When considering a new investment in software, firms prioritize different metrics. Of course, the price tag alone cannot justify a buyer’s decision. However, a proven ability to generate long-term positive financial outcomes can build a solid business case.
Evaluating the efficiencies of a new reconciliation automation solution involves a return on investment rate and payback time. Using a uniform calculation is rarely possible because client circumstances, challenges and needs are unique.
Yet, decision-makers expect measurable benefits that would:
- Generate savings
- Improve revenues
How to estimate investment cost, ROI and payback time of your new account reconciliation software
Several variables come into play in the assessment of whether or not the new application is worth the time and money.
Estimating the cost of ownership of a reconciliation solution: what’s behind the price tag
As part of the competitive edge, pricing policies of software vendors offer a huge variety. The subscription model for SaaS solutions, for example, provides tailored packages of reconciliation functionalities, user bundles, transaction thresholds or data storage space that would make the optimal combination for every client. The subscription fee usually includes support and maintenance costs for a standard SLA. Initial implementation and training are one-time fixed-price line items.
We at ReconArt argue that such a pricing policy provides clarity and predictability for the client, regardless of how their current circumstances might change. Additionally, this setup allows a gradual rollout of the new reconciliation solution to avoid disruptions, manage the learning curve, and place the control of the deployment pace into the hands of the process owners.
Additional cost factors: change projects, expansions, infrastructure
Your reconciliation solution should enable scalability in every dimension. New processes, new users and accounts, new data sources, and new organization of work such as distributed, multinational accounting teams working remotely are impossible to predict or plan for accurately. SaaS delivers scalability to meet that demand without the risk, the headaches, and the redundant capacity, making it suitable for growing and dynamic businesses.
The SaaS model also removes many concerns around your reconciliation solution’s support and maintenance costs. That would include hardware, licenses, and human resources to monitor performance and calibrate the infrastructure accordingly. Such invisible costs can quickly spill out of control and become a burden.
Due to its nature as a focal point for multifarious internal and external data sources, your reconciliation solution must stand ready for continuous, flexible integration with new systems. It is almost certain that new data sources will have to be onboarded in the future or old ones will be replaced and will need reintegration. The cost of that should be clear in advance.
The reconciliation software must respond to the technology and regulatory landscape changes. Most importantly, the cost of product enhancements and version upgrades can bring an element of unpredictability in the cost modelling. Take for example the camt.53 format that has been introduced as the latest ISO 20022 standard in bank messaging. Its adoption will inevitably incur some development costs.
However, if your reconciliation software vendor reinvests in the product consistently and democratizes free upgrades for all clients, then your financial reconciliations are in safe hands long-term.
Additionally, a reconciliation solution functionality should be usable for daily business users. Otherwise, managers will need to calculate the cost of professional services or consultancy to make the solution works. Business ownership of the reconciliation tool and processes is a critical task for some; outsourcing is not an option for them due to legal, data privacy or information security concerns.
How to quantify the benefits of your account reconciliation system?
Reconciliation in accounting represents a hunt for discrepancies. Each discovered and resolved mismatch means either a dollar saved, or a dollar spent more wisely, or a dollar earned.
Operational cost savings
Measurable cost savings are the obvious and prioritized benefit. They can be achieved in different ways.
Workforce productivity enhanced with reconciliation tools
Productivity skyrockets when repetitive tasks requiring little or no human discretion are transformed into algorithms and automated. The reconciliation process involves several discrete, simple jobs that do not require accounting skills or expertise to complete, yet they are stepping stones towards the objectives pursued. For example, collecting raw data from external sources, extraction and transformation, and preparing the input files are inevitable and take up most of the time spent reconciling accounts at period end.
Automating those low-value tasks immediately redirects staff focus to higher value-added activities like process supervision, discrepancies investigations, and account analysis.
Staff augmentation and additional payroll costs
The reconciliation processes are perfectly suitable for automation. As manual operations expand, new hires come. This expansion approach is unsustainable. By automating repetitive and laborious manual tasks such as transactional matching and account reconciliations, this technology can reduce the need for additional staff or alleviate the overtime burden on your team’s well-being and the payroll.
Legal liability and fines in the case of regulatory non-compliance
The toll of regulatory non-compliance can be heavy, even fatal. For strictly regulated financial services businesses, the streamlined reconciliation processes reduce the cost of external audits, providing structure, visibility and predictability. Reconciliation solutions install reliable internal controls and checkpoints to uphold accountability and meet best-practice reporting requirements. Process standardization across periods and departments secures speed and consistency even for the largest organizations with the most extensive period-end close workloads.
Risk mitigation in financial reconciliations
Prompt and accurate reconciliations also contribute to financial risk mitigation efforts. Automated transaction matching, for example, can help spot suspicious irregular patterns in bank card payments. Costly human errors like double payments on an open invoice, credit card fraud or embezzlement attempts, etc., can become evident and can be corrected on time.
Smarter vendor management and supplier cost savings
Your reconciliation solution by definition becomes a central repository for transactional data from external sources. It has unexplored potential to aggregate verified information about company counterparties and business partners with very high analytical value. The management can access timely insights on supplier management issues (e.g. discount policy for volumes and preferential payment terms) or banking relationship (e.g. optimization of service fees).
Custom solutions for reconciliation and financial close management
Companies often choose to custom-develop their account reconciliation tools. They believe that this is the only way to meet their specific requirements while utilizing the IT and accounting expertise in-house. However, the lesson learnt is that the make vs buy dilemma is rarely resolved in favor of the DIY reconciliation applications. Functionality-wise, as well as cost-wise, it drains precious internal resources and produces suboptimal results.
Revenue optimization emerges as a top client benefit of reconciliations automation
Write-offs of uncollectable customer receivables
Fast-growing young companies need enterprise-class tools to shore up their critical operations. Failure to collect the hard-earned revenues due to organizational immaturity and operational deficiencies can kill the momentum. Inability to process receivables in time, poor visibility on impactful ageing items and untraceable losses, accumulate over time. Unless investigated properly or if reconciled on balance level only, outstanding transactions transform into write-offs at period end.
Customer behavior analysis and market insights
Customer behavior data is probably the single most valuable asset for a company with ambitions to grow. Sales & marketing departments can tap customer transactions data and exception groups dynamics (e.g. refund times, payment method issues, fees and charges) in their reconciliation platform to keep their finger on the pulse and explore the market potential of new products and services. Subtle indications of customer service bottlenecks can potentially erode future purchase decision and revenues.
In conclusion – the intangible benefits of account reconciliation solutions
Reconciliation is a recurring, consistent, detail-oriented accounting process, i.e. suitable for automation. Let us not mistake it for mindless number crunching, though. Accounting duties have critical analytical components that focus on profitability and competitive efficiency. Automation of transaction matching, account reconciliation, and financial close cycles opens up space and time for the important tasks. The savings of time and mental resources wasted on manual labor are virtually incalculable.
Since 2011, ReconArt has driven innovation in reconciliation software technology and helps a global client base establish robust, flexible and scalable data reconciliation processes. ReconArt delivers an enterprise class, entirely web-based reconciliation platform leveraged by a varied portfolio of customers from every industry, size, and geography.
ReconArt integrates all transactional matching, account reconciliation, and financial close management processes in a secure and auditable environment with a strong focus on best practices, regulatory standards, and compliance mechanisms. The ReconArt SaaS solution ushers in dramatic efficiencies into clients’ existing manual processes generating time savings and reinforcing precision.