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The Problem with Manual Reconciliation in Finance

At the end of every year, quarter, and month, financial teams around the world spend thousands of hours on manual reconciliation in finance. They commonly use spreadsheets, particularly Microsoft Excel. Your company probably does as well.

While the number of companies using manual reconciliation continues to drop with advancements in automation technology such as CrushErrors, there are still a large number of companies who dedicate resources to manual reconciliation.

As technology has become more advanced, approaches to bookkeeping have also evolved. Hence, there can be drawbacks to using spreadsheets such as Excel for accounting needs. This leads to the question: Is it still the best tool you can use for reconciliation in finance?

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What is Manual Reconciliation in Finance?

Manual reconciliation, as the term suggests, involves manually (often via a spreadsheet) comparing two sets of records to check that the numbers are in agreement. Studies indicate that Excel is still the most popular reconciliation tool for most financial companies around the world.

Excel has several advantages, including accessibility, versatility, and flexibility. However, when it comes to acting as an end-to-end reconciliation solution, it may start to fall short, especially as transaction volumes shoot up. You will start to face more challenges in the reconciliation process, including various unforeseen problems.

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Disadvantages of Manual Reconciliation in Finance

With manual reconciliation, critical data may be lost, leading to later complications. This may be due to various reasons, including but not limited to:

  • Technical failures

  • Increasing backlog

  • Changing of document users & owners

In the long term, the use of spreadsheets alone for the reconciliation process may not be sustainable in the face of emerging reconciliation automation technologies.

Here are a few challenges you might face with manual reconciliation:

1. Collaboration Issues

Often, spreadsheets are forwarded to recipients over email. Hence, collaboration with team members and clients, especially those living in different time zones, can be inconvenient. This hampers budgeting, planning and forecasting.

Cloud accounting is one solution for this. However, it cannot manage the other challenges on this list.

2. Human Error

Potentially the biggest danger in manual reconciliation is human error. Accurate bookkeeping is paramount, and accounting errors and carelessness can provide leeway for everything from accounting fraud to lawsuits to a damaged reputation.

Human error can involve, for example:

  • Deleting cells by accident

  • Entering incorrect numbers

  • Flawed formula input

Accurate manual bookkeeping requires checking and re-checking numbers, which takes a lot of time from skilled resources. Using reliable reconciliation automation technology such as NextGen Accounting’s CrushErrors can help your accounting team save hundreds of hours.

3. Delays

With spreadsheets, you need to collect data from various sources, as well as check and re-check it.

This can result in delays. Hence, having to hand in urgent reports can be stressful with spreadsheets.

4. Rudimentary Matching Capacity

Aside from human error, rudimentary matching capacity is one of manual reconciliation’s biggest drawbacks.

Manual reconciliation relies heavily on the knowledge and concentration of the accountants. While spreadsheets do have various predefined statistical, database, mathematical and financial functions, they cannot apply complex business logic.

5. Falls Short for Large Businesses

Excel and other spreadsheets cannot necessarily meet diversified reporting needs. They can fall short for more complex accounting.

6. Can be Complicated

If you type “Excel reconciliation tutorial” in your search console, you’ll be intimidated by the number of results.

To optimally use Excel, you’ll need to go through a myriad of articles, webinars, online courses and e-books, preferably created by instructors. This is so that you’ll be able to understand how to use not just the software itself, but the many syntaxes and formulae required for accounting.

The time and money taken to gain this kind of expertise may be too much for many companies.

7. Auditability & Tracking Changes

  • Calculations output & data entries in spreadsheets can often look unstructured and chaotic.

  • Separation of duties is vague.

  • Drilling down to the smallest details often relies on human recollection.

  • Unclear workflow schedule.

  • No audit trail on formula changes.

8. Security Concerns

Spreadsheets such as Excel do not provide enough security measures for sensitive financial data.

Conclusion: The Solution is Reconciliation Automation

Excel remains an efficient tool that can lay a foundation for bookkeeping. It continues to provide robustness, scalability and dynamism, and is a great choice for small businesses that may not have the budget to purchase a sophisticated reconciliation tool. Spreadsheets are good for straightforward accounting, though they still come with a learning curve.

However, to truly gain efficiency, especially in a big business, you will require specialized software that is specifically meant for reconciliation. Such software are more robust, user-friendly, and reliable than using spreadsheets.

For reliable daily reconciliation where there are a lot of transactions, software such as CrushErrors is invaluable. Unlike Excel, it has a clean reconciliation reporting engine and can apply many separate dynamics to various bills.

NextGen Accounting offers bank reconciliation services, credit card reconciliation services, and consulting services, which it conducts with CrushErrors. However, if you’d rather have more control over your reconciliation, you can obtain CrushErrors as a product.

NextGen Accounting’s management team has decades of experience and includes former executives of Barclays Bank, Bank of America, and ICBC. Contact us today for reconciliation services or book a free demo if you’d like to get CrushErrors as a product!


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