Bank Feeds and Auto-Reconciliation: What They Miss

A bank feed brings your bank transactions into accounting software automatically, and auto-reconciliation suggests or applies matches between those transactions and the entries in your books. Together they remove most of the typing and a lot of the drudgery from bank reconciliation. They do not remove the need to reconcile, because the software can only match what it is shown, and it will confidently match the wrong things.

Used well, automation turns a two-day month-end task into an hour of review. Used carelessly, it turns a visible reconciliation difference into an invisible posting error.

What a bank feed actually does

Depending on the bank and the software, transactions arrive through a direct connection, through an aggregator, or by importing a statement file. Each transaction comes in with a date, amount, and the narration the bank provides.

The software then does one of three things with each line:

• Matches it to an existing entry, such as a receipt against an open sales invoice for the same amount.
• Suggests a match or an account, based on rules or on how similar transactions were treated before.
• Leaves it unmatched for someone to deal with.

What it does well

• Removes typing errors. Amounts and dates come from the bank, not from someone reading a statement.
• Handles repetitive items. Rent, subscriptions, bank charges and salary transfers can be matched by rules.
• Shows gaps quickly. An unmatched receipt on day three is easier to chase than one found at month-end.
• Keeps reconciliation current. Daily feeds make a daily or weekly review realistic.

Where it goes wrong

1. Matching the right amount to the wrong invoice. A customer with two open invoices of ₹59,000 pays one. The software matches the payment to the older invoice. The customer meant the newer one, which was under dispute. Now the ageing report shows the wrong invoice as overdue, and the next conversation with the customer starts badly.

2. Rules that outlive their purpose. A rule posting every payment containing a supplier’s name to “Raw materials” also catches the one-off payment to that supplier for a machine repair, and a capital item disappears into expenses.

3. Accepting suggestions in bulk. “Accept all” on fifty suggested matches is fast and is how most automation errors get in. Every suggestion accepted without looking is a posting nobody reviewed.

4. Netted and bulk transactions. A payment gateway settles ₹4,82,300 after deducting fees and tax on the fees from several hundred customer receipts. The bank shows one credit. Matching it correctly means splitting it into gross sales receipts, fees and tax, which a simple match cannot do.

5. Duplicate imports. A statement imported manually after the feed has already brought the same transactions in creates duplicates. The bank balance per books then misstates reality, overstated by duplicated receipts and understated by duplicated payments, and a duplicated receipt can look like a real one.

6. Feed interruptions. Connections lapse when bank credentials change or authorisations expire. Days of transactions can be missing without an obvious warning.

The checks that should stay manual

1. Balance check. At each review, confirm the closing balance per the software’s bank account equals the balance on the actual bank statement for the same date. If it does not, stop and find out why before matching anything else.
2. Review matches, not just unmatched items. Sample the automatic matches each month, especially receipts from customers with several open invoices.
3. Review rules quarterly. Delete rules for suppliers you no longer use, and check that each remaining rule still posts to the right account.
4. Handle bulk settlements with a clearing account. Record gateway or marketplace settlements through a clearing account using their settlement reports, then match the net bank credit to the clearing account.
5. Watch for gaps in dates. A feed that shows nothing for four working days in a busy account has probably disconnected.
6. Keep an owner. One person is responsible for the bank reconciliation, even if the software does most of it.

What good looks like

At month-end, the bank account in the software agrees to the statement, every transaction is matched or explained, the list of unmatched items is short and each has a note, and someone has looked at a sample of what the software matched on its own. The whole review should take an hour or two for a typical small business, which is the real benefit of automation: not skipping the reconciliation, but spending the time on judgement instead of typing.

Before you connect a feed

• Understand what access the connection grants and how it is authorised, and use the bank’s own approved method where one exists.
• Decide the start date and make sure the opening balance in the software matches the bank on that date.
• Do not import historical statements for a period the feed also covers.

Where this fits

• The underlying procedure: bank reconciliation step by step
• Where unexplained items go meanwhile: the suspense account
• The monthly routine it belongs to: month-end close checklist
• Choosing software with good banking features: choosing accounting software