Understanding and analyzing a business's financial health is crucial. Accounting reconciliation helps understand a company's financial stability and assists in identifying the scope to improve profitability. The entire reconciliation process should be carefully executed to understand the area of growth and find the flaws to improve an organization's financial status. Here we are focusing on the best practices of client account reconciliation management.
But, before we move on, let's clear the basics.
What is accounting reconciliation?
Account reconciliation is the process of balancing internal and external financial documents to assure that the funds leaving an account equal the actual money spent. Businesses will look at internal financial reports and check them against statements from banks, financial systems, and credit card companies to precisely complete the reconciliation process.
As account reconciliation is a painstaking task, it requires expert assistance and software for the flawless process. Conventionally, companies follow a manual-paper-based process for reconciliation, which is much complicated and requires a lot of time and effort. In the current scenario, the software helps to complete the account reconciliation accurately and speedily.
Still, wondering how to handle account reconciliation smartly? Read on, and you will get your answer.
Account reconciliation is an essential practice that is all about the accuracy of a business's financial health—accurate reconciliation reporting helps prevent problems before they occur. Have a look at the main benefits of account reconciliation:
- Account reconciliation can easily catch fraudulent or overcharge credit card transactions
- It helps in preventing overdrafts on cash accounts
- The process highlights any adverse financial activity such as errors in reporting or thefts
- It reduces compliance risk by assuring accuracy while executing audit
Moreover, one of the most notable advantages of account reconciliation is its role in protecting your company's balance sheet accuracy. A balance sheet relies on all inflows and outflows that incorporate credit card transactions, cash, and loans. Therefore, it is important to make sure the numbers quals the statements for an accurate view of financial status.
#1. Accessible accounting policies and procedures
Make sure that all accountants in your company follow a standard set of policies and procedures while processing the reconciliation. The web-based repository that is capable of linking policies and procedures directly to account reconciliations allows a streamlined process. This will help in reviewing the process and audit of your account reconciliations much easier.
If you have hired a professional bookkeeping service provider, you will have a team leader who will update you about the process. The outsourcing services provider ensures a standardized process.
#2. Proper documentation
Account reconciliation processes should be accurate and consistent, and the process should be explicitly defined and extremely repeatable. You can make this happen by outlining the steps in the reconciliation process. It will be better if you assign responsibility to a person for each step, setting a timeline, consolidating a tool to prove that statements have been reconciled, and have an organized method to fix error correction.
#3. Thoroughly monitor the process
Without its leader, a team will be lost. So, while working on a reconciliation process, make sure to have a concerned person who monitors all the work. The monitoring lead's primary duties include tracking the completion status of all reconciliations, verifying the reconciliations are completed on time and following up on incomplete or late reconciliations.
#4. Drive improvement through metrics
Metrics are essential to measure performance and improve the reconciliation process for any organization. Standard metrics that need to be reviewed periodically and that should include overdue reconciliations, material reconciling items, and accomplishments by the accounting departments. Based on the derived metrics, leadership can adjust the process if needed. For example, reallocate reconciliations among team members, change due dates, or find the right partner for outsourced bookkeeping services.
#5. Use automation to speed up the process
Technology is vital in the account reconciliation scope. There are many alternative tools available in the market, making the account reconciliation process quick and straightforward. However, if you are using automation tools, you still need an expert to interpret the results to make decisions that help expand company growth. Finding a reconciliation tool looks for key features such as real-time dashboards, automated balance interfaces, system-certification features, and automatic notifications, and many more.
Briefly, account reconciliation should be processed with accuracy and a standardized process. The expert accountants should automate and monitor the entire process thoroughly for optimal results. This approach will always produce outcomes to sustain strategies for financial stability.
Whether you have an in-house team of accountants or outsourced bookkeeping services for accounting reconciliation, the reconciliation process's standardized practices will be helpful. It will generate not only accurate reports but also prevent flaws in the system and aid business growth. Hence, follow the above-mentioned best practices of client account reconciliation to take your business to new levels.
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