Build vs. buy: A guide for CFOs who need automated reconciliation software

Build vs. buy: A guide for CFOs who need automated reconciliation software
Ira Fridman
September 20, 2023
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If your finance team manages a complex flow of funds – such as if your company is a fintech, insurtech, marketplace, or vertical SaaS, just to give a few examples – then you know how critical it is to have an automated reconciliation engine powering your finance operations.

The question is, should you buy from an established third-party provider or build the solution in-house? Many of the businesses we’ve spoken to and work with have debated this “build vs. buy” software dilemma.

Based on my experience working for companies that chose both sides of the debate, I wanted to share some considerations to help you determine which choice is right for your team.

When it makes sense to build your own reconciliation solution

Reconciliation is a critical business function for all companies, but for businesses operating at scale, it can be extremely challenging. 

And if you’re handling a complex flow of pay-ins and pay-outs, with multiple stakeholders and complex fee and pricing structures, reconciliation gets infinitely more complicated – and even more critical to get right. The cost of reconciliation errors is sky-high.

Teams in this position usually turn to automation, and for businesses where reconciliation is core to your company’s offering and services, it can make sense to build your own automated reconciliation solution in-house.

The advantages of building your own reconciliation engine

  • Every business has its own unique challenges, and the payments space is relatively new, extremely complex, and rapidly evolving. If you build in-house, you can tailor your solution to fit your exact set of highly specific needs.
  • Building in-house means your business maintains total control over the solution. When additional customizations become necessary, you can tweak and adjust it as you see fit.
  • Depending on how much you’re losing to reconciliation errors, the price of an external automated solution, and what it would cost to build yourself, the ROI might make sense to build it in-house.
But to build your own reconciliation product well and have a successful outcome, there are a number of considerations to keep in mind.

What you’ll need to successfully build an automated reconciliation tool

While exact numbers and requirements are highly specific to every unique business, I can share what I’ve personally experienced going through the in-house build process at two companies and what I know to be generally true for other teams I’ve worked with.

1. You need a dedicated team of software engineers, finops, and maybe more

The build projects that I’ve personally been involved with in the payments space have required a large team of full-time resources roughly along the lines of:

  • 5 software engineers
  • Finance operations person
  • Product manager
  • UX designer
  • QA engineer

For companies outside the payments space that still have a complex flow of funds, I estimate that you could build a decent tool with a few developers working full-time on the build, the VP of Finance as both the business owner and the product manager, and 1-2 finops people. 

Whether you’re diverting resources away from core initiatives or recruiting specifically for these roles, these are resources that require a significant budget.

2. You need deep expertise in the payments space

The payments space is complex and constantly changing, and integrating with a single payment service provider can be a challenge, depending on how good their APIs and executions are. Then, once the integration is complete, you need to adapt the reconciliation tool to ingest the new reporting.

Both endeavors are complex. If this expertise falls outside your company’s core competency, your team members will need to devote significant time and energy to developing a deep understanding of the space to execute the project well.

3.  You need a robust roadmap and strategy for use cases, now and in the future

When your business has a complex flow of funds, it can be challenging to think through and plan for all the use cases that the finance team will encounter on a day-to-day basis. Even understanding the different possible payment flows can be a beast. 

Your team will need a solid product roadmap to address all these use cases and capture them in an informative and user-friendly way. If possible, the roadmap should encompass not just your needs now and a few months down the road, but ideally what you can anticipate to come over the next few years.

4. Your R&D team may need to employ new technologies 

When developing the reconciliation solution, your R&D team may also need to use technologies that are outside of their existing stack. 

For example, bank and wire transfers classically scramble the payor’s name, which can make reconciliation annoying and time-consuming. 

If you want to automate that, developers may need to employ tools such as fuzzy searching and AI that go beyond string matching into a more semantic kind of search. There may be a cost and learning curve associated with these new tools.

