Expense Reconciliation: Meaning, Process and Benefits - ProSpend

When your business verifies and corrects expense records, you can maintain precise financial statements and comply with regulatory requirements. Let’s explore the meaning of expense reconciliation, its process and the significant benefits it offers to organisations of all sizes.

What Is Expense Reconciliation?

Expense reconciliation is when you match and compare your expense-related records. It’s how businesses track and monitor employee spending. With expense reconciliation, the company can verify that all incurred expenses during a certain period align with the established budget.

Your goal here is to ensure that your bank transactions are in line with what’s recorded in your financial statements.

Why Should I Reconcile Business Expenses?

Ensuring that all expenses are accurately recorded prevents discrepancies in financial statements. Below are some specific reasons why it’s essential to reconcile business expenses:

1. Finance assessment

Reconciling business expenses helps you assess your company’s finances. When you balance your books, you get to see your income, expenditures and cash flow so you can make decisions about tweaking the budget if needed.

When you understand the details of all expenses, you can easily manage and control the company’s costs. Reconciliation can reveal patterns or trends in spending, highlighting opportunities for cost savings and more efficient resource allocation.

2. Error prevention

Expense reconciliation provides visibility, allowing you to immediately identify errors that might have made their way to your books. After all, the last thing you want is to let the errors pile up over time. Reconciling expenses helps you catch the errors before they make a major impact.

Plus, expense reconciliation ensures that all payments to suppliers are accurate and reflect the agreed terms. It helps prevent overpayments, underpayments and duplicate payments so you can maintain good relationships with suppliers.

3. Fraud prevention

The meticulous process of expense reconciliation allows you to identify any suspicious transactions. You can quickly take action against unauthorised transfers and duplicate charges before they greatly affect your cash flow.

Regular reconciliation also ensures that all recorded expenses are legitimate and supported by accurate documentation. It helps detect fictitious expenses or incorrect claims.

4. Staying on budget

When you compare your actual expenses with your budget, you get to see areas where spending exceeds the allotted amount. This early detection of overspending allows businesses to take quick action, like reallocating resources or reducing spending.

This clarity you get from expense reconciliation also provides better decision-making on investments, cost-cutting measures and strategic initiatives to stay within budget.

How Does Company Expense Reconciliation Work?

The expense reconciliation process

Reconciliation of expenses can identify and rectify any errors, discrepancies or unauthorised expenses. The process involves the following steps:

1. 1. Receipt and invoice matching — This is when you verify that the receipts and invoices are accounted for in your records.
      
      
   2. Bank reconciliation — In this step, you ensure that your bank statement transactions match the records in your accounting system.
      
      
   3. Expense report verification — This is like employee expense reconciliation wherein you check employee expense reports to confirm the legitimacy of the expenses.
      
      
   4. Budget compliance — This is when you confirm that the expenses are aligned with the company budget.

Ways to reconcile expenses

Some companies still use analogue tools for their finance management practices. However, there are several different ways to reconcile expenses, and one can be more efficient than others. Below are three different ways to reconcile expenses:

1. 1. Paper records — When most of your data is stored in physical documents, you can reconcile expenses with paper records. This involves maintaining a physical ledger of your transactions. Take note, though, that reconciling through paper records is prone to errors, loss or damages.
      
      
   2. Spreadsheets — Many businesses use spreadsheets to manage expense reconciliation and any other finance processes. However, spreadsheets are prone to data loss and manual entry errors.
      
      
   3. Software — This is the best way to reconcile expenses as it streamlines the whole process. Software is typically equipped with features and tools that record your transactions in real time.

Streamlined Expense Reconciliation

Now that we’ve mentioned that software is the best way to make expense reconciliation efficient, let’s dive into streamlined expense reconciliation.

How a streamlined expense reconciliation process looks like

1. 1. Automated reports — With the automated transfer of expense reports, you eliminate the requirement of manual work. Expense management systems seamlessly integrate with accounting platforms so you can automate the categorisation of expenses to your general ledger codes.
      
      
   2. Digital receipts — Imagine all the physical receipts on your desk compiled in a digital platform. Expense management systems have receipt capture tools that can record expense information.

How to do it

1. 1. Find the right tools — Not all systems are the same. Choose the software that aligns with your company’s goals and needs.
      
      
   2. Integrate it with your systems — Whatever software you choose, make sure it can seamlessly integrate with your current accounting systems. That way, you won’t have a hard time with data transfers and the overall transition.
      
      
   3. Implement policies — Once you have the software, configure the system so it will enforce your company’s expense policies.
      
      
   4. Automate your workflow — Use the software to implement workflow automation rules. This will streamline the process and ensure faster cycles of approval.
      
      
   5. Train employees — An efficient system is just an extension of your employees' skills and it will be rendered useless if they don't know how to use it. Provide training on the software and ensure effective communication among all stakeholders.

Benefits

1. 1. Better visibility — A streamlined process provides your business with greater visibility over all finances because of its real-time monitoring. With this kind of visibility, you also get to quickly identify and rectify errors and discrepancies.
      
      
   2. Reallocated time — A robust software saves time because employees can spend less time working on manual reconciliations and focus on higher-value tasks that drive growth.
      
      
   3. Fewer errors — Critical tasks such as calculation can lead to errors when not streamlined. Automated systems perform calculations with a high degree of precision, reducing errors associated with manual calculations.

Expense Reconciliation Software Is the Best Solution

Expense reconciliation software offers accuracy and real-time monitoring that manual methods cannot match. By automating record checks, you save time and resources, allowing finance teams to focus on more strategic tasks.

Adopting expense reconciliation software leads to better budget management, fraud prevention and overall financial health.