How to do manual bank reconciliation and why you shouldn't

For many businesses, bank reconciliation can feel like a task that has no end. Just as you think everything is done and dusted, it’s time to do it all over again. Whether you’re a huge corporation or a small family business, the process is essential to avoid fraud, correct discrepancies, and forecast accurately… but it can often come with a side order of headaches and stress. 

Unfortunately, when handled poorly, bank reconciliation can be a sinkhole for time and resources. In extreme cases, it can leave a company vulnerable to legal issues, revenue loss, and even investor confidence forfeiture. It is therefore critical that reconciliation is executed optimally from both a compliance and a resource perspective - something which can only truly be achieved with automation.

To really understand why automating this process is the perfect way to take the pain out of bank reconciliation, we need to really get to grips with all that the manual process entails - through its pitfalls, the benefits of automated reconciliation will become clear. So, here’s how to do manual bank reconciliation… (and why you shouldn’t). 

1. Gather financial documents

It’s easy to say, and harder to do. Gathering your financial documents is the first step of any manual bank reconciliation. After all, you can’t reconcile your accounts if you don’t have the right financial records to cross-reference. 

To begin with, you’ll need to open your ledger to check your income and outgoings, pulling together bills, invoices, receipts, and financial records of all kinds. Then, you will also have to request the downloading of bank statements — the financial record against which your other records will be cross-referenced.

Again, this sounds easy; however, the caveats of these manual actions are yet to be focused on. For instance:

• Multiple bank accounts (which most companies have) pose a problem when it comes to preparing for manual bank reconciliation due to the fact that finance teams must request not just one bank statement but multiple ones. This is arduous, especially when it is considered that statement download requests from banks can take a long time to be fulfilled.
  
  
• Broken bank statements become more common when they are lengthy and full of transactions. The likelihood of coming across statements like these increases when manual bank reconciliation is done due to the fact that finance functions will not have the resources to conduct the process frequently enough to keep their bank statements small. Consequently, a vicious circle is created whereby reconciliation can’t be done frequently enough, but this leads to the creation of extra-long bank statements that have a tendency to crash upon downloading.
  
  
• Excel data splits also tend to happen with longer bank statements (a symptom of infrequent manual reconciliation). This is a control nightmare as juggling multiple spreadsheets for just one set of data makes it much harder to remain accurate and secure.

What’s a quicker way? 

Needless to say, gathering all these financial records manually can be a lengthy process. It requires a large amount of diligence and cooperation in order to ensure everything is fully accounted for. This is why automating the process both saves time and helps to radically reduce the potential for errors. 

With Aurum possessing a bank of over 600 APIs, such efficiency is easily achievable. Bank statements and more can all be scheduled for extraction in advance and automatically imported into the Aurum platform. There - under one roof - the rest of the bank reconciliation process is also completed in seconds meaning that the automatic gathering of financial documents can be done regularly, removing the risk of statements becoming too large, and saving financial professionals from the vicious circle of unmanageable reconciliation.

2. Transform for reconciliation

Attainment of financial data is one thing; having it formatted in a way that is conducive to reconciliation is another. Unfortunately, this is rarely the case considering how many parties - all with their own data formats - are involved with transactions these days. Yet without transforming data so that formatting is consistent, subsequent reconciliation will flag up many more discrepancies than those that actually exist.

Standardisation of data must therefore take place for the rest of the reconciliation process to continue smoothly. In relation to bank reconciliation, this is likely to entail accommodating for FX rates given that bank statements only ever use one currency despite the fact that many businesses take sales from various currencies. Another common formatting discrepancy that will have to be standardised is that of how dates, months and years are presented. For example, the 3rd April 2024 would be seen as 03/04/2024 in the UK but as 04/03/2024 in America. 

Given how often FX rates change, along with how the aforementioned UK vs. US date system could easily get confused, standardising data is extremely difficult to achieve when done manually. Put simply, there are far too many changing variables to consider and opportunities for errors to arise. 

What’s a more efficient way?

