How Often Should You Reconcile Your Accounts? We Ask the Experts

SMB owners should change once-a-month habits of reconciling their accounting software to a daily or weekly basis on cloud-based systems, said bookkeepers and accountants contacted by BoxFreeIT.

Those who updated invoice payments on a more regular basis had a clearer picture of cash flow, could make sound business decisions and would avoid falling behind on outstanding payments.

If owners were not giving the information to bookkeepers on a regular basis, it could hinder their business and “we would go backwards to the days of desktop software”, said Elizabeth Salter, director at bookkeeping business Blue Emerald.

“As they say, ‘cash flow is king’. If you aren’t sending out invoices on time, you’re not collecting your debts. If you’re not reconciling your bank account, you’re not aware of what debtors you need to chase up for payment. If you’re not taking care of all your accounting transactions, you have no idea how your business is travelling and what areas you need to address,” Salter said.

A range of add-on programs such as Debtor Daddy, xoCashflow, and Float were only beneficial if accounts were up to date, otherwise the correct information wouldn’t flow through from the cloud accounting program, Salter added.

Add-on programs could increase the speed of the business even further. One client who refused to change his habits doubled his workload by not connecting the business’ POS software to the cloud-accounting program, Salter said. The client might also be unaware which debtors needed chasing or the cash flow standing of the business.

“If reconciliations are kept up to date, then there is so much more information at their fingertips and their bookkeeper and accountant can focus on what will add value to their business, such as in-depth reporting and advice,” Salter said.

“Set aside 30 minutes first thing every morning. It allows [time] to focus on other areas of their business that can generate income or make improvements.”

Bookkeepers could offer more insight into reconciled accounts including timely reports, budget progress, analysing statements and teaching debtors how to treat outstanding payers.

“We can analyse the reports and results with the client, [as well as] teach the client how to read their critical numbers,” Kylie Short, bookkeeper at Tilda Virtual.

For Tilda Virtual, all reconciliations were completed by the 15th of each month but Short said that most of her clients still thought of bookkeeping in “historical terms.” Only one third of her clients allowed access to online banking, which her team then could reconcile on a daily basis.

The general recommendation from bookkeepers interviewed by Xero was to do a daily reconciliation and at a bare minimum, monthly. “Especially if you have delinquent payers or the same payments all the time,” Short said. “It takes two minutes to login to bank accounts and mark off/tick off invoices as paid. You could do it over your morning coffee, really.”

Business owners wouldn’t know whether they were breaking even or making a revenue without knowing critical numbers, such as the number of overdue invoices, total sales and billing payments, Short said.

Not having an adequate systems set-up was a common reason for slow reconciling.

“A few clients don't have the systems in place yet to reconcile more often. They are mostly the ones who take cash payments as well as the usual eftpos/credit card,” said Short.

Roughly 70 percent of Katalyst Office Management’s clients were reconciled daily or every other day, in particular when debtors and creditors were involved. The remaining SMB owners updated invoices on a weekly or monthly basis according to preference.

“Statements should be sent to customers as soon as possible. [In terms] of creditors, daily is great – you get great stuff happening in Xero if you load invoices regularly. But otherwise, weekly. Monthly works fine for some clients,” Glennis Stuckey, director at Katalyst, a New Zealand bookkeeping agency, said.

Businesses that worked long hours could consider outsourcing all reconciliation to a bookkeeping agency so that their accounts were always up to date.

“It comes down to having the right bums in the right seats. Why should a builder reconcile when a bookkeeper can do it? We should be faster, get better results and know the new shortcuts,”  Stuckey said. “Also, a builder might leave home at 6am and not get back to 6pm; they aren’t going to find reconciling that vital.”

When SMB owners reconciled themselves the frequency varied, said Salter. But there was one client who stood out.

“One client loves Xero with a passion and reconciles almost daily. I think he wishes he had more transactions. He loves pressing that ‘OK’ button. The others [reconcile] when they have some time. Usually every couple of weeks or closer to each month,” Salter said.

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