Best Practices for Streamlined Account Reconciliation

Account reconciliation has always been a demanding process for finance teams. Over the past decade, factors like increased globalization and the proliferation of new payment rails have introduced even more complexities.

While technology promises to simplify the reconciliation process, organizations must first overcome several key barriers. For many finance teams, streamlining the manual reconciliation process will be an important first step.

Key reconciliation challenges

Managing and reconciling large volumes of transactions across multiple kinds of accounts—and potentially even different currencies and payment types—is a process that's both time-consuming and vulnerable to error.

These challenges only increase as organizations grow. Acquisitions, international expansions and even domestic growth can introduce vast amounts of additional financial data.

"With growth comes more complexity and more reconciliation headaches,” says Matt Ribbens, senior director of treasury product payments at First Citizens.

When rapid growth occurs, staffing levels—particularly on finance teams—don't always follow suit. Without adequate support in place, best practices can quickly fall by the wayside and fragmented processes often become the norm.

In addition to creating inefficiencies, the use of ad hoc processes can complicate the introduction of new technology. This is just one hurdle many finance teams face as they work to automate their systems.

Inconsistent data formats are another common obstacle—one that may require investing in new technology and in-house technical expertise to overcome.

"Not everyone's using the same software," explains Joe Vitale, senior vice president, head of receivables and data management, at First Citizens. "Companies might have a proprietary system designed for a certain industry segment, or they could have a homegrown system because they've built a better mousetrap."

As a result, the path to automated reconciliation isn't clear-cut for most organizations. Rather, it's often a gradual process that occurs over multiple stages.

As finance teams look to the future, there are five strategies they can implement now to streamline their existing reconciliation process and prepare for digital transformation.

1Standardize procedures and formats

Establishing consistent, documented processes for all accounting functions is essential. In addition to streamlining manual reconciliation in the short term, it may also make the process of introducing new technology less cumbersome in the future.

As a starting point, all finance team members should thoroughly document their closing process by outlining clear steps, checklists, policies and timelines. This level of documentation can help make it easier for business leaders to identify a more structured, integrated way to reconcile financial transactions across the organization.

"Once you've identified the best process, look for ways to make it better," says Vitale. "Think about what you can change to make it faster or more efficient."

For example, standardize data wherever possible, striving for consistent formats across various departments and subsidiaries.

2Simplify account structure

“Whether a business has four accounts or 400, it's really important for them to take a close look at account hierarchy,” Vitale notes.

For many organizations, this will be a simple yet impactful step toward streamlining their financial reconciliation.

"Quite often, we find accounts that are no longer needed but are adding complexity to the overall reconciliation process," explains Kim Pearson, senior vice president, director of treasury management sales, at First Citizens.

As organizations review their accounts, they should also take time to identify those that are most vulnerable to fraud.

"An operating account used to send thousands of payments out each month may have a much higher risk of being targeted by criminals," Ribbens says. "If I've got a sweep account with controls established and there are no checks being issued on the account, there may be a lower probability of that account being targeted."

3Reconcile key accounts daily

Monthly reconciliation was once an accepted standard. Today, many factors—including an increased threat of payment fraud—make it important for businesses to reconcile their accounts more frequently.

"[Monthly reconciliation] doesn't really work anymore, and it hasn't for a long time," says Vitale. Instead, he encourages businesses to monitor their accounts daily.

"Not only does daily reconciliation allow a business to understand their cash position, but it also helps ensure that their account hasn't been compromised," explains Michael-Anne Bailey, senior vice president of treasury management at First Citizens.

Of course, daily reconciliation may be a challenge for finance teams struggling with low staffing levels or limited resources. Rather than forgoing daily reconciliation altogether, Ribbens advises these teams to prioritize the accounts that are most vulnerable to fraud.

"If you have higher-risk accounts, those might be the ones you want to do daily reconciliation on," he explains.

4Implement stronger controls

Taking advantage of bank tools like debit blocks or filters can be a simple way to streamline the account reconciliation process.

"Putting in controls where you can prevent debits from happening where you wouldn't expect them helps you reduce the surface area of what you have to reconcile," says Ribbens. "If you know that no one can debit an account, you may not have to reconcile that account daily."

Other business fraud prevention tools—such as Positive Pay, dual controls and payment confirmations—may also help streamline the account reconciliation process by flagging issues promptly.

"I recommend that companies evaluate the controls they have to prevent fraud and speak with the bank to learn more about the tools we have available," he adds.

5Partner with your bank

Bailey notes that the First Citizens Digital Banking Commercial Advantage™ offers additional resources, like the ability to schedule, automate and customize reports.

"There's a lot of flexibility," she says. "You can pull down checks paid the previous day, checks paid the prior 30 days, all ACH debits paid. We have a lot of customization on that platform."

For organizations that require a more advanced level of support, we offer a variety of services to our commercial business clients. Whether an organization is interested in full or partial reconciliation, deposit reconciliation, or electronic data interchange, speaking with its relationship manager is an important starting point.

"This [initial conversation] allows us to learn more about a company's business and what they're trying to achieve," says Pearson. "It also helps us understand their operating model, their account structure and how we can best support them."

The bottom line

While automation promises to help modernize an increasingly complex account reconciliation process, implementation won't be immediate for many organizations.

In the meantime, finance teams can focus on updating their manual procedures and incorporating existing bank tools and automated reports. Standardization, simplification and additional frequency are essential account reconciliation best practices during this phase.