The evolution of the reconciliation processes

Vasco Rodrigues
Vasco Rodrigues

Reconciliation is sometimes thought to be an unimportant process. It’s difficult for those outside of the financial services sector to properly understand the importance or the difficulty of the task. Reconciliation, however, could not be more crucial to the proper functioning of any business.

Without proper reconciliation, companies can be susceptible to a large variety of critical problems. They could suffer from fraud, fall into debt, or violate their compliance obligations. Reconciliation isn’t just about Excel spreadsheets anymore and it’s important we all recognize the insights and data that excellent reconciliation can give. It can allow for better decision-making processes, better organized workforces, and even improved job retention for your finance team.

It’s clear that reconciliation has moved forward. Back in 2013, 90% of companies were using Excel spreadsheets as part of their manual reconciliation process. In a recent 2021 Censuswide study of 306 leading COOs, heads of financial control and heads of financial transformation in large financial services organizations, this figure had dropped to 17% exclusively using manual processes.

The evolution to automatic reconciliation

So, what has changed? Why have companies decided to move towards automatic reconciliation? There are a variety of interconnected reasons for this general shift towards more modern up-to-date reconciliation. In general, however, COOs and CFOs have decided to automate their financial processes because these automated systems solve the vast number of problems that manual reconciliation can create.

Let’s have a look at the major pain points of manual reconciliation and consider why, despite these problems, only 31% of businesses today use fully automated processes.

  1. Time

    According to a study by the Aberdeen Group, the average time spent on manual reconciliation is around 8 days. In comparison, companies using automated reconciliation generally spend around 3 days. The maths on this equation isn’t complex. It’s clear that automatic reconciliation saves financial departments a large amount of time. Computers are far better at aligning different sources and multiple data formats to evaluate discrepancies and they don’t make mistakes.

    Yet even though it’s clear that automation saves time and maximises the efficiency of your workforce, it’s not quite this simple. In the same 2021 study, over 44% of the participants believed that the complexity and scale of their data would not be able to work in an automated system. Similarly, 44% believed that the benefits of automatic data reconciliation would not outweigh the risk of disrupting the businesses current processes. This is an issue that is under-represented in the discussion of automatic reconciliation.

    Few companies recognise the time taken in onboarding and training staff in new, complex, and often AI-driven reconciliation processes. Even though 44% say they feel as if their current system of reconciliation is inadequate, even that it causes them to lose sleep at night, the prospect of starting from scratch with a new system is a significant barrier to the improvement of their processes. It’s an issue that companies offering reconciliation platforms and packages must consider. Automatic reconciliation needs to do more than improve workforce efficiency, it also must be an attractive proposition to the busy and stressed financial teams who might not have time to get up to scratch on new systems.
  2. Data Quality

    A recent EY Global report suggested that the other reason that companies have yet to move over to automatic reconciliation is because they believe that the different types of data they have to deal with are too complex for off-the-shelf reconciliation software to process. This, perhaps, isn’t surprising. Data creation across the world is forecast to grow at a compound annual growth rate of 23% between 2020 and 2025 (according to the International Data Corporation). The world is producing, deleting, and using more and more data each year and the different formats of this data are increasing alongside it. While the industry standard for financial data has been the SWIFT family, new formats like ACH, FIRDS or BAI are starting to be used around the world. This creates huge problems for high volume, complex reconciliation.

    Beyond data formatting, issues to do with currency, charges and fees and bulk amounts create confusion and complicate simple processes. It’s not uncommon for companies to go through an additional stage of data alignment and standardization before reconciliation can start. Automatic reconciliation has to be able to deal with the variances in these sources.

The solution

We’ve seen that reconciliation problems are complex and that financial teams looking to change systems have already developed manual processes that solve their problems. Often these manual processes are risky, inefficient, and susceptible to major errors. Even so, these manual processes are comprehensible to the vast majority of finance departments. Everyone understands an Excel spreadsheet.

Shockingly 36% of those who took part in the 2021 Censuswide study said they hated the way they had to reconcile data. This is clearly an important pain point that needs to be addressed by those services offering automatic reconciliation solutions. What’s more important though is that these software solutions address these problems in a way that looks attractive to busy financial departments, without creating an additional pain point for their customers.

This new software must tap into the companies that consider technology and automation as one of the most important and profitable areas to develop while alleviating issues around onboarding time and data quality. Only then will automatic reconciliation be able to properly help the majority of corporate finance organizations.

How can Aurum help?

We’ve been helping companies with their reconciliation processes since 2004. Over this time, we helped we have helped leading organisations with our deep expertise in financial services, fintech, insurance, legal, gaming and more across numerous countries.

The Aurum Reconciliation Platform is designed, developed, implemented, and supported by us. It provides speed, accuracy, audit, and control to reconciliations with intelligent automation, exception management and comprehensive management information. These are some of the things we can assure our clients:

  • Real-time integration: our platform works seamlessly with ERPs, banking systems, SWIF, PSPs, and more — simply choose which data sources you want to reconcile, and we get it done.
  • Optimal automation with comprehensive MI: with us, you can achieve industry-leading levels of automatic data matching and exception management; and monitor and report on progress using integrated reporting and dashboard technology.
  • Rapid ROI: our software will be up and running in a matter of days, allowing you to streamline multiple business processes with it.

Interested in knowing more?

Get more information about our software here, or request a demo with us.

Vasco Rodrigues
Vasco Rodrigues

Chief Marketing Officer

Author page

As Aurum Solution’s CMO, Vasco Vaz Rodrigues heads up the marketing department and oversees the generation of original insights for financial professionals. Paired with Aurum’s ability to optimise their time, marketing output therefore ensures that the Aurum Solutions brand provides more than just software but holistically empowers entire finance teams.

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