Bank reconciliation errors and how to avoid them

Naturally, a company's bank account is the hub of its finances, making accurate reconciliations against bank statements essential for a number of reasons. 

Errors in this process can lead to confusion, incorrect financial forecasting, and even damaged customer relationships. For instance, a firm might mistakenly claim they didn't receive payment from a customer due to reconciliation errors – and this is just one example among more complex and serious issues that can occur as a result of mishandled bank reconciliation. 

Given the severity of the consequences that can arise from these mistakes, understanding common bank reconciliation errors and how to avoid them is crucial. Let’s take a look at the kinds of mistakes that can crop up and how they can be resolved. 

Numerical errors

Manually reconciling hundreds of transactions inevitably increases the likelihood of numerical errors. Imagine staring at numbers for hours and hours – a transaction total of £525.52 could easily be misread as £252.25 and hence be wrongly reconciled. After all, even the most assiduous and thorough finance professional is only human and will ultimately slip up occasionally. 

This is why more and more finance teams are turning to automation software such as Aurum to remove the risk and worry around potential reconciliation mistakes. By providing a central space to import and reconcile all your bank statements, the potential for human error is eradicated and replaced with fully-customisable, faultless rule-matching automation. 

Customer allocation errors

While numerical errors tend to be where the mind first jumps to when it comes to faulty bank reconciliation, we shouldn’t discount that there’s also the potential for misinterpretation with payee names. For example, a payment made by Ross Jones could mistakenly be allocated to Rose Jones. Once again, automation removes the risk of human error here by accurately and reliably matching transactions to the correct accounts.

Another reason for customer allocation errors arising is that firms are simply unsure whether a customer has contributed to a bulk payment landing in their account. Due to loan companies typically making such payments to the likes of insurance and property management firms that they partner with, this is a common issue for them. However, it can be overcome through Aurum’s one-to-many matching formula which the likes of Peppercorn AI and more deploy to reveal individual payees behind bulk payments. 

Exchange rate errors

If your business accepts payments in multiple currencies, exchange rate errors when reconciling can become a significant issue that requires regular attention. After all, bank statements typically display amounts in a single currency and exchange rates fluctuate constantly. Needless to say, this creates an opportunity for transactions to be incorrectly reconciled if finance professionals don’t stay up to date with exchange rates . 

This is why Aurum ingests a real-time stream of FX rates. As a result, our software ensures that all transactions are reconciled accurately according to the latest exchange rates. This saves finance professionals from the time-consuming task of continuously checking rates manually and the risk of reconciling incorrectly.

Outstanding cheques

Bank reconciliation isn’t just about cross-referencing payments which are received by a company. It also includes those that they pay, even when they are made via cheques. 

However, a common issue with cheques - when issued by a company - is that they may not clear immediately, sometimes taking a month or more to be processed. Consequently, errors are prone to arise if overeager reconciliation takes place as despite a cheque being issued, the negative balance on a bank account statement won’t show until it clears.

Avoiding premature reconciliation is only one part of the puzzle though - if it has to be delayed, it then becomes the responsibility of finance staff to keep track of outstanding cheques and be ready to reconcile them during the correct period when the time comes. With all the other tasks that finance teams have to attend to, this is easier said than done. It therefore pays to adopt software. For instance, by pairing the likes of Aurum and Xero together so the latter can communicate to the former when cheques are cleared, reconciliation can take place at the right time.

Reconciliation sabotage?

While bank reconciliation errors are common, other issues can arise before reconciliation even begins – holding up the process and potentially causing other problems.

There are a number of issues which might occur at this stage. One example is expense oversights – a problem that occurs when the faulty recording of invoices and receipts leads to inaccurate financial statements and cash flow mismanagement. This can arise from human error, inefficient systems, and poor documentation. Another issue is incorrect cashbook totals, something which is caused by data entry and consolidation errors, resulting in misrepresented cash positions and even potential fraud. 

It’s important to note that this is just the start of potential challenges and mistakes which may crop up prior to reconciliation, which is why it’s crucial for accounting teams to lay a solid foundation by following best practices prior to embarking on reconciliation itself. 

Stop avoiding, start resolving

Bank reconciliation is a vital process for maintaining financial accuracy and stability. However, common and easily made errors can lead to big issues. 

Accurate, error-free reconciliation is achievable though. Plus, it can attained with discrepancies resolved in record time. By adopting Aurum's automated reconciliation software, you can ensure precise, efficient, and error-free bank reconciliation. 

Stop avoiding bank reconciliation problems and start resolving them and your exceptions in record time by booking your Aurum demo today.