Bank reconciliation in the era of Open Banking

Bank reconciliation operations can be time consuming and at same time prone to manual errors, especially in particularly complex business environments. Today, there are solutions that can automate this task and, thanks to the opportunities introduced by PSD2 and Open Banking, it is possible to simplify and make corporate cash reconciliation operations even more efficient.

What is bank reconciliation

This is an accounting operation whereby the accounting entries are checked to ensure that they match the movements shown on the account statement. In other words, all incoming and outgoing transactions, made to and from the current accounts, are matched to the purchase or sales invoices. It is important to ensure that there are no discrepancies or transactions that do not match; if this happens, it becomes necessary to intervene manually.

From a purely strategic point of view, this is a fundamental process for verifying that the company's economic resources are correctly applied to achieve the company's objectives.

Differences between bank and tax reconciliation

Bank reconciliation and tax reconciliation are two distinct processes that share the objective of ensuring the accuracy and consistency of financial data, but focus on different aspects and serve separate purposes. Below are the main differences between the two processes:

• Main objective
  The main objective of bank reconciliation is to compare the financial data recorded by the company with the data provided by the bank. Tax reconciliation focuses on the drafting of tax returns and serves to ensure that financial information complies with applicable tax laws.
• Frequency
  Typically, bank reconciliation is performed monthly or quarterly to ensure that the company's financial records are up-to-date. Tax reconciliation is often performed annually, in conjunction with when tax returns are due.
• Focus
  While bank reconciliation focuses on reconciling bank balances with the company's internal financial data (e.g. current account movements), tax reconciliation verifies the accuracy of financial information relating to income, expenses and tax deductions in order to correctly calculate the amount of tax due.

In summary, both processes are essential to ensure that a company maintains accurate financial control and complies with tax laws, regulations and legislations.

Benefits of bank reconciliation

Bank reconciliation offers numerous benefits for companies and organisations in any sector, in particular:

• Financial Accuracy
  Allowing the accuracy of the company's financial data to be checked against data provided by the bank. This process helps identify and rectify errors, omissions or discrepancies in the company's financial records.
• Identifying fraud and errors
  Bank reconciliation can help detect unauthorised transactions or financial fraud, as suspicious or unrecognised transactions emerge during the bank data reconciliation process.
• Cash flow management
  Keeping track of income and expenditure through bank reconciliation helps companies better manage their cashflow, enabling the company to know precisely whether there are sufficient funds to cover operational expenses and financial obligations.
• Financial control
  Providing greater financial control, enabling companies to closely monitor their financial activities and make informed decisions based on accurate data.
• Prevention of sanctions and additional costs
  Reducing payment errors, delays or non-payments, which could lead to penalties, interests or unforeseen costs.
• Support for financial planning
  With accurate financial data, the financial future can be planned more effectively, establishing financial goals, budgets and growth strategies.
• Regulatory compliance
  Facilitating tax reconciliation activities, ensuring that transactions are recorded correctly and in compliance with regulations and legislation.
• Time management and efficiency
  Although time-consuming, bank reconciliation can be automated with the use of specialised software, saving time and resources compared to manual processes.
• Transparency
  Bank reconciliation provides greater transparency on a company's financial activities, facilitating access to financial data and the sharing of information with internal and external stakeholders.

In general, bank reconciliation is an essential financial practice that contributes significantly to operational efficiency, accurate financial management and control of corporate finance. It helps reduce financial risk, ensure regulatory compliance and improve the company's ability to make informed financial decisions.

Bank reconciliation and Open Banking in the Fabrick ecosystem

The introduction of PSD2 and the consequent roll out of the Open Banking approach have enabled the development of solutions aimed at simplifying reconciliation processes, automating them and making them more effective.

Fabrick has developed Banking as a Service solutions that are available in a number of countries and ideal for both financial institutions and enterprises, which when integrated with each other and with corporate systems streamline all reconciliation processes.

Moreover, Payment Orchestra™, Fabrick’s payment and collection orchestration platform, integrates services that facilitate reconciliation. In particular, companies working with multiple acquirers and alternative payment methods can benefit from a feature-rich dashboard generating detailed reports to reconcile collections by different variables, like currency or payment solution.

Solutions that leverage the opportunities offered by Open Banking are revolutionising the banking and business world. Their potential can make a difference in a context in which the target markets of financial groups and large retailers are becoming increasingly international and structured.

If you are interested in finding out more about payment orchestration and the reconciliation process, download our free whitepaper on the topic.