The reconciliation process is traditionally viewed in the context of financial transactions: Does the value of a company payment match with what the company was billed, and what the company had purchased?
It appears to be a relatively straightforward process, particularly as documents like invoices and purchase orders digitize, payments go electronic, and automation technology allows for quick, easy data matching.
Yet the reality is that the reconciliation process is rarely ever straightforward. The ability for finance and accounting teams to capture transaction data across payment channels remains a challenge as information is stored across various portals. And the likelihood that data across a payment, purchase order and invoice will always be identical is particularly low.
Speaking with PYMNTS, FloQast CEO and Co-Founder Mike Whitmire discussed how the nuances of reconciliation demand a more sophisticated automation technology that can address a less-than-perfect data set.
It’s why FloQast recently announced upgrades to its automated reconciliation tool AutoRec earlier this week, a move Whitmire said was the direct result of user feedback. Not only are accountants demanding more sophisticated capabilities in their reconciliation tools beyond data matching, but they’re also exploring how the take reconciliation automation beyond the traditional use-case of payments and bank statements.
Beyond Data Matching
One of the biggest challenges that finance professionals face in their reconciliation process is in data discrepancy. There may be only a small difference between what a company is told it’s owed on an invoice, and what that company actually paid, but it can create big headaches as automated technology cannot always recognize that these two data sets are for the same transaction.
“Oftentimes, you’ll have data coming out of one system that will have a transaction recorded in a certain dollar value, and it will get booked into your ERP [enterprise resource planning] at a slightly different dollar value,” explained Whitmire. “It’s not necessarily a mistake.”
He pointed to one of the most common examples of this occurring when a business makes a payment but sees a credit card processing fee taken out of the transaction. In this case, the transaction dollar amount will be a few percentage points less than what is stated on an invoice, which can hamper a person’s (or a technology’s) ability to recognize that those two data points are related.
This challenge led FloQast to add its Threshold Matching capability, which Whitmire explained wields technology to identify patterns in small discrepancies, while using other data points like the date and name of a transaction to reconcile these figures.
Payment Rail Confusion
Another common challenge of the reconciliation process stems from the fact that businesses are increasingly collecting and making payments across a range of channels, platforms and payment rails — and not all are created equal in terms of a business’s ability to capture reconciliation data, said Whitmire.
This was the friction point behind FloQast’s Custom Configurations function, which allows for transaction data matching even when descriptions vary widely.
Payment network innovation has largely focused on elevating the ability to transmit data along with funds, which has become a key benefit floated for corporates in the B2B payments realm. While more transaction data can certainly be positive for processes like reporting and auditing, Whitmire said that for reconciliation, there are only four data points necessary to match up data sets: date, dollar amount, vendor or customer name, and a data field that has information about what a transaction relates to.
“Data can be important for other purposes, but for automated reconciliation, we’ve found that it’s not necessary to overthink it,” he explained, adding that simplifying this process means organizations can more efficiently reconcile their transactions across channels and payment rails regardless of how sophisticated they are at transmitting data.
Beyond the Status Quo
With organizations demanding greater sophistication in their reconciliation technologies, they’re also exploring how to apply automated tools in scenarios beyond the typical use-case of reconciling bank account and credit card transactions.
Whitmire encountered this opportunity personally, when, at a previous company, he was tasked with reconciling sales captured within the Salesforce platform to orders captured within the Oracle NetSuite system. This is usually done manually, by comparing one spreadsheet to another, yet it’s another scenario in which automated reconciliation technology could bring significant improvements to the process.
“There are a lot of applications,” he said. “It’s amazing how broadly applicable this solution is.”
The exploration of reconciliation automation tech beyond the status quo is only one example of how the enterprise has begun to embrace disruption in reconciliation and broader finance and accounting processes.
For instance, traditionally, the ERP has been the central hub of data aggregation as well as reconciliation. That model is due for a rethink, however, with third-party portals perhaps a better choice to manage reconciliation, rather than relying on an ERP to validate its own data.
“I’m really starting to question the place of the ERP at-large,” said Whitmire. “If the job is to validate that these data integrations are correct, is it appropriate that the system that has the integration built into it — the ERP — should be the one auditing the integration point?”
Further, more disruption is ahead as organizations accelerate their pace of operations. While reconciliation is traditionally a monthly occurrence, more businesses will do so weekly, or in some cases even daily, with Whitmire forecasting a gradual shift toward real-time reconciliation.
“That’s not where we stand today,” he said, “but in the not-too-distant future, it will be more of a continuous, incremental process.”