Reconciliation term - What, How and Why of it

I did a workshop before about Reconciliation and a few of my subscribers missed it, so I thought I would just do a video in my Facebook private group, and now sharing it through my blog, so that everybody can benefit from it.


So I’m going to talk about reconciliation, and I want to provide valuable information about it, which will cover:

 

 

  • What does it really mean?
  • How important it is?
  • and Why is it important for you, for your business, or your clients’?

 

 

I hope many of you are familiar with the term. It's something that many of us in bookkeeping and accounting are familiar with, but with clients, they don't understand what that is. 


The word is a bit alien to them so expect the sort of blank faces when you say “Reconciliation'' to them and you may have to explain what that means...


Reconciliation is the matching of two records or more to ensure that there is balance and there is accuracy.

 

balance-and-accuracy

So why do we need to do reconciliation? 

It's because you might be thinking if you've got a client that uses just cash -  there is no statement to reconcile against so what do we do in those circumstances?


So I’m talking to you to urge you that they are essential. That is about checking accuracy, and our job is about trying to make things as accurate as possible, to try and save the client's money, and maybe it's an overstatement of tax, for example, so if we haven't got those books accurate, they could be paying more than they need to.

So what do we need to be doing, if we need to be checking?

What do we have in our income and expenses against our statements?

 

So this could be bank statements, credit cards, PayPal, all sorts of different types of account statements, as I mentioned cash, you don't have a statement but hopefully, they'll be keeping some sort of ledger, some sort of book or record, excel spreadsheet, petty cash, receipts, something, so that you can keep a log of money that is going in and out. 

Now, why is this important? 

 

Well, for some basic reasons that we need to match them, and we need to check that the records are there,

but why do we actually need to do this? 

Why do clients need to do this?

Why do they need to know about it?

Richard Hansen

This is to ensure that you're not paying out or that you're not missing things. 

 

So with accounting software that I hope a lot of you are familiar with, Xero, Quickbooks, Wave... 

There's a multitude of others. Sage, for example, all have some sort of reconciliation features and functions. Now as with many technologies they're not 100% perfect, especially when you're setting up a new client on this cloud software, it can often draw through duplicate information statements, or it could be missing things, and so that is essentially why we need to be double-checking.


I’ve done one recently, and it brought through duplicate lines of almost everything. So I’ve had to mark which ones I’ve already put in, under the date of, let’s say, the 5th of September for £50, and then there's another line, 5th of September again for £50.

 

Now I then need to establish, whether the purchase has been made twice on the same day, whether two lots of 50 pounds have left the bank, whether this is an error, or whether this is correct, and this is part of checking the reconciliation process.


So it might be found you've paid something twice, you put your card details into the machine, and they took the money twice, but you've only purchased one good, so having one expense invoice and two statement lines on Xero or QuickBooks, or even showing in your bank will help to flag up that there is a discrepancy here, there's an error and this is where we need to be backtracking, and finding out what's gone wrong.


Now if we do that once a year, for example, if our clients haven't done anything all year round, and then suddenly they realize, that back in, let’s say September last year, they'd paid somebody twice. Now trying to get that money back from them, is like getting blood from a stone. It's going to take you, maybe months to try, and get that information from them, and the time that it takes to get that, is not productive. 

 

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If they've done their reconciliation every month, they would have logged at the end of September last year, and can say,

 

“Oh, I paid somebody twice, I can call them up and say, I’ve accidentally sent payment to you twice, can you please refund that?”


It probably would have been done that day, or a couple of days later, as opposed to having things go on a long term.

Now that's a lot about expenses, but it's the same for income. 

 

So if we've got lots of invoices going out, we need to be making sure that we've received those payments. So our statements, our reconciliation screens on our software, that's what going to help to show when we've been paid for what.

 

The difference between the dates, the invoices, and what's the payment was received, will help us to know how quickly our invoices or our client’s invoices are being paid and if there might be an issue. If things are going overdue constantly, then we might need to tighten credit control, and again, if you let invoices, I’ve logged into their Xero for example, and I can see those invoices back from last year, now trying to get paid for those invoices again, it's like getting blood out of stone. it can take years, people have moved, departments have changed, you know paperwork is lost, resubmits have to be done, they can't find your money, it takes a long time to get all that money in, and that's kind of where credit control comes in.

 

It's almost a job in itself. But keeping on top of it month by month will ensure that you don't have those errors, those times where you're gonna have to spend chasing things up, things are a lot quicker where you can call someone up and say, “Last week or yesterday, I made a payment twice, or I’ve received a payment from you twice, and let's sort this out and get that done.” so that you're not having to put extra adjustments into your books to say, I’m 50 pounds up for no reason, or 50 pounds down for no reason, it can be rectified really nice  and quick and easy.

Another thing to sort of, just be mindful of, again with the errors that get drawn through on Xero, check that with a physical statement from your bank and from the client’s bank.

 

Because although the software is brilliant and it's supposed to bring through every single line, sometimes it doesn't. So just being able to look over, an actual bank statement, a CVC file that's been downloaded, and that is 100% accurate, just checking the balancing figures, then if everything matches, all done. If it doesn't, you can quickly look through a mentor, if the transaction shouldn't be too many, just to find out where those errors are. 

Now, I hope that helped highlight why we need to be doing reconciliation, why we need to explain to clients the importance of it, the time that it takes to chase up those creditors, (I’ve spent hours and hours chasing up creditors, from last year that hasn’t been paid when I started with new clients, that's hours that I didn't need to spend), if they'd have kept on top of it, if they'd have checked their bank fees regularly to see what payments have come in and what hasn't, and chased it up, it would be a lot simpler, a lot quicker for everyone.


So just highlighting to clients the importance of it, it's going to save them time, it's going to save them money, and for you guys, it means you're not going through the stress of having to go back through a year's worth of documents to try and find that one error, and whether that's changing number, changing date, missing extra items... There are lots of different reasons why things don't balance, and I hope that under my training, if you haven't done it, then just have a look through my page here and there's a lot of research online about reconciliation, about errors, and how to spot areas, how to adjust them, and make everything balance.


So that's me for today. I hope you have a great rest of the week. :)

 

I offer free and paid webinars/e-courses, so if you haven't joined yet in my private Facebook group, you can find it and join here.

 

Balanced Bookkeepers is a support network for people aspiring to be a self-employed Bookkeeper. Offering a friendly platform for people to learn & share their experiences.

 

Looking forward to seeing you there!

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