What are the Common Challenges in Bank and Credit Card Account Reconciliation, How to Solve Them?
With firms making use of all sorts of new innovations, it becomes more and more imaginable a company can lose track of its finance. Bank and credit card account reconciliation is an invaluable task that identifies potential financial discrepancies, enables firms to countercheck and verify for possible cash flow manipulation, potential fraud, and ensures the available financial data is precise and trustworthy. Despite the available technologies which aid in swift reconciliation of accounts, businesses, start-ups, and established firms alike all have varying and unique challenges. In this blog, we will explore the most common issues, which businesses have regarding reconciliation and outline, some resolutions to fix these issues.
Why is Reconciliation Important?
Bank and credit card reconciliation involves cross-referencing all financial records available for the business with the corresponding records presented by banks and credit card holders. This is done with an intention of to help track and detect gaps that have potential discrepancies, address ones that have been identified, and in the end produce a financial document that is as precise as possible. Without reconciliation, a business is quite likely to suffer from poor financial management, fraud manipulation, poor business finances, and compliance penalties.
Common Challenges in Bank and Credit Card Reconciliation:
- Volume of Transactions: Reconciliation becomes problematic, almost impossible, and an excruciating task for firms that have to manually track and reconcile for every transaction done within a business with banks for a single payment/ refund/ transfer for the same period of time. With an increased workload, the financial accounts for a business become a pain. Increased workload on its own to most finance experts translates to decreased precision and an increased probability of accuracy errors It often turns into a vicious cycle—the busier a firm gets, the harder reconciliation becomes. It becomes an ever-steeper hill to climb.
Solution: Reconciliation is made easier through the automation of advanced accounting software. The software’s ability to match transactions automatically reduces the burden of work and error.
- Timing Differences: Deposits, withdrawals, or credit card charges may be registered on the business’s internal records, however, they may not register on the bank’s external records or vice versa. These timing mismatches are some of the most common problems when it comes to reconciliation.
Solution: Maintain an accurate record of the in-progress or in-transit transactions and buffer time in reporting deadlines. Regular weekly reconciliations help businesses balance out timing discrepancies in records proactively instead of waiting until the month is over.
- Human Errors in Data Entry: Reconciling discrepancies that stem from incomplete, incorrect, or duplicated records is made difficult from the manual processes of data entry errors.
Solution: The move to digital record-keeping reduces manual entry. Direct integration of accounting systems with bank feeds minimizes the likelihood of human error.
- Multiple Bank and Credit Card Accounts: Companies now widen the scope of their transactions by operating multiple bank accounts or issuing credit cards to employees. Reconciling on different platforms becomes difficult as tracking expenses is made tedious.
Solution: Use a singular interface or dashboard to streamline and improve visibility of the consolidated accounts. It becomes easier to balance expenses and track transactions when using reconciliation software that centralizes the financial data of a business.
- Fraudulent or Unauthorized Transactions: Letting time pass by without carrying out reconciliations can increase the chances of unidentified withdrawals, unsolicited credit card charges, and other forms of fraud going undetected.
Solution: Set up automated alerts for unusual transactions and enforces strict company credit card approval processes. For optimal results, conduct reconciliations on a weekly or bi-weekly basis.
- Un-cleared Checks and Pending Payments: Pending payments paired with un-cleared checks can distort the matching process when counting balances, leading businesses to wrongly assume the existence of errors.
Solution: Set up a dedicated ledger to track issued un-cleared checks. Monitor with bankers and venders to ensure payment processes are carried out on a timely basis.
- Foreign Currency Transactions: Businesses that work with overseas vendors are tasked with dealing with fluctuating foreign currency exchange rates, additional foreign currency fees, and their complexity in reconciliation.
Solution: Leverage accounting systems that allow for multi-currency transactions, and regularly update exchange rate records. Classify rates clearly to avoid payment ambiguity.
Best Practices to Simplify Reconciliation:
- Automate when possible: Implement reconciliation tools to save time and reduce errors.
- Establish a regular schedule by conducting weekly reconciliation sessions to ease the month-end workload.
- Train employees: Standardize the reconciliation process and train finance teams to ensure consistency.
- Enhance detail in records: Improve organization by making sure documents such as receipts, invoices, and bank statements are properly filed.
Reconciliations should be managed often: in order to catch errors in reconciliations, management should conduct reviews on a regular schedule.
Final Thoughts:
In order to maintain the fiscal health of a given organization, build confidence in stakeholders, and assure compliance, bank and credit card account reconciliation is critical. Businesses may encounter timing discrepancies, human errors, or even unauthorized charges; however, these problems can be mitigated through automation, routine reviews, and industry standards.
At Logicwell Technologies, we understand the importance of effective financial operation management, and thus, we offer practical solutions tailored to the specific needs of different businesses. Companies that proactively face reconciliation challenges are able to confidently and transparently manage their finances, attaining profound accuracy and peace of mind.
