This article is written by our content partner, Nilus

We know that reconciliation is hard to get right. You or your team have most likely mentioned the challenges of reconciliation. At the surface, it can sound like a simple task—match a transaction recorded in your system to a transaction recorded by your provider.

As a company scales, however, the complexity of managing reconciliation increases.  According to PWC, finance teams spend up to 30% of their time just reconciling transactions with barely any time to focus on more strategic value-add work. Anyone who has been tasked with reconciling thousands, or even just hundreds, of transactions has experienced firsthand how challenging it can be. This is especially true as new payment providers are onboarded and new payment methods or terms are offered to customers.

What do we mean when we say reconciliation?

Reconciliation processes can look different from company to company, but generally, if you process customer payments at scale, as your company grows, you will likely start performing at least a few of the reconciliation processes below. If you already perform a number of these processes, then you likely already feel the pain of getting a real-time view of your cash, trying to understand your AR and AP mid-month, and the struggle of trying to close your books on time. There are a few key reconciliation types:

Payment processor reconciliation

• Reconciling transactions between provider, bank, and internal records
• Reconciling payment processor settlements to bank settlements

Bank payments reconciliation

• Reconciling incoming / outgoing bank payments to open invoices in your billing or ERP systems
• Reconciling bank statements to GL

WEBINAR ALERT: Selecting a Treasury Management System (TMS): An Important Decision That’s Never Easy

What drives your decision-making?

• Cost vs. Functionality: Where do you draw the line?
• Best-of-Breed vs. Modular: What’s the Right Fit for Your Organization?
• Bank Connectivity: What’s the best approach?
• Selection Criteria: What should you prioritize?
• Vendor Invitations: Who should make the shortlist?

We’re here to guide you in making the right choice. In the upcoming webinar, I’ll be moderating and asking the tough questions every treasurer wants answers to. With 10+ TMS selections and implementations under my belt, I’ve seen what works and what doesn’t.

Join us! Expert panel of seasoned treasurer Jeremy Reedus, MBA and Chief Treasury Officer Matthew Harlan from Nilus.

You can’t afford to get reconciliation wrong

If financial reconciliation is done incorrectly, it can have serious consequences for a business or organization. Here are some downsides of getting financial reconciliation wrong:

1. You can’t manage cash flow—if you don’t reconcile accurately or regularly, you will not have a view of your cash flow in real time and run the risk of inaccurate financial statements. Inaccurate data leads to inaccurate decisions. Without a real-time view on cash flow, AR, and AP, you will not be able to make decisions that impact your spending or cash flow until weeks after the month is closed.
2. You could incur financial losses—incorrect financial reconciliation can result in missed payments, incorrect charges, or even fraud and embezzlement. These losses add up quickly and can impact your bottom line.
3. You run a compliance risk—many businesses are required to perform reconciliation to comply with financial regulations like SOX, IFRS, GAAP, and more. Incomplete or inaccurate financial reconciliation may lead to noncompliance, leading to fines, penalties, and legal action.
4. You risk reputation damage—incorrect financial data damages the reputation of a business or organization. Stakeholders like investors and other key partners may lose trust in the accuracy and reliability of your financials.
5. You may encounter audit issues—if auditors identify errors or discrepancies, businesses are forced to make time-consuming and costly corrections.

The challenges of scaling reconciliation

Our team has spent years building and streamlining financial operations and seen firsthand  how and when reconciliation processes break. Here are some of the most common challenges to look out for that can have large impacts on your business and operations.

Transaction volume can become unmanageable

It might be fine to manage reconciliation over spreadsheets in the early days. However, manual matching over reports, files, queries, and spreadsheets becomes highly inefficient and error-prone once your business grows and you start reaching tens or hundreds of thousands of transactions a month. All of a sudden a process that took days might now take weeks.

Global operations introduce new complexities and risks

Once you go global, you have to start dealing with multiple entities, new providers, cross-currency and multi-currency reconciliation—which means new recon flows to prepare, new logic and data to handle, and matching transactions across multiple currencies with fluctuating FX rates.

Systems that don’t speak to each other

While you may start with one payment processor and one bank, you’ll eventually need to manage across multiple bank accounts, payment processors, and ERP systems. As none of these systems communicate with each other, you’ll find yourself with the headache of logging into dozens of portals and patching together different data sources and systems that don’t speak the same language.

Risk of human error, fraud, and money leakage

As your payment volume grows, human error that seemed like a small detail in the past all of a sudden becomes a real concern. What was once a $100 mistake can now become a $100,000,000 mistake. With cross-functional input required across product, engineering, finance, data, and customer support, the opportunity for human error only grows. This can lead to significant losses and money leakage that your company can’t afford.

Delayed financial and cash flow reporting

Running reconciliation manually means you won’t have real-time cash visibility, but it also means that closing the books every month can take weeks. This means that you won’t know your April numbers until deep into May, when it’s time to start the process all over. You won’t be in a place to identify issues, manage real-time balances or invoices, or optimize cash flow in real time, which can impact your customers and your revenues.

Scaling your reconciliation processes

Reconciliation is one of the most mission-critical tasks in a company, especially when it comes to properly managing your cash flow. While many companies address the problem by hiring growing teams of bookkeepers and financial operators, it doesn’t have to be this way. By automating your reconciliation process, you can keep your headcount under control and keep your team focused on the strategic tasks that move the needle.

More from Nilus

• Cash Forecasting in Treasury Management with AI and Automation
• The Keys to Managing Cash Across Multiple Banks
• How Freightos moves faster on decisions with real-time cash data and insights

Join our Treasury Community

Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below.