5. It will take several months to build, maybe more

If you have the necessary manpower, resources, and expertise in place, I estimate that it would take a dedicated team several months to complete the initial build of a system that can handle multiple payment processors and a complex flow of funds. 

But that's the best-case scenario, and delays are almost always par for the course, so it would be wise to account for that and add buffers to your timeline.

In the end, It’s definitely costly and challenging to build your own reconciliation solution in-house, but I’ve known companies that have done it with great success. 

The key consideration is that you need to devote the necessary budget, manpower, time, and expertise to make it a success.

Be sure to plan resources and budget for the solution’s ongoing maintenance 

In my experience, the really hard part, and what most businesses fail to account for, is the ongoing maintenance that an automated reconciliation solution requires. 

You don’t just successfully complete the initial build and then move on. You’ll still need a team dedicated to its ongoing maintenance. 

There will always be bugs that need to be fixed, configurations that need to be adjusted, and edge cases you inevitably failed to account for during the initial build.

In time, you’ll want to add another payment processor or two, switch banks, or support ACH transfers, and all these efforts require an investment of planning, resources, and expertise. That’s because your reconciliation processes are as dynamic as the rest of your business. 

As your company grows, you’ll need to support new product lines, revenue streams, currencies, you name it, not to mention any mergers and acquisitions that may happen down the line. 

All these milestones will have enormous ramifications on the reconciliation system, and sometimes they’re big enough to require a total rebuild from scratch. 

Most companies I know have built their own internal systems more than once.

If you don’t have ongoing full-time support devoted to the solution, finance will be forced to chase down and compete for R&D resources. 

What’s more, every company inevitably has turnover, and when an engineer who’s developed finance expertise leaves, that knowledge goes with them, too.

This can all lead to frustrating and costly delays and a breakdown of processes, which can eventually lead to financial losses and a substandard customer experience.

Bottom line: if you want to build a solution that continues to provide value over time, then you need to budget and plan for the run-rate cost of maintaining and potentially rebuilding the solution.

The alternative: buying an off-the-shelf SaaS reconciliation solution

For years, many businesses had no choice but to build their own reconciliation solution in-house, because there weren’t any great third-party solutions out there that really met their needs.

The few solutions on the market that could handle multi-way reconciliation for a high volume of payments and a complex flow of funds were very heavy, expensive systems for Fortune 500 companies that required extensive support from engineering resources. 

They took a long time to show value, and for many finance leaders, the ROI didn’t make sense.

But times have changed. There’s a crop of new solutions that can connect all your banking, payment, and accounting systems into one unified platform, making it possible to automate revenue reconciliation across all systems and get real-time visibility into your complex finance operations.

The advantages of buying a third-party reconciliation tool

  • There’s a new generation of reconciliation tools that have fast time-to-value. Finance teams can set up, configure, implement, and operate them on their own – no R&D or IT resources required.
  • When buying from an external vendor, there’s no surprise maintenance and upkeep costs – the costs are repeatable and predictable as per your contract. 
  • SaaS solutions can have built-in flexibility and scalability, and depending on the solution, can empower finance teams to implement new workflows quickly and without additional costs or time

Questions to consider when debating build vs. buy

At the end of the day, when debating the build vs. buy conundrum, it’s really a question of evaluating the opportunity costs and what decision is likely to set your team up for long-term success.

  • Do you have buy-in from all key stakeholders – the CEO, CTO, and/or CPO – to devote budget and all the necessary resources to the project, both now and in the future?
  • Is there a third-party SaaS solution that can meet your team’s needs?
  • What’s the ROI of building your own reconciliation tool in-house vs. buying it from an external vendor?
  • How important is it for you to have full and complete control over it? Do you require extensive customization and a bespoke solution?
  • What’s your product and business roadmap for the next three to five years? What changes can you already anticipate you’ll need to prepare for?
  • How quickly do you need it?

Whether you decide to build your own solution in-house or partner with a third-party provider, one thing is certain: automation is a must-have for teams managing complex finance operations. Payments are something that businesses just can’t afford to get wrong.

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