What are you risking by managing reconciliation manually in Excel?

What are you risking by managing reconciliation manually in Excel?
Tal Kirschenbaum
February 13, 2024
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Some finance leaders we speak to have a hard time letting go of their manual reconciliation processes. Maybe...

  • The idea of automation is overwhelming and you don’t know where to start
  • You’ve been burned by bad experiences with software in the past
  • You don’t want to be reliant on IT, R&D, or system integrators to automate processes
  • Sticking with manual reconciliation, however imperfect, feels less risky than making a change

And I get it – I personally love Excel. It’s unbelievably versatile, it’s tried, tested, and true, and it gives finance teams the independence to operate without relying on IT or R&D resources or system integrators.

That’s probably why it’s the universal standard in the world of finance.

But for finance teams that are managing complex finance operations, using Excel alone can in fact pose significant risks to your business.

If your finance team is handling a high volume of payments or a complex flow of funds, here’s what you’re risking by sticking with manual reconciliation processes.

1. There’s a real risk of material losses

They say that about 90% of spreadsheets contain errors. 

Whether or not that’s actually the case, it’s certainly true that finance teams that manage complex finance operations manually in spreadsheets are more likely to accidentally make mistakes themselves and/or miss issues that are no fault of their own.

Maybe you… 

  • Fail to identify missed payments
  • Accidentally make duplicate payments
  • Miss an ACH return or wire transfer reversal
  • Are unknowingly overcharged by payment processors
  • Fail to detect fraudulent activity

When you’re using Excel to manage massive payment volumes that are fragmented across a stack of PSPs, bank accounts, databases, and other sources, you don’t have real-time visibility into what’s going on.

That means that you only find out when things have gone wrong after the fact – sometimes long after the fact, when it’s too late to recover the funds.

Nearly every finance leader I’ve worked with has experienced material loss in one way or another due to manually managing their finance operations in Excel, and it can really add up, sometimes to the tune of many millions of dollars a year.

Finance leaders know these losses are happening under their noses, but they feel powerless to do anything about it. 

They’re actually resigned to it – something that they have no option but to accept as the cost of doing business and working with Excel.

2. Knowledge & information are siloed into a single point of failure

If your team is managing complex finance operations in Excel, more often than not, there’s one member of your team that’s an Excel genius, highly skilled in VBA scripts and index matches, and maybe even SQL or Python. 

They act as the primary gatekeeper of your manual finance operations. 

This is a problem, both for them and for you.

For example, one accounting manager we work with is responsible for managing all of her company’s manual processes and workflows. Only she knows all the flows and logic of the reconciliation processes.

As a result, every vacation she’s ever scheduled has revolved around the financial close calendar, and even her getting sick can spin their business into crisis.

It’s highly risky to have your finance operations hinge on one person and their spreadsheets.

It’s bad for audits, it’s bad for internal controls, and it’s just not a sustainable way to operate. Businesses should not be vulnerable to a single point of failure.

3. You’re risking more miserable and costly audits and audit prep

Audits are getting harder… and a lot more expensive. Proposed PCAOB standards would dramatically increase the scope and scale of audits – potentially “by more than five times.”

Requirements for a much wider range of reporting would also make audit prep way more time-consuming, costly, and difficult for finance teams.

That’s a nightmare when you’re managing massive amounts of data in Excel. 

Not only is it absolutely painstaking to manually gather the backup information the auditor needs to sample at the transaction level, but you’re also risking the likelihood that once the audit is underway, they’ll find an error, have to increase the sample size, and take a deeper dive.

The pain, amount of work required, and delays of audit investigations can be miserable, incredibly costly, and divert your team’s attention away from their critical daily work.

4. There’s a significant opportunity cost

Consider these statistics:

That’s painful. The work of applying cash and reconciling payments is mission-critical, but it’s also time-consuming, repetitive, and mundane. 

And investigations can be equally laborious and painful.  When issues are detected, your team needs to drill down into individual transactions, retrace their journeys, and figure out what happened, down to the penny. 

The highly educated and skilled finance professionals on your team are qualified to do more advanced, technical, and creative work, ranging from implementing new Netsuite automations to preparing revenue work papers. 

Excel keeps them bogged down in the weeds rather than freeing them to really contribute to the business in a strategic way.

5. You’re more exposed to internal fraud

The incidence of fraud is skyrocketing. A notable recent example: Sam Bankman-Fried, the former crypto billionaire, perpetuated much of his fraud through spreadsheet manipulation

While that’s an extreme and highly publicized example, internal fraud is common and widespread. A recent study about the pervasiveness of corporate fraud estimates that about 40% of companies are committing accounting fraud.  

Excel is especially vulnerable to fraud and mismanagement; manual version control can be easily manipulated and data security is often non-existent.

Your business needs (and auditors require) robust systems and internal control mechanisms to both monitor and prevent this.

6. Your team is at high risk of burn-out

The accountant shortage is acute, and it’s never been harder to recruit finance professionals.

The number of CPA candidates in 2022 was the lowest level it’s been since recording began and 87% of businesses say they find it increasingly hard to secure the talent they need for general accounting.

