Bank reconciliation is a vital process for any business to ensure accurate financial records.
It involves matching the bank statement with the organization’s internal records to identify any discrepancies or errors.
According to a survey by AFP, bank reconciliation is the second most time-consuming accounting activity for businesses, with an average of 14 hours spent per week.
Additionally, the same survey found that 90% of companies experience some form of discrepancy during the bank reconciliation process.
While bank reconciliation is a necessary task, it can also be a challenging one.
In this blog post, we have discussed some common challenges in bank reconciliation and also provided tips to overcome them. So, let’s begin.
Incorrect or Incomplete Data
Incorrect or incomplete data is one of the most common challenges encountered in bank reconciliation.
People face this issue due to various reasons, such as incorrect entries, missing transactions, or errors in bank statements.
When this happens, it can be challenging to identify and correct the errors, which can lead to further complications in the reconciliation process.
To overcome this challenge, make sure your data entry is complete and accurate.
Implementing internal controls, such as double-checking entries, cross-referencing data, and using automated software to detect errors, can help achieve this goal.
Moreover, monitoring and reconciling bank statements regularly can help you identify any discrepancies early on, allowing you to take prompt action.
Timing Differences
Another common challenge in bank reconciliation is timing differences between the bank statement and the organization’s internal records.
For example, a payment made by the organization may not be reflected in the bank statement until a few days later, leading to a mismatch between the two records. This can make it difficult to identify and reconcile transactions accurately.
To overcome this challenge, you must maintain a clear understanding of the timing differences between the bank statement and the organization’s internal records.
You can achieve this by regularly monitoring and reconciling bank statements, keeping accurate records of transactions, and using software tools that can help identify discrepancies early on.
Bank Charges
Bank charges can pose a challenge in bank reconciliation. Banks may charge these fees for several reasons, such as overdrafts, ATM transactions, or account maintenance.
These fees may be small, but they can add up over time and have a significant impact on an organization’s financial records.
To overcome this challenge, you should regularly monitor bank charges.
You can achieve this by reviewing bank statements carefully and keeping accurate records of all charges.
Additionally, organizations can negotiate with the bank to reduce or waive certain fees.
Reconciliation Frequency
The frequency of bank reconciliation can also pose a challenge. Some organizations may reconcile their bank statements daily, while others may do so weekly or monthly.
While the frequency of reconciliation may depend on the size and complexity of the organization, it is important to ensure that reconciliation is done regularly to avoid errors and discrepancies.
To overcome this challenge, you need to establish a clear schedule for bank reconciliation and stick to it.
You can achieve this by assigning specific staff members to handle reconciliation, using software tools that can automate the process, and establishing clear procedures and guidelines for reconciliation.
Human Error
Bank reconciliation encounters a common challenge of human error, which may occur due to various reasons such as incorrect data entry, miscommunication, or lack of attention to detail.
Although it may not be possible to entirely eliminate human error, minimizing its impact is crucial by establishing clear procedures and guidelines for reconciliation and implementing internal controls.
To address this challenge, organizations should train staff members on the significance of accuracy and attention to detail in bank reconciliation.
Furthermore, regular monitoring and review of reconciliation records can help to detect and rectify errors promptly.
Final Thought
While these tips can help you fix loopholes but if you have a large volume of transactions, it is advisable to outsource the bank reconciliation process.
Outsourcing bank reconciliation can be beneficial for businesses that do not have the time or resources to manage the process themselves.
By outsourcing, you can free up your time and focus on core activities and leave the reconciliation process to experts who are trained in the process.
Additionally, outsourcing will ensure that the process is done accurately and efficiently, minimizing errors and discrepancies.
If you have any queries or if you’re looking to outsource your reconciliation process, fill out this short form below.