Reconciliation Accounting

Author: Neil Conway

Five Reasons Why Your Bank Reconciliation Process is Failing you

If you are reading this article, you probably have been down the road already of trying to reconcile a bank account or have someone working for you reconciling a bank account.  This is formally called reconciliation accounting.  You are here because that process has so far failed.   This is a common problem shared by many business owners, accountants and managers.  So, what could be causing trouble for something so seemingly simple as month end reconciliations?  As a consultant, I can give you five reasons I have encountered that have caused reconciliation of accounts to fail before they even begin:

  1. Not using a step-by-step process

If you ever observe an expert performing a reconciliation of accounts (bank reconciliation), they use a disciplined process.  They first make sure to compare their last month’s bank reconciliation.  Then, they methodically add current accounting transactions and bank website transactions.  Finally, and carefully, they one by one clear book and bank transactions.  Inexperienced users almost never do this.

Want help creating a step-by-step process?  Keep reading.

  1. Trying to use a manual process

About 35 years ago, there was only one process to use: pencil and paper.  That, of course, was before credit cards, wires, zero balance accounts and other complex bank transactions really became common.  Pencil and paper really begins to break down in a modern work environment.

You are interrupted with e-mail, phone, coworkers, text messages and important “quick” tasks.  So, the concentration needed for using pencil and paper just is not there for most people.  As well, this method really only works with highly experienced accountants that know exactly how to start and finish a bank reconciliation.

I would possibly recommend a manual process for 25 or fewer transactions.  As well, if you happen to only accept checks and cash, you might survive on this old technique.  I do not often find that it works well.

With the complexity and speed of most business transactions, a manual process of using paper and pencil is simply outdated and in many cases inappropriate.  Think of someone insisting on using a hand calculator and a pencil to add up a column of a thousand numbers instead of a personal computer and you’ll begin to see why this just cannot be handled practically without technology.

  1. Using the wrong technology

When you do choose a technology, the choices available tend to fall in three categories: spreadsheet, integrated bank reconciliation, third party bank reconciliation program.  All three have their merits, but tend to be chosen for the wrong reasons.

Let’s start with spreadsheets.  This is just one step up from the manual process of using pencil and paper.  Yes, it automatically totals up columns of numbers.  Yet, a spreadsheet is poorly designed for step-by-step processes.  Even experts that are whizzes with spreadsheets eventually move away from them when doing bank reconciliations.

The most popular initial choice tends to be integrated accounts reconciliation.  Having a bank reconciliation program integrated with your accounting system built by the same company that created the accounting system sounds like common sense.  Yet, my experience with customers has shown otherwise.  An accounting vendor, even one with a large customer base and huge programming resources, has to program a huge number of accounting modules.  As a result, typically the bank reconciliation module created is basic at best.

Still want that warm and fuzzy feeling of an integrated reconciliation of accounts module?  Think of another example.  Many accounting vendors used to build spreadsheet programs.  Some even built word processing programs.  Would you think about using them now?   Your familiarity is likely with one of the big vendors: most famously Microsoft Excel but possible Google Docs or others.  You know that Excel or Google Docs are likely far superior to a spreadsheet built by an accounting vendor.

This same logic applies to reconciliation accounting programs.  The third party ones are just many times better than the integrated ones.  They have a more dedicated step-by-step process, more capabilities in processing matches and more robust help menus to apply to account reconciliations.

  1. Not applying enough resources to the task

Many times the person tasked with doing a bank reconciliation has not been given a realistic amount of resources in time and money.  Usually time is the big issue.  If the reader is taking over a bank reconciliation process from someone else, they are behind on bank reconciliations by 12 months, and has never touched the process, that person (you) is not getting it done over the weekend.

A bank reconciliation that is complex is going to require a disciplined step-by-step process.  A dedicated bank reconciliation program is probably essential.

  1. Not finding external resources to help

When I walk into a client’s place of business and see a person tasked with account reconciliations months behind, I normally see the inexperienced ones just staring at the same pieces of information for hours.  When you have a difficult process, it is time to look outside for help.  That includes finding a bank reconciliation program or website that can help you through this process. This includes youtube videos, and yes third party bank reconciliation programs that already have the step-by-step process in place.

The one most closely resembling my own wish list for account reconciliations process is called ClearRec.  www.clearrec.com.  (disclosure: I helped guide its creation).  It will work with nearly any accounting program.  It is similar in format to a Microsoft Office type program.  As well, it has a detailed help menu.  Finally, it is used by both experts and beginners.  It maintains a disciplined process but is flexible and does not waste your time and can tackle accounts reconciliation.

I hope this information puts you on the path to solving your bank reconciliation issues.  A process of reconciliation accounting is rarely solved without help.  Like many people, you probably searched the internet for a solution, any solution that could help you.  You now have options available to you.  With a step-by-step approach and a third party program like ClearRec, you could start down the road of repairing your process of month end reconciliations.

 

 

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