Historically, cash reconciliation has been a challenge for companies, especially those moving money within products. To reconcile transactions, businesses have traditionally relied on manual operations and disparate tools, using an intensive batch process for vital tasks like monthly close and audit preparation. In light of the significant time and resources required—not to mention the challenge of exception handling and the danger of inaccuracy—CFOs are increasingly seeking a new solution.
In a recent survey, half (50%) of financial decision-makers at large companies say that their payments are accurately reconciled less than 80% of the time. Not surprisingly, 97% of those surveyed agreed that automatic reconciliation is important for business. Still, the future of reconciliation goes a step beyond automation—reconciliation for tomorrow’s top companies will have to be continuous, end-to-end, and above all, real-time.
Understanding real-time reconciliation
Real-time reconciliation is characterized by a few qualities. Namely, it is:
- Immediate and ongoing. A real-time process relies on seamless bank integrations providing access to continuous and instant data for reconciliation. In addition to bank data, companies need the ability to integrate other transaction and business data streams into a centralized system.
- Proactive and granular. Batch processes are reactive—companies look back on what’s already occurred and try to ensure everything works as expected. When it hasn’t, it’s challenging to track down individual transactions. With real-time reconciliation, data ingestion systems are in place to match transactions in the moment, one by one, allowing business leaders to focus on what’s next.
- Judiciously incorporates AI. AI can be very useful for the kinds of tasks reconciliation traditionally requires (i.e., repeat spreadsheet workflows, data translation, and transaction disambiguation). To increase the speed and accuracy of reconciliation such that a real-time process is possible, AI can be used to make reconciliation suggestions for exception handling.
Companies can’t control the complexity of working with banks—the variability of systems per bank, per payment rail, even per the different software solutions that banks use. For this reason, businesses that want real-time matching need robust infrastructure to handle data ingestion from banks, validating the data, and then running it through normalization.
The benefits of real-time
Real-time reconciliation can not only save money, boost efficiency, and decrease risk—it unlocks other innovations that drive growth. Here’s how businesses stand to benefit:
1. Faster and more accurate reconciliation.
Real-time reconciliation is a function of automation, which increases speed and efficiency, while reducing the need for human intervention (and thus chances for error). For money movement, continuous reconciliation is vital, as the ability to transact is often blocked until another payment is reconciled. And with a quality matching engine, companies can have high confidence in their reconciliation data. Reduction of manual work can reduce costs—it can also reduce disparate processes and centralize siloed data.
2. Easier audits and reporting (with reduced risk)
With granular, continuously reconciled data, companies can prepare for audits much more quickly and at any time. Teams can easily access accurate, up-to-the-moment financial data for reporting and completing duties like monthly, quarterly, or annual closing of the books. Without a reliable system for reconciliation, companies have greater liability, opening the door to errors, and even fraud.
3. New growth opportunities
Real-time reconciliation can positively impact cash management. How companies handle liquidity, potentially benefiting from interest and other advantages, is necessarily limited by the level of insight, trust, and access they have when it comes to real-time financial data. Not to mention that innovations like RTP and FedNow are only possible for companies that manage instant reconciliation in tandem with instant payments.
Looking to learn more about the future of reconciliation? Explore Modern Treasury.