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Automatic reconciliation: pros and cons

Labour-intensive, time-consuming, error-ridden – manual bank reconciliation can prove to be a challenge for many business owners. Could automatic bank reconciliation be a potential solution? Find out everything you need to know about the advantages and disadvantages of automated reconciliation tools and discover whether they could be a good idea for your business.

What is automatic reconciliation?

Bank reconciliation is an accounting process that enables you to check whether the information held in your accounting records matches up with the information in your bank account. Automatic reconciliation, also referred to as automatic bank reconciliation, allows you to automate this process. It enables you to cut down on the time, cost, and potential for errors associated with manual bank reconciliation and can help to reduce your business’s overall financial risk.

Is automatic reconciliation possible?

Some have questioned whether the concept of automatic bank reconciliation is actually possible. Although many automated reconciliation tools purport to offer full “automation,” a significant level of manual intervention is often required. For example, your accounting software may not automatically synchronise with your business’s bank account, which means that you’ll need to download the account statement and upload it. Plus, you’ll need to enter multiple passwords throughout the reconciliation process, further increasing the amount of manual work required by this so-called automated process.

What are the advantages of automatic bank reconciliation?

Even if it’s not possible to fully automate the automatic reconciliation process (yet), it may still have several significant advantages over manual bank reconciliation. For a start, let’s think about the inefficiencies associated with manual reconciliation. In many cases, bank reconciliation takes an inordinate amount of time simply to confirm what the accounting team already knows. It’s a slow, costly process – and most importantly – it’s prone to errors.

65% of businesses say that matching payments to open invoices is amongst the most labour intensive area of their payments process

(Source: A commissioned study conducted by Forrester Consulting on behalf of GoCardless, September 2020)

Automatic bank reconciliation can cut down on mistakes and ensure that your reconciliation process delivers consistent results. Plus, it can keep skilled accountants from spending an excessive amount of time on this admin-heavy activity, allowing them to devote their time to more pressing issues. It’s also worth remembering that automated reconciliation software can handle much higher volumes of work than humans, meaning that you’ll see a consistent performance regardless of the volume of transactions you’re attempting to reconcile.

What are the drawbacks of automated reconciliation software?

However, there are a range of drawbacks associated with automated reconciliation tools that you should consider before making the leap across. Although humans may be more prone to errors than machines, that doesn’t mean that technical mistakes aren’t an issue with automated reconciliation software. Far from it – there are many different elements of the automatic bank reconciliation process that can produce errors, drawing out the time it takes to complete the reconciliation.

For example, if your business has a standardised pricing model, automated reconciliation software may have difficulty marrying multiple entries for the same day for several different invoices. After all, if all payments are for the same amount, it may not be obvious which payment is from which customer for which invoice. Plus, since so much of the automatic reconciliation process happens out of sight, you may be losing vital opportunities for employees to flag possible errors or note potential misuses of funds or financial difficulties.

Bottom line: there are many different ways for technical errors to creep into proceedings. This necessitates some form of human oversight, which reduces the “automated” nature of automatic reconciliation.

Automatic reconciliation: conclusion

Despite the potential disadvantages we’ve identified with automatic reconciliation, there are plenty of reasons why it could be beneficial for your accounting team. If you can do the initial legwork to reduce the number of potential technical errors, automatic bank reconciliation could help optimise your accounting processes. If you do decide to progress with automatic reconciliation, it’s particularly important to ensure that every stage is checked by a member of your accounting team.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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GoCardless Ltd., 10-20 Gwynne St, Cremorne, VIC 3121, Australia

GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.