Given the new types of services available with cloud software, do you still do month end bank reconciliations only? These new services allow you to reconcile on a daily basis, thus catching wires/ACH's "immediately" and error's as well. I've found it to be less tedious, more accurate and overall attributing to a faster close, whether you write 25 checks or 2500 checks a month. What's your experience?
Bank reconciliations - do you still do it only at month's end?
Answers
Everywhere I have been in the last 20 years, I have always pressed for real time reconciliations for the reasons you describe above. Bringing the data in daily from the bank and spending less than 10 minutes gives us the information we need to make real time cash decisions. Since so much of our activity in and out is electronic, we would have no idea which clients had paid us if we waited until month end. On the rare occcaisions that bank instructions are wrong we would have no idea whose payment bounced back until we were in trouble with a vendor.
Reconciling daily has also helped us catch some large bank errors and get them corrected same day. Last month our payroll company told us they were reconciling our payroll
The incentive for me to take up daily reconciliation came when I took over an escrow account at a mortgage servicing company for a servicing portfolio of over $800M. The person I inherited this from warned me that I would have to close my office door for at least 3 days at the beginning of the month to complete the reconciliation. That would include starting over a few times. I was not at all interested in that kind of stress and realized quickly that a few minutes a day made everyone's life easier.
I concur with Sara - "a few minutes a day" is much easier.
Bank rec(s) is balanced daily. No waiting at month end. The receipt of the physical bank statement is just a filing exercise - bank rec was done on the first business day after the end of the month. No excuses allowed!
Same goes for credit card merchant accounts, loan accounts, etc. as they all flow through cash. So much easier to catch errors on a daily basis.
And for something a little transformational that also reduces the bank rec effort in the end, think about switching all AP payments to ACH and stop writing checks. With ACH payments, you need only look for failed payments instead of checks not yet cleared.
ACH will take some effort to set up, and you may still need a rare check, but long term you avoid wasting human effort on a really mundane task, and you get better precision about your cash balances.
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Believe it or not, businesses, small and large are hesitant to either send or receive ACH. I have had great difficulty in getting the info from vendors so we could just ACH and my team spends a foolish amount of time writing checks...
For the life of me, I can't figure out why...
In my book, with the advent of cloud and online access to accounts, it is a sin NOT to encode yesterday's (or today's) transactions much more NOT reconcile them. It is NO longer a question of if it is "easier" or not. It is just the way business process is evolving.
I work with a lot of mom and pop agencies and some absolutely refuse to do online banking with me. I was able to persuade a large majority of them simply by sending a letter telling them that I was "going green and would no longer be processing paper checks." Even with that, I deal with one entity who sends me updated invoices with amounts showing as outstanding that were paid via ACH. When we ask why they still show, they tell us they only reconcile their bank statements once a month and 'have no way' of knowing if our payment was received prior.
I check activity online daily, make sure that all ach/wire deposits are recorded daily, and any ach withdrawals are also reflected. As such, our cash balances are always up to date. During the month-end process, bank accounts are reconciled to the statement, for the purpose of balancing the subsidiary ledger to the general ledger.
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I'm assuming this is a manual process. If so, it only works extremely well in an account with limited transactions. Those who have moderate to large number of transactions it becomes quite cumbersome.
Pre-SaaS enabled software I did as you described and every month I missed wires or ACH's inbound.
Using a SaaS program that reads the data and allows you to do a real daily reconciliation saves so many headaches the the productivity and cost savings far outweigh the added expense, if any, of the SaaS product.
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Cash Management