Missing supporting evidence. Reentering the same figures twice. Troubleshooting errors in the ERP system. Validation errors. Do any of these situations sound familiar?
Managing the account reconciliation process by email and Excel spreadsheets might seem like a standard choice, but too much can go wrong in the process when you rely on these tools alone.
With the increasing complexity of financial transactions and regulatory requirements, manual reconciliation processes have become overly time-consuming and error-prone.
This is where automation comes in, simplifying the way large companies manage their accounts. In this article, we’ll explore the key reasons why companies are turning to automated solutions to take control of their hectic account reconciliation process.
What is account reconciliation?
Let’s take a step back with a definition and some context: account reconciliation is a process where the finance department verifies the accuracy of closing balances in general ledger accounts. This ensures that the numbers reported in the main ERP system are correct, which is crucial for auditing purposes.
For instance, if your general ledger shows a cash balance of one million euros, it’s the account reconciler's responsibility to provide proof, such as a bank statement, confirming this amount. However, discrepancies often arise between the general ledger balance and the bank statement. The reconciler's task is to identify and explain these differences, which could stem from unrecorded bank fees, interest payments or other missing transactions.
Account reconciliation became especially important with the enactment of the Sarbanes-Oxley (SOX) Act of 2002 in the United States. This legislation aimed to protect investors from fraudulent financial reporting by corporations. At the time, auditors began focusing more on the accounting process itself rather than just the numbers, as numbers are easy to manipulate.
By ensuring accurate financial records, account reconciliation not only supports regulatory compliance but also builds trust with investors and stakeholders. While account reconciliation is not legally mandatory in Europe as it is in the US, it’s widely adopted and considered a best practice.
Key benefits of automated account reconciliation for big companies
So, where does automation come in? Here are the core benefits of automated account reconciliation solutions.
Time savings
The biggest benefit for finance teams is saving time spent on repetitive tasks, which is especially relevant for large companies with thousands of accounts to reconcile each month. Automation streamlines the entire process—from pulling the data and adding explanations to getting approvals.
How exactly does it work? By integrating automated solutions with your ERP system , data is pulled directly from the system without the need for manual intervention. Since 50% to 60% of accounts typically remain unchanged month to month, automation rules can improve efficiency by identifying and reconciling these accounts for you. In fact, our customers have been able to auto-reconcile as many as 70% of their accounts.
Other repetitive tasks you can automate include making special calculations for heavily rule-based tasks like accruals, and manually attaching supporting evidence to reconciliations from email.
By automating routine reconciliation tasks, your finance team can shift their focus to more strategic activities. This enhances overall operational efficiency and accuracy, allowing your company to maintain precise financial records while optimising resources.
Gain visibility into the account reconciliation process
Without automation, the account reconciliation process often involves downloading reports into Excel, adding explanations to complex workbooks, and then sharing them via email or SharePoint. This manual approach is challenging to track and manage, prone to data entry errors, and inherently slow and complex.
What’s more, limited visibility makes it difficult to measure process efficiency and identify bottlenecks.
Finance automation brings real-time visibility into each stage of the account reconciliation process. With an automated solution, you can easily track:
● The current status of each task
● The number of accounts reconciled
● The total value reconciled
Tracking the total value reconciled is crucial. For example, even if you have 40,000 explanations to provide, a significant portion of your business value might be tied to just 1,000 accounts, as many accounts may have little activity. So, while 90% of accounts are reconciled, they might only represent 20% of your company's revenue or costs. This insight allows you to better understand your exposure to risk.
Automation also ensures that the finance team performs their tasks at the right time, eliminating the need to constantly ask for updates. By seamlessly linking evidence, such as approval emails, directly within the system, you no longer need to search through emails and upload documents to separate platforms. This streamlined approach enhances efficiency, accuracy, and overall process management.
Get a head start on account reconciliation
Traditionally, companies start the reconciliation process in the second week of the month, after closing their books. However, automation allows you to start reconciling high-risk accounts before the accounting period ends.
Starting the process early helps you identify risks and address them before it's too late. If errors are found after the period is closed, corrections can't be made until the next period, potentially leading to financial misstatements. Early reconciliation ensures any discrepancies are caught and adjusted in time, providing accurate financial information for better decision-making by the management team.
Stress-free month-end closing
Month-end closing doesn’t need to be hectic or hard work, even for large companies. Automation helps you streamline the entire account reconciliation process, making it easier for everyone involved—from reconcilers and auditors to financial controllers—to focus on strategic tasks without wasting their time on manual work.
With Aico, even the most complex financial closes become seamless and stress-free. To learn more about optimising your reconciliation process, download our free guide: Roadmap to Account Reconciliation Excellence.
