What is Automatic Reconciliation?

The two pillars of infrastructure holding up your business’s financials are your current account and your books of accounts. Your business receives and makes payments through your current account, and your books of accounts record these transactions to give you an idea of how healthy your business is financially.

Traditionally, the transfer of information between a bank account and the books of accounts was done manually. Accountants would manually enter information about payments made and received into the various books of accounts- this was called manual reconciliation, and like most manual tasks, was prone to errors and delays.

There’s also the problem of delay between making and receiving payments to seeing the payment updated in your bank account.

Today, a software solution called automatic reconciliation automates this entire process, linking your current account and books of accounts seamlessly. But how does it work?

How Does Automatic Reconciliation Work?

Automatic reconciliation works by linking your bank account and your accounting software. The automation auto-downloads a copy of your bank statement and pulls relevant information like transaction date, amount, receiver/sender, and particulars.

This information is then fed into the accounting software, where it is recorded in the various books of accounts like the Journal, Ledger and Income Statement.

With full-stack solutions like RazorpayX, business owners can even receive reports of millions of auto-reconciled transactions with their transaction status.

If you want an automatically reconciled financial system, you will need the following infrastructure:

  1. Tech-first bank account open to integrations
  2. Accounting software that can be integrated

Learn about auto reconciliation

Benefits of Auto Reconciliation

Automatic reconciliation comes with undeniable benefits.

Efficient cash flow monitoring is the most important one. Manual reconciliation of books of accounts means business owners need to wait till the end of the month or the end of the quarter to know how the business is doing financially.

With real-time information on inflows and outflows and revenue generated by your business, business owners are able to make more well-informed business decisions.

The next benefit is reduced mistakes – with human tasks come human errors. When automation takes care of accounting entries and checking bank statements, the risk of making mistakes reduces to almost zero. Automation also makes the entire process much, much faster.

When your accounting team is not drowning in reconciliation work, they are free to use their bandwidth for more important tasks, like strategic planning, process improvement and risk management.

Risks of Auto Reconciliation

With automation and software comes the risk of technical downtime and data hacking. If there are issues with the servers of either the receiver or sender bank or with the accounting software, reconciliation can be halted.

If transaction details are not entered correctly, the automation may pick it up incorrectly or may not pick it up at all. For example, if you receive a payment from a customer with the same name as a vendor who regularly does business with you, the reconciliation process might incorrectly assign the payment to accounts receivable rather than sales.

This is why it is still important to have a trained human eye review the reconciled statements to catch any such errors. Solutions like RazorpayX provide business owners with a full report of reconciled transactions with such conflicting payments highlighted for review.

Tips for Better Auto Reconciliation

Automatic reconciliation can save you a lot of time and effort, but it is important to review your reconciled accounts regularly to make sure that everything is accurate.

Here are some additional tips for businesses that are new to automatic reconciliation:

  • Start by reconciling one or two accounts at a time. This will help you to learn the process and to identify any potential problems.
  • Once you have mastered the process for one or two accounts, you can start to reconcile more accounts at a time.
  • If you have a large number of accounts to reconcile, you may want to consider using a dedicated reconciliation service. These services can automate the entire reconciliation process for you.

Speak with our experts


What is automatic reconciliation?

Automatic reconciliation is a process that uses software to match transactions between your bank account and accounting records. It can save you a lot of time and effort, and it can also help to reduce errors.

How does automatic reconciliation work?

Automatic reconciliation software typically works by downloading your bank statements and importing them into your accounting records. The software then uses algorithms to match the transactions in your accounting records to the transactions in your bank statements. If the software finds a match, it marks the transaction as reconciled. If the software can't find a match, it flags the transaction for review.

What are the benefits of automatic reconciliation?

There are many benefits to automatic reconciliation, including: Saves time and effort Reduces errors Improves accuracy Gives you a better view of your finances Can help you to identify fraud and other financial irregularities

What are some of the challenges of automatic reconciliation?

One of the biggest challenges of automatic reconciliation is setting up the software correctly. It is important to make sure that the software is configured to match your transactions accurately. Another challenge is that automatic reconciliation is not perfect. There will be some transactions that the software cannot match automatically. These transactions will need to be reconciled manually.


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