Whether you are trawling through spreadsheets or have automated processes for your payment reconciliations, you are using one of the reconciliation models in this article. There are pros and cons for each, depending on the size and needs of your business, the scale and complexity of your payments, and the level of work involved. We aim to demystify these models to help you understand the right one for you.
Reconciliation steps
Typically there are five core steps in a reconciliation process, whether it is reconciling your bank credits to your payment provider’s processed transactions, an internal reconciliation, or otherwise:
- Data collection — collecting data from a source, for instance a settlement report from your payment provider.
- Data transformation — changing the original data into something meaningful that can be reconciled.
- Reconciliation — performing the reconciliation between multiple data sources against whatever criteria you require.
- Break management — resolving any reconciliation breaks that appear.
- Financial close — ensuring all breaks are completed and performing any follow-up tasks at the end of the close period.
In practice, when most companies optimise their reconciliation process, they focus on step 1 and sometimes step 2. Rarely do they focus on steps 3 to 5, which are often the most time-consuming and manually intensive.
Fully manual reconciliations
Manual reconciliations typically involve lots of Excel spreadsheets, one or more people (often a Financial Controller or reconciliation specialist), and a great deal of pain. Nevertheless, fully manual reconciliations are better than none, and can be created quickly by small teams. If you are scaling quickly, have complex payment requirements, or are already a large company, you should consider moving to a more automated solution as soon as possible.
Semi-automated reconciliations
Semi-automated is the glass-half-full way of saying “semi-manual”. These processes can improve on fully manual ones, but often the automation only covers steps 1 and 2. Because of the initial build and upkeep, you might end up worse off than keeping a fully manual reconciliation. If you have built semi-automated reconciliations internally, consider how much of the flow you still do by hand.
- Simplified data flows versus fully manual reconciliations
- Rarely end to end: typically only data collection and sometimes transformation
- Requires in-house build and maintenance
- Still time-consuming versus more automated alternatives
Automated, built in-house
Automated solutions are more robust and scalable than manual processes, but not all are built equally. Building an automated reconciliation process in-house can appear to give a company control, but in reality it pulls team members, funds and resources away from revenue growth and towards building and maintaining complex systems. Before going down this route, consider whether your product and engineering teams are reconciliation experts, whether your finance team has time to design and test the product, and whether owning proprietary reconciliation software will genuinely benefit your business.
- Reduced risk versus manual and semi-automated alternatives
- Reduced time cost once implemented
- Distracts teams from revenue generation and other strategic priorities
- Adoption, testing and ramp-up are hidden costs across finance, product and engineering
Automated, off the shelf
The final model is automated but keeps your team focused on its strategic objectives, giving you a purpose-built specialist solution. There is always some personal involvement in break resolution (contacting a payment provider about missing transactions, say, or reflecting a sale that happened outside the system), but a specialist platform like Equali automates as many steps as possible and gives your team back time for more meaningful work.
- Reduced risk versus manual and semi-automated alternatives
- Reduced time cost once implemented
- Lower up-front costs than a proprietary build
Summary
Now you understand the different reconciliation models you could adopt, which do you fall under, and where do you want to be? Given the cost implications, whether hidden costs or development costs, an outsourced solution like Equali is worth considering. Start a free trial or book a call with the team to find out more.