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Reconciliation : Key to Effective Cash Management

Reconciliation in corporate banking is very critical to manage the cash management. The reconciliation is process of matching two sets of corresponding transaction data which finally needs to be in agreement. Corporate normally have pain in account reconciliation or invoice reconciliation.


Account reconciliation is used to make sure that company ERP and bank records balance. There should be balance between the money going in the account and out of the account. Account reconciliation is required within bank also as multiple systems dealing in different banking interface with each other. Transaction banking, Loan management, Credit card, Core banking are the examples which interface with each other. Invoice reconciliation is the process of matching the payments or receivables to the corresponding invoices going out and coming in.


Advantages of Reconciliation

  • Unlock tied-up cash potential
  • Reduce DSO and improved order to cash cycle
  • Optimize cash management
  • Improved customer service
  • Alignment with Shared Services


Reconciliation Challenges

The key challenge in any reconciliation process is data collection. The payers’ practices are critical elements when looking for optimization potential: partial and full payments, single or multiple invoices, providing insufficient invoice details or no details in the payment transfer and the usage of multiple payment types are all factors that complicate cash management process. Another challenge is the market dynamics and practices.


Automatic Reconciliation

The foremost task in getting any reconciliation automated is to have the right set of data in right format that need to be reconciled. Data sets can be remittance, bank statements, payment advices, invoices, debit/credit notes etc. This is often received in many different formats. Once the data sets are identified in a standard clear format, next step is the processing for knocking off the matching transactions. When all corresponding transactions are knocked off, exceptions are identified.


 The first step that needs to be taken care in any reconciliation process is to find the unique matching reference between data sets. This could be a transaction reference, invoice number, purchase order number or anything else that can be used as matching key in reconciliation. However, in certain reconciliations, unique reference can be the combination of elements. It can be customer number combined with the amount, an amount combined with reference number and a date, and so on. There is an increasing trend of using virtual account with incoming payments. Unique key can also be extracted from virtual account. Once unique key with one element or combination of elements linking transaction data sets are established, matching of transactions can be started.



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