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Often companies with cash flow issues do not know what causes these issues and how to fix them. There are various reasons for cash flow issues that call for different solutions. One of the first steps to take is to look at accounting reconciliations.

What is reconciliation and why do business owners need to know about them?

An accounting reconciliation is a process of comparing two sets of financial records to ensure that they match and are accurate. Typically, this involves comparing an organization’s internal financial records (such as a general ledger) with external records, such as bank statements or vendor invoices.

There are various types of reconciliations such as bank, account receivable, accounts payable, and others. Let’s look at them one at a time.

Bank Reconciliation – Reconciling your bank and credit cards is the first step to ensure your accounting records are correct. First, it will help to determine if all transactions are in your books and if you are not missing any expenses or revenue. On the other hand, this reconciliation will ensure you do not have duplicate revenue recorded in your books. No one likes to overpay taxes due to overbooking of revenue or missing expenses.

Additionally, reconciling your bank and other financial records can help you save money in several ways.  It can help you identify errors and discrepancies, such as incorrect charges or overpayments. By catching these errors early, you can work to correct them and potentially save money. Additionally, you can avoid overdraft fees by ensuring that you have sufficient funds in your account to cover your expenses. Regular reconciliations can help you identify fraudulent activities, such as unauthorized transactions or identity theft, which can save you money in the long run. Reconciling your accounts can help you identify discounts and promotional offers that you may be eligible for, such as cashback rewards or reduced interest rates on credit cards.

Account Receivable Reconciliation – It is often that we see companies that have old unpaid invoices sitting in accounts receivable and as we know it is very difficult to collect on the old balances. The customer may be out of business, or they do not remember making the purchase. This often results in bad debt expenses and lost cash.

Regular accounts receivable reconciliation can help to improve your cash flow by identifying outstanding payments from customers and clients and ensuring that you receive all the payments owed to you in a timely manner. It can help you manage the risk of non-payment or late payments by identifying customers or clients who are consistently slow to pay, which can help you make informed decisions about extending credit in the future. Accounts receivable reconciliation identifies errors in your records, such as incorrect invoices or payments, which can save you money in the long run by preventing disputes with customers and clients.

Accounts Payable Reconciliation – It can help you manage your cash flow by identifying bills that need to be paid and ensuring that you have sufficient funds to cover them and avoid late fees and interest charges. By regularly reconciling accounts payable, you can identify vendors or suppliers who consistently provide good service and offer opportunities to negotiate better terms, such as discounts for early payment or volume discounts.

Sometimes companies forget to record or use credits from vendors and reconciling accounts payable regularly can help to improve cash flow by taking advantage of these vendor credits.

Overall reconciliation can help you manage your cash flow, avoid late fees, and interest charges, detect fraudulent activities, manage risk, identify errors, and negotiate better terms with vendors or suppliers. It is important to make reconciliations a regular part of your financial routine to ensure that your records are accurate and up to date.

Is your accounting still give you a headache? Talk to us, we can help to take this weight off your shoulders.