Unfortunately, after combing through statements for hours these examples are exactly the kind of human error that can occur. And they have consequences for the whole organisation.
This blog discusses what the true cost of errors in statement reconciliation can be, and how this can be remedied.
Statement Reconciliation is error-prone
It will come as no shock to you that errors in statement reconciliation allow incorrect statements to pass through the system. That can result in overpayment or underpayment, some of which can be in vast amounts of money if a single decimal point is in the wrong place.
When concentrating on matching line by line it might also be easy to miss overarching inconsistencies. For example, consistent anomalies of the same type on a specific supplier could point to an underlying issue.
Auditors tell us that around 60% of the potential cash recovery they find in their audits come from statement reconciliations, covering both reconciled and unreconciled statements.
The True Cost of Errors in Statement Reconciliation
Underpayment
Underpaying your suppliers can cause problems for the whole company. Once a supplier recognises an issue, credit controllers will contact you or your colleagues. Higher numbers of queries from suppliers means less staff time being spent on their day job, leading to inefficiencies.
Furthermore, if underpayment is consistent, it can gradually erode supplier trust in you. This can cause them to rethink their payment terms, withhold supply or services, or stop doing business altogether.
Changes in payment terms can cause admin headaches, but supply issues for a key supplier will affect the entire business. Your stock will be low or non-existent while you scramble to find an alternative (and as we all know, trying to do things fast can lead to skipping essential checks, so your new supplier could be fraudulent or unreliable). You may not be able to sell your own goods and services, causing a ripple where income is far lower than usual and the company struggles to balance the books.
Overpayment
Overpayment also can cause issues. The process of trying to recoup that money can be a long process and isn’t always possible – and that’s assuming that the overpayment was identified – there may be overpayments that are never found. It is also not cost-effective, since you will need resources to recoup payment, perhaps even using a recovery service. Therefore, the lost cash is never quite made up.
Fraud
Issues with statements can also bely financial fraud. Failure to find those issues may allow fraud to escalate, causing large scale issues, not just with cash flow but with company reputation.
Inaccuracy
Finally, errors in statement reconciliation can result in inaccurate financial reporting. Those underpayments, overpayments, missed rebates, credits or discounts, all add up. Erroneous balance sheets, income statements and cash flow statements can lead to misrepresentation of the company’s financial position and performance. It can consequently skew financial reports, create misleading insights and therefore affect forecasting accuracy.
How to remove errors in statement reconciliation.
The key to error-free statement reconciliation is to automate the matching element. Using AI-assisted software, such as our statement reconciliation solution, means that each line is compared forensically against your records. No line is missed out, regardless of value, complexity or length of statement. Every statement element is read and compared to every transaction in your ERP.
Your outcome is a list showing which transactions do not match. This saves invaluable time that you can use to rectify the exceptions found, and therefore provide huge value to the company. How much time? Well, on average, each statement is analysed by our software in just 7 seconds. Compared to the it would take manually, it’s 257 times faster. Imagine how many supplier statements you could have completed in a single day.
Why use our software?
Our highly trained AI software is also extremely accurate, allowing you to work effectively. It uses set algorithms and machine learning to discover discrepancies, some of which you may not be able to see in a manual statement reconciliation.
Add in the benefit of enormous value, and statement reconciliation automation really is a no-brainer. On average, we’ve found an average credit value of £13,000 in our statement reconciliations, and the average missing invoice is worth a huge £8000. How much could you find?
Conclusion
The effects of precise statement reconciliation are all beneficial: Further protection of working capital, as cash will not be leaving the business, staff time being spent more effectively, high supplier trust, elevated fraud detection and accurate ledgers.
