Cash Reconciliation is the business process that authenticates the cash in a register at the close of business hours or periodic intervals as per accounting principles laid down. The need for cash reconciliation is to ascertain the completeness of a sale or other transactions across the company’s financial system.
For most mid-sized businesses, cash reconciliation is still manual and a major bottleneck in the financial closure process. These businesses commonly reconcile hundreds of accounts during the quarter-end or month-end closure. Leading financial departments are trying to negate the risks of manual methods such as missing or lost reconciliations, improper use of roll-forwards, and insufficient justification for manipulated data. These departments are learning that the key is not only to automate reconciliation processes but also to integrate them with financial workflow.
Before we go further, here is how our RadiusOne AR Suite can help you kickstart AR automation in 28 days. RadiusOne AR suite acts as a single source of truth for your Accounts Receivable (AR) team and brings to the table all-around visibility into critical metrics such as credit limits, invoice details, payment dues, and collaboration history before they can initiate collection activities for customers
Challenges and Roadblocks in The Reconciliation Process
Despite the obvious benefits reconciliation brings to the table, it is hindered by many impending challenges, especially if they rely on manual intervention and traditional techniques. This can impede a smooth reconciliation process.
Some challenges which need to be addressed are:
Slow Data Entry Techniques
Reconciliation is still cumbersome for many business houses. For example, downloading payment statements from banks in the correct format and then uploading them to customer portals is tedious. As different banks have statements in different formats, the Accounts Receivable (AR) teams will have to standardize them before uploading. This will drain your AR team’s resources giving them less time for the day-to-day functions.
Inputs prone to error
Traditional reconciliation processes were always plagued by errors. As the data needs to sync between many systems, there could be inevitable mistakes in their inputs. So errors crop up in downloading and uploading invoices. Moreover, file standardization and record matching can give inaccurate results of your cash flow and increase your corrections expenditure.
Fraud detection is the best reason why reconciliation is done in the first place. If the reconciliation process does not have enough vigilance processes, they could be used as veils to cover up fraudulent activities by dishonest employees. This will also demand more resources for vigilance activities. Here one or more employees need to devote their full time to detect manipulations done with the intent to hide fraudulent transactions.
Effective Storage of reconciliation data
While you may think that setting up an effective reconciliation process could resolve almost all bottlenecks, your job gets done only when the reconciled data could be safely archived and retrieved when needed. This gives rise to new hurdles like data storage space, rising storage costs, and difficulty in finding data sets with a manual retrieval process.
Benefits of an automated reconciliation process
So let’s focus on the benefits of a fully automated cash reconciliation ecosystem
Reduce Operational Costs
Finance teams across companies opt for the services of a bank lockbox for seamless collection and reconciliation processes. These banks however charge both one-time and monthly fees from your business. Manual cash reconciliation, on the other hand also bears significant processing fees and other resource expenses. With an automatic reconciliation workflow, these operational costs could be substantially reduced.
AR teams in small and medium businesses (SMBs) have to look towards high manual reconciliation required for ACH and other electronic payments. Remote Deposit Capture(RDC) ensures faster reconciliation of cash by scanning checks and check-stubs through the scanner for remote deposits in banks. This feature enables the field agents to scan the checks and select invoices to be applied against the payment.
Multisource remittance capture
Every AR team imagines an ecosystem where cash reconciliation could be done across remittances and payment sources along with automated invoice matching. This could only be leveraged through an automated cash reconciliation process. This will save your AR team a lot of time and resources and quicken AR processes.
Our RadiusOne AR Cash Reconciliation App enables automated cash reconciliation across diverse remittance sources and formats including emails and web portals, with automated invoice matching and short-payment identification to enhance productivity. Click on the link to know more about the end-to-end AR suite.
The overall reconciliation procedure not only ensures cash and revenue balance but also organizes a lot of procedures in the process. It streamlines workflows, improves internal control, and lessens risks both in the cash and credit domain.
You can set up automated systems to build financial statements on a predefined schedule so that you do not miss vital actionable information. The automated cash reconciliation system also provides the capability to have ready-made reports on the reconciliation items.
So to sum, reconciling your organization’s finance could be complicated, tiresome, and will exhaust the limited resources of your finance team if done manually. There is always the risk of key-in errors and report and data manipulations too. To have a fast, accurate, and cost-effective reconciliation process, your finance team must automate all reconciliation processes that integrate with most ERPs and accounting systems.
Take a few minutes to help us understand the problems you face with AR:
- Do you face delays in sending out invoices?
- How robust is your customer onboarding mechanism?
- Do your finance staff spend a lot of time chasing faulty accounts without an idea about the aging or amount of exposure?
- What area of your accounts receivables do you think needs improvement?
Check out this blog on "How to Optimize AR Collections Management to Improve the Cash Flow”