Taking on a more strategic role as a CFO requires a smarter, more efficient approach to reconciliation management.
Everyone, from your CEO to business owners, banks and auditors, wants a clear view on the company’s financial position. And of course, they want it fast and 100% accurate.
In this post we examine how to avoid being one of the 28% of CFOs who don’t trust their reported numbers, and we explore how to increase accuracy, cut costs, optimize resources, improve financial governance and close faster than ever before.
As a CFO, you face an ever-growing number of transactions, sub-ledgers and external systems, all of which increase the chances of errors, duplicated entries and inaccurate information. Your team scrambles to check debits versus credits in interim accounts, bank statements against ERP data, and you enter a world of costly, cumbersome transaction matching.
Without doubt, manual reconciliation is the least efficient and most cost-demanding process in a company. According to a survey by EY, up to 59% of a financial department’s resources are spent on managing transaction-intensive processes. And around 95% of this effort is wasted on transactions that already match, rather than problem entries that actually require attention.
Surprisingly in this digital age, 3 in 4 European companies with sales over €10 million still reconcile data with pen and paper, or by eliminating entries in Excel. However, despite this studious approach, only around half of the 400 companies surveyed had an overview system to monitor who had done what, how, when and why. And only 42% said they prioritised high-risk accounts.
In the long term, this has to change.
Today, the biggest challenge is to achieve a faster and more reliable close, and many finance departments are waking up to the fact that they need a reconciliation solution with the functionality to meet growing complexity.
By introducing automated processes, you can shorten the financial close, monitor everyone’s activities, define milestones and procedures and more, leaving time for the strategic activities you want to develop.
How do the best companies in the world get it right? Instead of looking at individual accounts or sub-ledgers, they constantly review their processes to improve speed and quality. It’s treated much like logistics planning – prioritizing certain accounts, assigning risk levels, clearly segregating duties, and more. All with a transparent overview.
Automation can help to simplify and speed up your reconciliations, while still ensuring accuracy and freeing up time in the department. Software can deal with repetitive tasks like transaction matching, giving you the ability to drill down on open entries or exceptions that require additional attention, and also to develop strategic, qualitative activities.
Many companies are increasingly using cloud-based software tools that help reduce the risks of errors and speed up the process. For example:
Keeping track of any differences in your own organization’s bank statement and that supplied by the bank can be time consuming. Matching software can simplify and speed up the verification process.
What currency do you work in? And what’s your monthly rate? Software can help convert and manage these figures, reconciling any differences.
Direct payment can cause your accounts department to be flooded with multi-page statements. Reconciliation is simple but transaction intensive.
New cloud-based systems can replace manual steps, allowing you to keep track of all accounts, irrespective of the number of companies, banks, business and accounts.
The reconciliation of internal balances is complicated by many factors, which increase with the number of companies, currencies and accounts involved.
Reconciling the accounts of external suppliers is another challenging area.
The world is moving to a cashless society where credit/debit cards and online payment systems are enabling vast amounts of transactions every day. But more transactions means more opportunities for errors.
To minimize write-offs and prevent P&L impact in incorrect periods, discrepancies not related to timing should be dealt with immediately.
The only way to truly manage the exceptions is to compare and reconcile on a transactional level to expose individual credit card transactions causing discrepancies between the sources.
However, making this change will involve potentially millions of lines of data from different sources in various file formats. Manual validation, manipulation and comparisons of such volumes in error-prone spreadsheets should be avoided at all costs.
The biggest benefit to your organisation is time-saving. Viktor Norberg, Group Financial Controller at Coor Service Management, says that automation has saved them eight days per month. That’s 96 days per year!
On top of this, they were able to secure better accuracy, full traceability and compliance. They now have an audit trail that shows exactly what has been done, by whom and when.
And, let’s not forget, they now have the extra time and mental space to consider their wider strategic role within the company, and strategize accordingly.
Our panel of experts came up with this checklist of things to consider when reviewing and improving reconciliation management:
Do you have a burning question about improving your reconciliation processes using automated cloud-based software? Contact us for a private demonstration!