In business accounting, accuracy is the name of the game – so any tool that can simplify the process, save time and increase accuracy is an extremely valuable asset. A bank reconciliation statement helps to keep the margin for error as slim as possible.
Here we explain what a bank reconciliation statement is, and why it’s a crucial part of your company’s accounting strategy.
Bank reconciliation is the process of matching two bank balances – the one in the company’s own records and the one on its bank statement – and ensuring there is no difference whatsoever.
This helps to provide reliability and consistency in accounting by proving that the money leaving the company account is the same as what has officially been spent.
Bank reconciliation is the quickest way to identify any discrepancy between balances. Any unexplained discrepancy could be a sign that a theft or fraud has occurred within the business, and should be thoroughly investigated with all relevant staff members.
It can also help to identify any frauds as they are occurring rather than after they have occurred, meaning that the resulting damage can be kept to a minimum. The earlier in the process a discrepancy is spotted, the less disruption is caused to the business.
For big companies, bank reconciliation should take place every day – the more frequently it is done, the greater a chance it has of eliminating any irregularities. Some companies perform bank reconciliation less regularly – on a monthly basis, for example – but this can increase the possibility of serious error, depending on the size of the business.
Many businesses undertake the process using automated bank reconciliation software, which helps to make the process as quick and smooth as possible.
There are many advantages to using a bank reconciliation statement. Here we list some of the main reasons why it should be at the heart of your company’s accounting strategy.
As explained above, when comparing your company’s own bank book with the transactions that your bank has on record, you will be able to spot anything that doesn’t match up.
On some occasions, the process might simply identify a transaction that you have forgotten to record. But at other times, it could identify a transaction that has been carried out by an unauthorised person in an attempt to steal money from the company’s account.
No matter how meticulous your accounting is, there is always a margin for human error. Common mistakes include double payments, missed payments, lost cheques and simple arithmetic errors – although this can, of course, be reduced by investing in digital finance transformation to automate procedures right across your business. With a bank reconciliation statement, you can spot and rectify any mistakes quickly, no matter what the cause behind them.
Having a close eye on your company’s balance through bank reconciliation statements means that you are less likely to spend money you don’t have – causing you to overdraw or miss a payment, and having a negative impact on your credit score.
Many banks will also impose overdraft fees, meaning that bank reconciliation statements can help to save money too. In addition, regular bank reconciliation statements will help you to notice if the bank starts charging you a new fee, allowing you to look into the reasons why.
If your company has customers that still use a lot of cheques to make payments, it is easy for these to be forgotten or misplaced. Taking the time to complete a bank reconciliation statement means that you are more likely to quickly notice if your own accounts record payments from a customer but your bank account does not.
It is worth being aware that bank reconciliation statements are not without their disadvantages too. Here are some of the issues that they can present:
Both the advantages and the disadvantages outlined above are reasons to invest in bank reconciliation statements using automated software. Not only can you complete the process with fewer errors, but you can integrate it into the working day much more smoothly – and see the benefits daily.
Reasons to opt for the latest automated software include:
Visit our website to learn more about finance automation and what it can do for your business.