The final step of any task is as crucial as the first. Reconciling your bank accounts can seem like a process you may want to put off for later, but the more often you do it, the more beneficial it is for your business.
A bank reconciliation is when you compare the records in your ledger with your bank statement, and make adjustments for any errors or discrepancies to ensure the balances match. This helps you ascertain whether you have the right amount of money in hand and will let you spot missing and fraudulent transactions, identify failed payments and overdraft fees, clear up hidden expenses and excessive charges you were unaware of, or any other error that you or the bank may have made. All of these can be leveraged to help you save money.
How is bank reconciliation helpful for your business?
When you fix common issues through bank reconciliation, you prevent more money from leaving your business. You can spot existing issues that caused excessive spending, which can help you build a better accounting process with more financial clarity and transparency. By having a clearer picture of your business’s financial health, you can plan your budget accordingly and avoid taking out unnecessary loans to cover costs, preventing further payments like interest.
If you don’t have a monthly reconciliation process, you may have issues that crop up later. Having to go through your previous transactions from past periods could cost you time and labor, which can all cost money.
Reconciling your accounts regularly can highlight errors and overcharges you may have missed, nudging you to take action and fix them. Once you’ve finished reconciling, your real financial position will be revealed, helping you get a better understanding of your cash position, cash flow, general expenditure, and how much you’ll need to take care of your future business needs, too.
8 ways in which bank reconciliation can help you save money
Reconciliation not only helps you prevent unnecessary expenses, avoid bounced payments, and reduce overdraft fees, it’s also a form of internal control. You can keep your business transactions accurate and error free, reducing the chances of you shelling out a lot of unnecessary money. Here’s how you can save up, and keep more money in your business:
1. Correct discrepancies and recover money before it’s too late
Do a monthly or fortnightly bank reconciliation (as per the size of your business) so you can easily spot errors and correct them before it’s too late. In some circumstances, you can even recover the money you’ve lost (if it was due to an error on someone else’s part) if reconciliation is done timely.
When you follow this process over fixed intervals, you can cut down on the chances of errors that could remain for long time periods. These could be errant charges, such as those charged by a bank or an agency that’s mistaken you for someone else, which could easily happen if you have a huge business with many bank accounts.
Everyone makes mistakes, and forgetting to add an entry, misreading a receipt, or entering the wrong amount by accident can happen. What matters is that you spot these errors before it’s too late. The longer you ignore it, the more imbalances there could be between your ledger and bank statement, leading to cash shortfalls or even costly overdrafts.
To prevent your business from grappling for more money and losing revenue, a simple and methodical process of reconciling your accounts regularly can work wonders. You can correct any errors in drawn checks, spot duplicate payments and wrong entries, and take action accordingly. Reconciling will help catch these errors and save money.
2. Spot expenses that you can remove
Doing a bank reconciliation can help you identify subscriptions meant to be cancelled, or any additional bank/card fees that you are charged. You can even identify regular expenses that aren’t helping your business in the long run, and are costing you more than what you’d thought.
For instance, you may have subscribed to a recurring service that offered you a free one-month trial. This subscription may have required you to enter your card details and, following the first month, your card may automatically get charged. Keeping track of these and reconciling your balances can prevent you from paying extra amounts. These expenses that aren’t resourceful for your business can be cancelled once you become aware of them.
3. Identify chargebacks
A chargeback can commonly occur in a business, especially if you’re making sales online. Sometimes, however, as chargebacks are done by the bank, you might be unaware of them and may end up incurring further losses without warning.
However, if you reconcile your accounts regularly or check your merchant credit card accounts to spot these on time, you may be able to respond to a chargeback dispute with solid reasons and evidence, and save money.
4. Keep up with your cash flow
The best way to keep money in your business while also gaining more is by keeping close tabs on your cash flow and your cash position, especially if you’re starting out small with less capital. When you do regular bank reconciliations, you’ll get a concrete idea of the cash you have in hand, and how much you can afford to spend in the near future (for planned and unplanned expenses), helping you spend smarter and save more.
5. Minimize chances of fraud
Having a strong, secure accounting solution with restricted access to a few, trusted employees is a primary way to minimize the chances of fraud, and so is bank reconciliation. Ideally, only a select number of people in your business should have access to the company accounts for withdrawals and payments.
Reconciliation can help you identify unauthorized withdrawals and transfers, as well as manipulated transactions. While it may not be possible to remove the possibility of fraud completely, you can spot fraudulent transactions and cut down on their likelihood to repeat through monthly reconciliation. For instance, any duplicated checks or modified transactions will be highlighted. Your payee could even tamper with your check and withdraw a larger amount, but with bank reconciliation, you can spot this and take action accordingly to prevent these losses.
6. Find missing deposits
Handling a bank deposit seems like a simple task, but it could also easily get lost if your employees or a transport agent mishandle it. You can detect this while reconciling your accounts, as your bank statement will reveal if the deposit hasn’t hit the bank yet. Accordingly, you can contact the bank to confirm if the money has been correctly deposited and ensure that you’re not losing more money.
7. Have a smooth and accurate audit process
Once your bank reconciliation is done, your incoming and outgoing transactions will be balanced and free of errors, discrepancies, or miscalculations. This means the auditing of your accounts can be smoother and more accurate. Since audits help you analyze your business well, you can understand how to cut costs and can look out for upcoming financial crises and tackle them. Spotting unused expenses and services will make your finances more transparent for you to plan better.
8. Stay on top of your accounts receivables
Knowing how much you’re supposed to receive is key to ensuring that you’ll have the right amount of cash in hand at the right time. You may be promised a payment after delivering your services and you may have entered these in your records before actually receiving the money. A reconciliation will help you identify this, and will prod you to follow up on overdue invoices. This way, you can collect your dues and ensure that you aren’t losing out on more money in the process of carrying on business.
Another instance could be when you did receive a payment, but it may not have been reflected in the bank statement until the following month. This could lead to confusion, miscommunication between you and your client, and could potentially cause a conflict in your relationship with them. This could compromise your trade with them in the future, costing your business. It’s only when you do your reconciliation that you can easily confirm your receipts or recognize the entry for a receipt you didn’t deposit.
Save time and money with automated reconciliation
To make the most of your accounting solution and to reconcile your transactions faster and more accurately, it’s best to have your reconciliation process automated. A manual process could lead to issues like human errors, un-reconciled accounts, and missing transactions. When you’re setting out to clear errors, you wouldn’t want to create more! At the end of the day, spotting a mistake and correcting it at the right time can help you save a good amount of money, which may have otherwise been spent unnecessarily.
Zoho Books is a complete finance management software that helps you with your accounting needs. With a smart accounting solution, you can record your transactions securely with ease, accuracy, and customized accessibility. Identify imbalances, match your transactions, and reconcile your accounts as smoothly as ever.