Taking on a more strategic role as a CFO requires a smarter, more efficient approach to reconciliation management.

Everyone, from your CEO to business owners, banks and auditors, wants a clear view on the company’s financial position. And of course, they want it fast and 100% accurate.

In this post we examine how to avoid being one of the 28% of CFOs who don’t trust their reported numbers, and we explore how to increase accuracy, cut costs, optimise resources, improve financial governance and close faster than ever before.

 

The albatross of manual reconciliation

As a CFO, you face an ever-growing number of transactions, sub-ledgers and external systems, all of which increase the chances of errors, duplicated entries and inaccurate information. Your team scrambles to check debits versus credits in interim accounts, bank statements against ERP data, and you enter a world of costly, cumbersome transaction matching.

Without doubt, manual reconciliation is the least efficient and most cost-demanding process in a company. According to a survey by EY, up to 59% of a financial department’s resources are spent on managing transaction-intensive processes. And around 95% of this effort is wasted on transactions that already match, rather than problem entries that actually require attention.

Surprisingly in this digital age, 3 in 4 European companies with sales over €10 million still reconcile data with pen and paper, or by eliminating entries in Excel. However, despite this studious approach, only around half of the 400 companies surveyed had an overview system to monitor who had done what, how, when and why. And only 42% said they prioritised high-risk accounts.

In the long term, this has to change.

Excel is ideal for some tasks, but…

Today, the biggest challenge is to achieve a faster and more reliable close, and many finance departments are waking up to the fact that they need
 a reconciliation solution with the functionality to meet growing complexity.

Excel has many challenges:

  • Difficult to oversee segregation of duties
  • Governance (GRC) and compliance risks
  • Complexities with multiple simultaneous users
  • Complicated formatting and programming issues when importing data
  • 
Risk of human error
 (between 0.8% and 1.8%)
  • Non-adaptable to changes in procedures or complexity
  • Cumbersome, with often hundreds of account tabs

By introducing automated processes, you can shorten the financial close, monitor everyone’s activities, define milestones and procedures and more, leaving time for the strategic activities you want to develop.

 

Optimise your reconciliation management

How do the best companies in the world get it right? Instead of looking at individual accounts or sub-ledgers, they constantly review their processes to improve speed and quality.
 It’s treated much like logistics planning – prioritizing certain accounts, assigning risk levels,
 clearly segregating duties, and more. All with
 a transparent overview.

Automation can help to simplify and speed up your reconciliations, while still ensuring accuracy and freeing up time in the department. Software can deal with repetitive tasks like transaction matching, giving you the ability to drill down on open entries or exceptions that require additional attention, and also to develop strategic, qualitative activities.

 

New, automated, cloud-based solutions are here to help

Many companies are increasingly using cloud-based software tools that help reduce the risks of errors and speed up the process. For example:

Bank reconciliation

Keeping track of any differences in your own organization’s bank statement and that supplied by the bank can be time consuming. Matching software can simplify and speed up the verification process.

Foreign currency accounts

What currency do you work in? And what’s your monthly rate? Software can help convert and manage these figures, reconciling any differences.

Direct payments

Direct payment can cause your accounts department to be flooded with multi-page statements. Reconciliation is simple but transaction intensive.

Balance sheet substantiations

New cloud-based systems can replace manual steps, allowing you to keep track of all accounts, irrespective of the number of companies, banks, business and accounts.

Inter-company accounts

The reconciliation of internal balances is complicated by many factors, which increase with the number of companies, currencies and accounts involved.

External suppliers

Reconciling the accounts of external suppliers is another challenging area.

 

Plastic is fantastic (when your reconciliation is automated)

The world is moving to a cashless society where credit/debit cards and online payment systems are enabling vast amounts of transactions every day. But more transactions means more opportunities for errors.

The common risks with credit cards:

  • Missing or wrong settlements 

  • Incorrect refunds

  • Over-/Duplicate charging of customers
  • Time consuming reconciliations on bulk, non-transactional level leading to write-offs
  • Timings and cut-off discrepancies between Point of Sales (POS) and bank settlements.

  • Several Acquires and Payment Service
  • Providers (PSPs) all with different file formats and layouts

To minimize write-offs and prevent P&L impact in incorrect periods, discrepancies not related to timing should be dealt with immediately.

The only way to truly manage the exceptions is to compare and reconcile on a transactional level to expose individual credit card transactions causing discrepancies between the sources.

However, making this change will involve potentially millions of lines of data from different sources in various file formats. Manual validation, manipulation and comparisons of such volumes in error-prone spreadsheets should be avoided at all costs.

 

ADVANTAGES OF AUTOMATION:

  • A fully automatic reconciliation process, at any time during an accounting period 

  • Personnel independent – delegated responsibility 

  • Final account specifications 

  • All reconciliation history recorded 

  • A uniform approach irrespective of 
number of companies, banks, business and accounts 


The biggest benefit to your organisation is time-saving. Viktor Norberg, Group Financial Controller at Coor Service Management, says that automation has saved them eight days per month. That’s 96 days per year!

On top of this, they were able to secure better accuracy, full traceability and compliance. They now have an audit trail that shows exactly what has been done, by whom and when.

And, let’s not forget, they now have the extra time and mental space to consider their wider strategic role within the company, and strategize accordingly.

 

What can you do to improve today?

Our panel of experts came up with this checklist of things to consider when reviewing and improving reconciliation management:

  • Analyze your month-end close process from top to bottom.
  • Map out all reconciliations. Is anyone doing double work? Is anything forgotten?
  • Who does what? When do they do it and, most importantly: why?
  • Are processes and procedures noted down?
  • Establish materiality across all operational and financial reconciliations – where should emphasis be placed?
  • Are there any transaction reconciliations being done that could be automated? Consider acquiring bespoke transaction matching software to save time and cost.
  • Analyze the documentation and reconciliation of the balance sheet for all legal entities – on which companies and what accounts should emphasis be put?
  • Consider acquiring balance sheet reconciliation software to keep track of account
 frequencies, ownership, risk rating and procedures and documents.

 

 

Do you have a burning question about improving your reconciliation processes using automated cloud-based software? Get in touch on info@adra.com