrepancies can help find errors or warning signs of embezzlement. Because of the complexities of the process, a large amount of businesses outsources this process to the accounting services provider. This not only helps minimize the errors and mistakes, but it also helps you to have control over fraudulent activities.
With the advancement of technology, there are additional newer and advanced methods to tackle this process – Automatic Reconciliation. Accounts reconciliation can take a lot of time, depending on how many transactions you do. However, with the help of automatic reconciliation, this process becomes easy for one person to handle! When it comes to manual bank reconciliation, labor-intensive methods can prove to be time-consuming and error-ridden.
What are the types of account reconciliation that one needs to perform?
There are many types of accounts reconciliations, but today we will discuss three of the most commonly conducted reconciliations, which are –
- Bank Reconciliation: The first type of reconciliation is with your bank. The bank will provide you with a report about the money in and out of your account for the given period of time. The bank statement reconciliation helps to confirm the consistency of the amount in the bank account to what is recorded in your accounts. It is best to conduct this reconciliation regularly, say monthly, if not on a weekly basis.
- Control Accounts Reconciliation: This reconciliation compares the amount in the general ledger to its respondent document. In control accounts, the accountant reviews the transactions and records each transaction’s source of funds. This task can consume a lot of time as it is a manual process to be conducted with precision, but it is an important type of reconciliation.
- Purchase Reconciliation: Purchase order reconciliation is a process wherein the purchase items are compared to that of the purchase order. It is important reconciliation because it enables you to understand whether you have purchased a product or avail services you have paid for.
What do you do when it comes to working when you don’t have the time to check your bank account for discrepancies regularly? You can rely on an automated system that will help spot any inconsistencies in your transactions automatically with the power of artificial intelligence.
What is Automatic Reconciliation?
Automatic Reconciliation (AR) is a powerful feature that allows you to reconcile your bank statement regularly automatically. This is an extremely important feature for people who actively manage their finances and have money coming in and flowing out of their accounts continually. Automatic reconciliation helps save time and headache involved in the reconciliation process. However, every coin has two sides, and an automated reconciliation system has some disadvantages too. Automating account reconciliations with automatic reconciliation tools can be invaluable; however, it is important to consider the pros and cons before adopting this workflow. Let us learn about a few pros and cons of automatic reconciliation to understand whether it is suited for your business or not.
Pros of the Automatic Reconciliation
You no longer have to worry about inefficiencies or errors with fully automated accounts reconciliation. The process handles tasks such as cross-referencing bank statements and reconciling with accounting CSV files to pinpoint any mismatches.
Automatic bank reconciliation software can reduce mistakes and take much less time than human accountants, eliminating an admin-heavy activity and hiring multiple accounts reconciliation personnel. The software can also handle high volumes, so you never have to lower your standard of performance just because of volume.
Reconciliation is a step that helps discrepancies, but it might lose out on this characteristic if the person committing fraud is the same person conducting the accounts reconciliation. An automated bank reconciliation process reduces an organization’s financial risk by having its accounting records match the bank account information.
An automated reconciliation can also help you understand hidden charges to your bank accounts that others might not have been recorded in your accounts.
It provides you with good control over your finances while ensuring your accounting data is correct, enabling you to be compliant with every relevant authority..
Cons of the Automatic Reconciliation
Automated reconciliation tools are labor-intensive, time-consuming, error-ridden processes that are not suitable for every business. It can be a beneficial process – but what happens if that system malfunctions? What would happen if you lost access to your bank account? Or, to put it another way, what happens if something happens to your system or the service provider? If a problem arises, what would you do? What happens when you can’t check your transactions and have no idea of the status of your bank account?
Automated accounts reconciliation is heavily reliant on bank information. The absence of tiny information can impact your reconciliation process.
Also, automated processes are still prone to errors as humans feed the instructions manually.
Automatic reconciliation has several pros and cons. Some of which can be accounted for if you get strategic about it, while others are unavoidable. One way to reduce the risk of errors in a company’s bookkeeping and accounting service is to use both automation and outsourced accounting services. Ultimately, the decision to embrace automatic processing is up to you. If you choose to use auto-processing, make sure you make this decision fully to understand any potential technical errors you may incur and their impact on your bookkeeping and accounting process.