During a recent discussion with the CFO of a large NBFC, he joked that reconciliations are the most mundane and monotonous job that you can punish someone with. Despite being one of the most important accounting activities, his team struggled to achieve accuracy because they lacked the necessary automations needed to handle the volumes of transactions they dealt with. This is a common challenge faced by many finance and reconciliation teams in various industries. Often, this area is kept outside the radar of automation, as it is viewed as a cost center. However, if businesses could automate reconciliation processes, they could free up good resources to deploy in other productive areas, leaving the mundane tasks to automation tools.
Reconciliation is critical to ensure business operations continuity, as it measures the performance of the entire organizational activity. Some reasons for businesses to do reconciliations include managing daily/weekly/monthly cash flows, tracking business performance, staying on top of payables and receivables, and detecting any financial misappropriation/frauds. Imagine if all of this and much more could be simply automated! However, before automating, the first question to answer would be how well has an organization defined its reconciliation processes, and do they have the right tools for the job?
Many companies do not have well-defined reconciliation objectives, leading to a lot of personal dependencies based on the methodology of the people involved and their responsibilities. Hence, the first step in the reconciliation process is critical and will define the success of the overall processes. If the objectives are well defined, the process can be planned and executed well enough to suit the objectives.
Once objectives are correctly defined, the next step is to identify the tools required to execute the process. In most reconciliation processes, 80 to 90 percent of the work is based on following standard SOP to complete the reconciliation activity. Decide whether this requires a lot of manual intervention or there is a possibility of process automation. The right tool can help a business increase efficiency, visibility, and reliability. Worksheets are the most widely used reconciliation tool along with many different reconciliation solutions available in the market. An organization should select the right tool based on the combination of objectives and advantages offered by different tools.
The success of the entire reconciliation process is not about what percentage of cases are reconciled quickly but how robust is the process of managing exceptions arising due to business and other constraints. Most organizations spend about 70 to 80% of the time on about 15 to 20% of the transactions which are exceptions to the norm. Every exception is an independent business scenario which may require certain decisions. If the exception scenarios are documented, and an appropriate plan of action is defined, the actual amount of time required can be reduced by more than 50%, while errors can also reduce significantly.
Standardizing and automating dashboards and reports can save reconciliation teams at least 20% of their time, which is often spent collating data to create ad hoc reports whenever certain management information is requested. This also makes the process of measurement and monitoring the reconciliation process much easier for the management team, with better control.
The efficiency and efficacy of any process reduces over time as business and technologies evolve. To ensure that the reconciliation strategy is aligned with the emerging times, there is a constant need for monitoring business processes to understand new emerging scenarios, learning the methodologies used to manage the scenarios, and improving the process to ensure new scenarios/business cases are managed in a seamless manner.
We at Infomatics have been partners to medium-to-large enterprises in the NBFC, Banking and Retail business for their automations by implementing cost effective reconciliation solutions. To get some more insights, do read our detailed case studies published on our website Click here
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