Retention of skilled finance professionals is a crisis, too; “about 82% of workers who exited accounting this year through September 1 had at least six years’ experience,” the WSJ wrote earlier this year. 

While there are many factors contributing to the accounting shortage, many finance leaders raise the issue of employee burnout as a huge issue they struggle with.

As transaction volumes have exploded and the financial stack has fragmented, the job has gotten a lot more tedious and draining, and teams need more than spreadsheets and manual processes to control it all.

In fact, a recent survey shows that companies that offer a technology solution to their accountants are 80% more likely to retain those employees.

7. You’re risking real damage to customer relationships

The payment experience is the customer experience and it’s mission-critical to get right.

When cash application is manual and slow, customers who make payments can still receive payment request notifications via email, leading to frustration, confusion, and more support tickets.

Teams that do manual reconciliation take much longer to identify issues to begin with and then take much longer to resolve them. Each investigation isn’t just a discrepancy for your team to address; it’s a relationship you’re potentially damaging. 

This is especially true in an economy where LTV is down, CAC is through the roof, and customer retention is paramount.

A Chief Accounting Officer of a large enterprise that we work with shared that moving away from manual reconciliation was a top priority across their organization at the executive level due to the strain that payments correction research has had on client relationships.

“We need better accountability to our clients – we’re processing billions of dollars on their behalf every year.”

8. You’re incurring operational costs across the organization

Manually managing finance operations in spreadsheets isn’t just a problem for finance; it incurs significant costs across the organization.

Payment errors can lead to any or all of the following:

  • An increase in tickets for customer success to respond to
  • Strain on relationships making it harder for sales to close deals and upsell
  • Time and resources spent by the operations team to identify and correct the error
  • Negative reviews, both online and through word-of-mouth, damaging your company’s reputation

The downstream implications of poor reconciliation processes are enormous, and the longer each discrepancy takes to resolve, the more costly it becomes.

In this economy, when efficiency is paramount and everyone is working to cut costs and increase profitability, that kind of inefficiency and waste of resources is very difficult to justify.

9. You can’t forecast with accuracy or deliver strategic insights

When your team is manually managing your finance operations in Excel, you never have real-time visibility into your actuals, which impedes your ability to forecast with accuracy, deliver strategic insights, and help the business optimize for mission-critical factors – namely, cash position and cash flow.

Forecasts don’t matter if you don’t know your actuals, and in order for FP&A, treasury, and everyone else on the finance team to do their jobs effectively, you need confidence in your financial data and real-time visibility into your actuals.

  • What are your actual revenues?
  • What is your actual budget variance?
  • What is your actual cash position across all banks?

These questions are very hard to answer in real time when data is siloed across bank accounts, PSPs, billing providers, and databases and needs to be manually consolidated into a spreadsheet.

Organizations increasingly expect their finance leaders to be strategic business partners, not just back-office number crunches, and relying on outdated Excel info doesn’t empower you to drive these insights. 

10. You’re risking losing trust with investors, board members, and external stakeholders

Investor relationships, a company’s valuation, and its market performance all come down to trust.

Whether your company is public or private, manual reconciliation errors can result in major reporting and accuracy issues, leading board meetings or earning calls to go terribly off the rails.

As Secret CFO so succinctly and vividly puts it:

“Every CFO’s worst nightmare – going back to the market and telling them you got the numbers wrong.

 I’ve had literal nightmares about this. 

A restatement is the closest thing a CFO gets to sh*tting their pants in public. And no one wants to do that.

Having robust accounting functions who each sign off on their share of the balance sheet is crucial. Building that quilt of comfort that comes from everyone owning their patch.”

Your reputation – both the company’s, and ultimately your own – are on the line, and error-prone manual processes put you in a position of constant vulnerability.

There’s a new, automated alternative to Excel

Excel is amazing, and I think it will always be an essential tool for finance professionals.

But it’s simply not enough for most finance teams, and it’s too risky to rely on alone.

Here’s the thing – I understand why finance leaders have embraced Excel to the exclusion of other automated systems.

While other industries have enjoyed innovative new tools that have empowered them to operate independently and more efficiently, nearly every automated finance tool on the market has required months worth of extensive engineering, IT, or system integrator resources just to implement and ramp up.

Even an ERP like Netsuite requires IT teams to create the custom and ad-hoc reporting that finance teams require.

That’s expensive, time-consuming, and high-risk, too.

The good news is that the market is really beginning to change.

There’s a new generation of automated finance operations platforms that are built specifically for finance teams that they can configure, implement, and operate on their own.

 Finance leaders can now:

  • Automate multi-way transaction reconciliation no matter how complex your payment flows
  • Easily manage cash, savings, and credit balances across banks with one view
  • Get real-time monitoring and alerts so you can handle issues right when they happen
  • Launch in minutes or hours, not weeks or months

It’s a very exciting time for the CFO tech stack, and if you’re a finance leader at your business, there’s never been a better time to let go of manual processes and find an automated tool that actually meets your needs.

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