The Benefits of Bank Reconciliation Services

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Bank reconciliation is a process that explains the difference between a balance shown in an organization’s bank statement, as supplied by a bank and the corresponding amount shown in an organization’s own accounting records at a certain point of time.

Organizations can reconcile an accounting difference by tallying every transaction of the bank statement and an organization’s cash book. However, it is a very tedious and time consuming job. A service provider takes care of end-to-end bank reconciliation services.

Some of the common accounting errors that occur while reconciling are, a check or a list of checks issued by an organization not being presented to a bank, differences in bank transactions such as credit received or extra charge imposed by a bank hasn’t been recorded in an organization’s books and so on. To overcome or resolve such errors, entrepreneurs need an expert to handle their bank reconciliation functions. They do the necessary modifications in the cash book and the differences are recorded, to assist an entrepreneur for future reconciliations.

Reconciliations are performed by dedicated account professionals by using advanced software. It is important to have an understanding of what errors might occur and how to rectify them for a successful reconciliation.

Bank reconciliation services helps in reviewing an organization’s bank balance as per their own record books and balance sheets issued by banks. This service also helps in rectifying entries that cause a difference between the two balances. Timely reconciliations allow enterprises to identify and prevent intentional fraud, along with finding errors made by bank representatives, accountants, employees and management. Though bank reconciliation is usually a month-end procedure, organizations with smaller cash resources might also carry out the process weekly (if required).

What are the benefits of reconciliation services?

Detects Fraud

With the help of the bank reconciliation process, an organization matches its distributed checks with the amount or entry entered in bank statements. A vigilant review based on proper sheets and procedures help to disclose fraudulent activities such as payment made for illegitimate business purposes, payments transferred to illicit employees or unauthorized vendors and not revising sanctioned check amounts and details.

Prevents Overdraft

The on-hold time between cash outflows to vendors and employees as well as payments coming from clients and customers can vary greatly. This particularly affects an organization with very low cash reserves. Regular bank reconciliations help entrepreneurs manage or postpone payments that may safeguard organizations from business overdrafts, bounced checks, insufficient funds and extra interests.

Identifies Bank Errors

Bank representatives may make accounting errors such as transfer wrong sum, record wrong check amount, enter the amount in a wrong bank account, omit an entry from an organization’s bank statement or record a duplicate transaction. Reconciling bank accounts give entrepreneurs time to notify a bank of its errors, allowing them to find the difference and correct the error.

Improves Collection

Bank reconciliations let organizations handle their accounts receivable better. When a customer’s payment is cleared from a bank, the receivable remains no longer outstanding and therefore, requires no further action. However, if a client’s check doesn’t clear, that alerts management to be more focused in its collection process.

Source by CM Jain

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