How modern technology can help improve the reconciliation process?

4 mins

Modern technologies such as artificial intelligence and machine learning have proven to improve the efficiency and effectiveness of business processes across companies of all sizes. These technologies are able to reshape businesses by automating, streamlining and increasing productivity as well as by improving the quality of products or services. They can reduce the time of work, reduce costs, simplify tasks, speed up business production, enhance marketing and provide better customer service. For businesses across industries, it is now imperative to innovate and adopt modern technology to stay relevant in the market amid heightened competition.

In the world of finance and accounting, the reconciliation process is of prime importance. Having a proper reconciliation process is vital for the continuity of any business. Through this article, we will understand how modern technology can revamp the existing reconciliation methods to make the key process more efficient.

What is reconciliation? Why it is important?

 In accounting, reconciliation is defined as the process of matching that two sets of records to find out if they are in agreement. For accounting professionals, it is important to ensure that the money leaving your account is the same as the actual money spent so that balances of two account statements match at the end of a particular calculation period. Certain differences in accounts occur because of the timing of payments and deposits and they can be easily rectified. However, there are also certain situations of unexplained or mysterious discrepancies that require serious efforts to rectify. These discrepancies can be indicators of fraud or cooking the books, and serious investigation may be needed to figure out the truth behind them.

According to the Generally Accepted Accounting Principles (GAAP), carrying out proper account reconciliation will provide accuracy and consistency in financial accounts. The process is necessary to ensure that all cash outlays and inlays match between cash flow statements and income statements. It is imperative for companies to reconcile their accounts to prevent errors in the balance sheets, check for fraud, and avoid negative opinions from auditors.

The major benefits of account reconciliation in business accounting are:

  • It helps avoid balance sheet errors and other accounting mistakes that can lead to serious ramifications.
  • It can help against fraud (eg. fraudulent withdrawals from bank accounts) and ensure financial integrity during a bank reconciliation process.
  • It helps understand the accounts better with clear details of incomes and expenses.

A robust and steady reconciliation process helps improve the accuracy of the financial reporting and allows the finance department of a business to publish financial reports with confidence.

What are the techniques used for reconciliation?

Here are some reconciliation methods followed by different types of businesses:

Manual reconciliation

It is the traditional way of account reconciliation with written accounts and dedicated staff. Today, this method is no longer feasible in today’s scenario due to the ever-increasing data volumes.

Spreadsheet reconciliation

This is done by using spreadsheet software solutions that have basic data arrangement and calculation features. This method is still used by a large number of organizations. Spreadsheets cannot manage the rapid handling of data as demanded by the regulations today. Spreadsheet reconciliation can consume up to four hours of an accountant’s time every day as he/she has to manually sum up the numbers and spend additional time in the mechanics of reconciliation.

Rules-based and Hosted Reconciliation Solutions

Through partially automating reconciliation processes, these software solutions could greatly reduce errors that came via manual processing. They could address matching of transactions more effectively with pre-set business matching rules and create cases around exceptions/breaks which need human intelligence to reconcile.

AI/Machine Learning-based Solutions

These reconciliation software solutions came into play to address the drawbacks of rules-based solutions. Mixing and matching certain attributes of data across multiple files will help match records. It is not manually possible to figure out attribute-mix and create that many rules. AI/Machine Learning can automatically identify attribute-mix/pattern and create rules for matching. They can also do exception handling, a key reconciliation process, which is completely manual today.

How technology can improve the modern reconciliation process

AI/machine learning-based solutions can make a paradigm shift in the reconciliation process as they are able to learn patterns from historical manual interventions and help detect breaks/exceptions automatically and resolve them in a faster manner. They can streamline and automate reconciliation processes across any line of business, dramatically enhance internal controls while enforcing standardization to improve the quality and accuracy of financial data. In addition, these solutions can help increase transparency in financial reporting.

Machine learning can help in reconciliation in the following ways:

  • Connects to multiple data sources and bringing standardization in data requirement and quality
  • Automatic pattern detection and matching
  • Automatic break detection & resolution
  • Records all activities for audit purpose
  • Provides scalability and helps to streamline the reconciliation process

By employing these automated reconciliation software solutions, financial services can achieve unmatched operational efficiency improvements while ensuring compliance with the toughest of the regulations. They can revolutionize the reconciliation software industry and making processes more efficient and accurate.