What is Auto Tuning? How can it save small businesses and banks?

Imagine this. John Carter begins his job as the country club’s new finance and administrative director by reconciling the payroll journal entries with the employees’ payroll logs provided by the payroll processor. It takes him weeks and distracts him from other important matters. Ultimately, Carter deduces that the club’s HR director is embezzling thousands of dollars in overpayments to himself and other employees.

Without atonement, Carter might not have been able to uncover the fraud. He might have noticed earlier – maybe even prevented it – if the club had a monthly or bi-weekly reconciliation policy that provided tight control over the accounts.

Reconciliation helps reliably control cash by comparing accounting data to an independent financial record such as a bank statement to reduce errors, duplicate entries, and inaccurate information.

Do your accounting records show more cash than there is in your bank account? Perhaps a customer’s payment has bounced or you forgot to charge bank fees. Reconciliation strengthens the integrity of your books, helps monitor cash flow, identifies fraud, prevents overspending, and creates accurate financial statements.

Related: Six technology trends every bank should be ready for in 2021

Small and medium businesses have very limited resources, usually with an overworked accountant manually reconciling financial data. Depending on factors such as a small company’s purchase and sales values, number of employees, operational history, etc., reconciliation can be time-consuming, resource-intensive, and prone to error. Consider the steps involved:

• Login to the banking portal.
• Download bank statements.
• Manually compare each entry with its accounting counterpart.
• Documenting the process in multiple spreadsheets.

A misstep at any stage, at any input, can jeopardize the entire process.

In addition, most payment methods take time to settle. Here’s a breakdown:

Related: How to protect your small business from fraud

Payment methods and settlement times

• Automated Clearing House (ACH) credit.
• ACH depreciation
  • approx. 1-2 working days
• Same day ACH credit
• Same day ACH debit
• Transfer
• Real-time payments (RTP)
• Controls

Some of these settlement times create a delay that masks the available balance, which transactions are still being processed, and when different sets of transactions are likely to be settled. Small businesses usually operate on small margins, and making financial decisions based on outdated or erroneous information can be incredibly costly.

Banks also process transactions in batches. A small business can make ten separate $1,000 ACH credit transactions, but the bank processes them as one $10,000 transaction, making it challenging to match each payment with the correct transaction on the bank statement.

Related: How to Write a Check Properly in 5 Easy Steps

Auto Reconciliation solves these problems by uploading and cross-validating bank details against their accounting platforms. It provides accurate financial statements, speeds up accounting and improves financial management. With small businesses under increasing pressure to close their books fasterjust think of the time, cost and labor savings owners could have with automatic reconciliation.

But companies are limited in choice. Some auto-reconciliation tools require manual intervention, such as uploading bank statements, while major accounting platform providers like QuickBooks allow users to import bank data for cross-verification through proprietary APIs with major financial institutions. But what if a small business is banking with a financial institution that is not linked to their accounting platform or vice versa?

Related: How Open Banking Can Benefit Small Businesses

Banks have a real opportunity here – to lead the way and offer true automatic reconciliation through a universal accounting API that pushes banking transactions directly into any accounting system. Automatic reconciliation via APIs ensures that a company’s accounting is always up-to-date as the bank automatically populates the accounting platform with real-time information. Offering a universal accounting API ensures that banks never fall short in serving the small business community and that companies never have to think twice about whether their banks and accounting systems are compatible.

The widespread adoption of APIs in the banking industry provides tremendous value for other services such as lending. Loan APIs streamline and speed up the underwriting process by establishing a direct connection between lenders and loan applicants, increasing transparency and access and reducing the likelihood of fraud. Banks with supercharged services through third-party APIs are increasingly common in places like the UK, where open banking is mandated by the government.

Related: Open API: Now What?

We are still quite behind in the US and Canada, but not for long. The reality is that automatic reconciliation is a small business need that speaks to a larger interest: small businesses need specialized care. Banks need to catch up or risk losing customers to competitors who understand the game and expand to access a wider range of niche services. Banks and payment providers that quickly provide value-added services to their small business customers through APIs will benefit from customer retention in the long run.

Of course, technology is not 100% foolproof – some degree of manual control will still be necessary. But by offering their small business customers the chance to automate a crucial accounting process, banks can invest in their customers as well as their own future.