All the financial statements of your business are valuable. Each one provides you with a different angle of your company’s financial situation. One document you shouldn’t overlook is your company’s bank reconciliation statement. The latter makes sure your accounts are error-free and accurate, and there were no fraudulent transactions that took place. Bank reconciliation is a process you should conduct on a regular basis.
To understand the importance of a bank reconciliation statement further, learn more about its advantages listed below.
Eliminate Mistakes in Your Books
Mistakes in your accounting books may lead to wrong financial decisions and penalties. These have a negative effect on your business’ operations and cash flow. You might be going over budget without knowing it, paying the wrong amount to suppliers, and/or miscalculating your taxes. Bank reconciliation makes sure your balances and accounts have no mistakes in them. It allows your team to identify errors and correct them as soon as they find them. Invest in accounting software to improve the efficiency of this process. Manual processes tend to be error prone. Use accounting software to eliminate or at least reduce mistakes in your accounting books and simplify bank reconciliation.
Confirm and Manage Receivables
Accounts receivable are not yet cash until you finally collect it. Your bank reconciliation statement shows if you have already collected and deposited a payment. You won’t have to follow up on a customer that has paid because your records show you collected on a certain date. You’ll also be able to collect accounts receivable faster because your team can track receipts and payments customers made. This in turn enables you to monitor cash that comes in and goes out of your business. Bank reconciliation allows you to simplify organizing your accounts receivable because of your updated accounts and records. It’s easier to group invoices from those that you have yet to collect.
Improve Accuracy of Accounts
Bank reconciliation makes sure the data in your accounts is accurate. You’ll need precise numbers whenever you have to make financial decisions. Incorrect figures may lead you to make the wrong decision about an investment, a cost-cutting strategy, launching of a new product or service, and/or stop a campaign. Erroneous financial data may result in losses you will have a difficult time recovering. Inaccurate accounts also misrepresent your current financial situation. You might be losing money or have yet to collect receivables from your customers. You might spend cash you don’t have, and it will be too late when you realize it. This has a negative effect on your cash flow and your ability to allocate resources to different aspects of your business.
Identify Possible Fraudulent Transactions
You might miss the activities of a hacker, a thief, or a dishonest employee in your company. They might be siphoning money out of your business or making transactions without you knowing. Your bank reconciliation statement allows you to pinpoint possible fraudulent transactions. This document enables you to identify deposits or withdrawals that took place within a certain timeframe. You’ll be able to trace when these activities took place. You can inform your bank and partners about these unknown transactions. This practice also improves your business’ internal cash control. Separate the responsibilities of the person doing bank reconciliation from the person managing receipts and payments. Consider outsourcing bank reconciliation to improve the security of each process. Bank reconciliation is an important process that updates your financial records and documents. These allow you to keep your data secure and protected from thieves and hackers.
Monitor Outstanding Fees
Bank reconciliation updates your financial documents and makes sure accounts are accurate. This enables you to identify outstanding fees and payables to suppliers, creditors, and partners. You’ll know the amount you need to meet your obligations and keep your books balanced. You can avoid incurring penalties and additional interest payments because you paid your dues on time. You’ll be able to manage your resources effectively and avoid cash shortages. You can schedule your payments, pay on time, and improve your business relationships. You’ll always have enough cash for short-term needs and long-term goals.
Manage Cash Flow
Cash flow management is a top priority for businesses of any size. It’s difficult to keep your cash flow positive if your accounts don’t match and if your figures are not updated. Bank reconciliation makes sure your accounts match and your numbers up to date. It eliminates mistakes in your books and makes sure you get the latest financial information for decisions you need to make. You’ll need real-time data to direct your company in the right direction and achieve its growth objectives. Prudent cash flow management enables your business to survive recessions, stay ahead of your competitors, and maintain profits.
Should you invest in software?
Accounting software simplifies many tasks and processes for your growing business. Automating some aspects of bank reconciliation enables you to identify mistakes in your records faster and close each month with updated financial data. Reduce the time your team spends on dealing with discrepancies because the accounting software does most of the work for them. Software also keeps your information safe and secure from hackers and thieves.
Cloud-based data storage has multiple layers of encryption and security. You can choose which of your employees have access to your sensitive data. You also don’t have to stress over losing your data because of natural disasters or negligence. Access the documents you need wherever you are and at your convenience. Update the data in real-time so that you can make quick and precise decisions. Two of the most popular accounting software you can invest in are Xero and QuickBooks Online. Weigh the advantages each one provides and study their features. Identify which one fits your needs and make your choice.
We at Robookkeeper can provide you with first-rate outsourced bookkeeping services. Our outsourced team has the expertise and experience you need to successfully identify mistakes in your books, create a bank reconciliation statement for you, update your accounting books, and provide you with other related services. Contact us to learn more about our services. We can recommend packages that suit your needs and within your budget.