Failure to standardise data is a failure to reconcile. It will lead to false discrepancies being rife and time being wasted. Despite it being a time-consuming task when done manually, it must therefore be done. However, that doesn’t mean that it has to be done without automation.

As a reconciliation platform that holds financial data from infinite sources, Aurum is used to importing data in various formats and with different types of currencies. Unsurprisingly, it is therefore also well-equipped to standardise data and even uses its stream of the latest FX rates to make sure that all multi-currency transactions are consistent.  

With no extra time spent transforming data and no errors arising when doing so, Aurum automatically lays the sturdiest foundation for reconciliation to begin.

3. Get checking 

With all your financial records gathered in one place and standardised, it’s time to begin your bank reconciliation. This means ensuring that everything from salaries to HMRC payments aligns with the numbers recorded in your own internal financial records. 

Due to it being important that this is done meticulously so that any discrepancies between data sets can be found and amended, manually reconciling requires a lot of focus and time because no transaction can be missed. For businesses with a high volume of sales, such as in the hospitality industry, or for organisations that see a high level of fund movements, such as betting companies, it is especially time-consuming. 

High volumes not only sap resources, but by the law of averages, they also increase the likelihood of errors occurring. No matter whether items are incorrectly matched or falsely listed as exceptions, manually reconciling is a process that is notorious for creating mistakes.

What’s a more accurate way? 

Given that automation can handle sourcing data for reconciliation and preparing it for the main event, it should come as no surprise that reconciliation itself can also be automated.

In the instance of deploying Aurum for automated reconciliation, the ability to create bespoke matching rules being configurable before reconciliation and no human intervention during matching, means that errors are eradicated. Plus, thanks to its powerful matching engine, reconciliation is completed in seconds. Despite speed and accuracy often seeming at odds with one another, with an automated reconciliation platform such as Aurum, that is no longer the case.

4. Investigate, amend, update

Exhausted from manually reconciling every single transaction? More work is yet to come before bank reconciliation is truly complete. After all, it is very unlikely that totals will exactly match, meaning exceptions then have to be dug out and investigated. 

The reasons for exceptions appearing are vast and varied, whether that’s because of systems temporarily going down and subsequently missing transactions, cheques being issued but with insufficient funds, or time zone differences confusing recorded times of payments. Nevertheless, exceptions will likely be present and must therefore be resolved.

Doing this as you go can be a disruption to the flow of reconciliation so exception management is often done after reconciliation is completed. However, when done manually this means that people must then find the exceptions they need to investigate, along with spare time which is likely to be extremely sparse.

What’s a more productive way?

While there’s no way to automate the process of investigating exceptions entirely, Aurum can streamline the process in a couple of ways:

• Exception filter - once reconciliation is complete, all transactions remain in Aurum. Fortunately, it also contains an “exception filter” so that finance teams can quickly identify the transactions that require their attention.
  
  
• Reason codes - Aurum intelligently labels why exceptions might exist. This creates a more detailed filter and also gifts investigators a head start when it comes to finding a resolution.

As a result, when reconciliation is automated with Aurum, not only do finance professionals have more free time to conduct exception management but locating discrepancies is fast and efficient too. Moreover, exception management within Aurum remains efficient for the forseeable. This is achieved by the fact that when bank statements or financial records are amended with Aurum, explanatory notes are attached and saved to transactions forever within the Aurum platform. As a result, both exception management is optimised and so too are future audits.

The path of least resistance

Manual bank reconciliation can feel like having to spin multiple plates while jumping up and down. In other words, it’s stressful, confusing and eventually mistakes become inevitable. 

However, by automating the process, you can avoid the errors that often occur when extracting and reconciling data manually from several sources and thus spend more time actually investigating exceptions. With the aid of Aurum’s system and all amendments kept safe in perpetuity, you can relax knowing that reconciliation is happening thoroughly on an ongoing basis. 

Want to know more? Book an expert demo today and learn how Aurum eliminates the headache of manual bank reconciliation with a seamless, automated reconciliation process.