10 Must-Know Terms In Reconciliation

Do you know your ERP from your exception management and your ‘aging’ from your variance analysis? And why does all of this matter anyway? Here we gather some of the most common terms used in the reconciliation landscape and explain their significance.

1. Reconciliation

Simply, reconciliation is an accounting process that compares two sets of records and checks the figures are in agreement. Typically, one record is created internally by the business and the other externally by a third party such as a bank, supplier or customer.

Reconciliation ensures accounts are accurate, valid and complete, giving an individual or business a picture of cashflow and highlighting errors or discrepancies. Records could involve payroll, invoicing, or stock, or more complex transactions including cross-border payments where international rules, regulations, currencies and time zones need to be taken into account.

Spreadsheet software is widely used for this sort of record management but it does have its limitations. Take a read of our blog for more about this. Today, more and more businesses are adopting cloud accounting software that introduces automation into the record-matching process.

Poor reconciliation has consequences for compliance, profit margins and customer satisfaction, and makes it harder to detect fraud.

‍2. Automated reconciliation

‍As the term suggests, automating the comparison of records ensures a faster, more accurate and secure process. It provides a reliable audit trail and is a source of real-time data available to analyze on demand for more agile decision-making. It allows a business to scale faster and frees up employees to focus on more important tasks.

‍3. Transaction matching

‍As its name suggests, this is a process to ensure corresponding records concur to either highlight discrepancies or confirm all is as it should be. This is either done manually using spreadsheet software, or via automation which better facilitates rapid verification in a more tailored way.

Data sources and match criteria are first established before the matching process is defined and frequency of matching decided, for example matching and balancing daily or matching daily and balancing monthly. Data can then be imported for reconciliation to begin.

Automating this process improves accuracy, speed and efficiency.

4. Exception management

‍An effective reconciliation process is dependent on being able to quickly identify and resolve anomalies and errors – known as exceptions or breaks – that are highlighted during the matching process. Finding and then resolving these exceptions efficiently is key to building a robust audit trail, reducing friction in the transaction and accounting process, and ultimately ensuring good customer service.

Traditional means of reconciliation using spreadsheets can make exception discovery time-consuming and inefficient, especially when dealing with large volumes of complex data. Automating this improves the speed and accuracy of diagnoses and resolution.

‍5. Outstanding items

‍Not a term of praise but possibly one of concern. It is when records seeking reconciliation are for whatever reason yet to be matched. Take the example of a bank where an amount has been recorded in the ledger of the receiving entity but has not yet cleared from the bank of the issuing party. Identifying these occurrences is important to prevent unauthorized or fraudulent transactions or simply useful for highlighting delays that have occurred for benign reasons that can be quickly resolved.

‍6. Transaction aging

Reconciliation often highlights irregularities. ‘Aging’ is a method of sorting and then investigating accounts according to the length of time an invoice has been outstanding. It provides a picture of a company’s financial health and how effective its credit terms and invoice collection processes are, which can then be adjusted if they are proving damaging. Automating the identification of bad debt offers a real-time picture to better monitor, adapt and resolve.

‍7. Workflow

Competent and productive reconciliation relies on a streamlined process that provides transparency, clear lines of assignment and responsibility for tasks, and an easy way for teams to communicate and collaborate.

Effective workflows should give users a way to access, monitor and share real time information quickly, as well as the ability to create reports and assign jobs to the appropriate person. The better reconciliation tools include a comprehensive dashboard of data and functionality to help streamline workflow.

‍8. Variance analysis

Variance analysis enables a business to monitor the fluctuations in balances over a period of time, giving a picture of overall performance during that reporting cycle. For example, are expected costs meeting actual costs? The results can then be analyzed to define where these anomalies are occurring and how they can be resolved.

‍9. ETL‍

ETL stands for extract, transform and load. It is how data is taken from multiple sources, transformed into an appropriate form, and then pulled into a database to support a particular business function. The objective is to have clean, enriched and curated data available for analysis in one place. Depending on the ETL’s functionality it can transform the way a business can exploit its data for rich, actionable insights, from something as simple as monthly reporting to tackling more advanced analytics. Previously, organizations wrote their own ETL code. You’ll be pleased to know there are now plenty of providers available, with leading ETL tools automating the entire data flow.

10. ERP

Automated reconciliation is a type of ERP, or enterprise resource planning, managing data from a range of functions including finance, supply chain, HR, manufacturing and more. Traditionally ERPs were disparate, standalone systems that didn’t talk to other systems, which made it hard to integrate new technology and scale easily. Now they are increasingly connected which enables better intelligence, more streamlined operations and greater agility in decision-making thanks to more connected insights.

‍Summary‍

Gaining a better understanding of reconciliation demonstrates the considerable impact good reconciliation processes can have on building and maintaining a robust business.

Advanced tools can handle large and complex volumes of data, quickly identify and resolve troublesome issues, and enable better reporting and collaboration. This is key to growth, job satisfaction and maintaining happy customers. Other benefits of automating reconciliation include:

• More accurate, managed, transparent data outcomes
• Intelligent workflows with a real-time picture of activity
• Auto-allocation of tasks to the right parties
• Comprehensive audit trails
• A more connected data-led business

Automated reconciliation with Aurum

‍We are financial data matching software specialists. For more than 14 years Aurum has been helping CFOs for some of the world’s most recognisable brands achieve their reconciliation goals. We help put businesses in the driving seat with their data, ensuring compliance and control with a quality product tailored for each client’s needs. We work across industries and have a diverse client list including Octopus Investments, Ladbrokes, Fullers, and Imperial Brands. Our partnership approach ensures we’re always on hand on your reconciliation journey.

Talk to us – jargon-free – about how our technology can help you. Book a demo with us now.