Top 5 Reasons to Reconcile Your Bank Statements
How often do you check your bank statements? If rarely, you might have been wrongfully charged with an overdraft fee or debit card purchases that you did not authorize. These records reflect a poor bank statement, which negatively affects your credit score and hurts your chances of getting approved for car loans and other types of financing.
Bank reconciliation means verifying the integrity of data between your internal financial records and the monthly statements provided to you by the bank. You would need to go through each transaction on your bank statements and make sure that the amounts match perfectly with your internal records. All discrepancies in the records should be identified and investigated.
Bank statements should be regularly reconciled in order to:
1. Verify Cash Flow
By comparing your bank statements against your internal financial records, you can monitor the amount of money that you're earning and spending. This is especially important if you have a small business with a low capital to work with. The insights from your bank reconciliation will help you strategize on how to attain a high positive cash flow, which is when you're making more money than paying out.
Additionally, by reconciling your bank statements, you will also know the current status of your business. When your internal records match with your bank statements, it means that your business is running smoothly and the financial operations are managed effectively.
Also, if you want to get a small business loan to increase your working capital or buy new equipment, some lenders will inspect your bank reconciliation reports to determine your business' financial stability.
2. Catch Fraud
If your savings account has been hacked or your credit card has been skimmed, any resulting transactions would reflect on your bank statements. The sooner you discover these fraudulent charges, the earlier you can report to the bank and have your account closed or your card cancelled.
Catching frauds are not limited to debit and credit card usage. If you run a business and one of your trusted employees had secretly altered some checks, it would be brought to light in your bank statements. Another scenario is when you’ve paid a vendor by check and the vendor decided to tamper it with a larger amount then cashed it, the discrepancy would show up once you do the bank reconciliation.
3. Detect Bank Errors
Although rarely, the bank can make erroneous entries on your bank statements, such as an incorrect amount of a check or deposit on your account. Any bank errors should be reported immediately for a resolution. Generally, the bank would only acknowledge and consider fixing errors that were reported not later than 60 days after issuing the questionable bank statement.
If a third party is involved in the error, like in check transactions with business vendors, you should contact the vendors immediately as their cooperation will speed up the resolution of the error.
4. Rectify Erroneous Administrative Records
When you have bank statements to compare records in your business cash book, you can easily check and rectify common accounting errors, like wrong balancing, misread receipts, transposed numbers and forgotten entries in the check register. This will prevent the errors from snowballing, leaving you with cash shortfalls and overdrafts.
5. Save Money
Bank reconciliation helps you save money by making you aware of the subscriptions and services that you’re continuously paying but are not really using. This includes services that you signed up for as a free trial, but automatically charged your card at the end of the trial period. Although you can instantly cancel your subscriptions from such unwanted services, you would waste a lot of money if you discover the automatic payments ofly after several months.
It is important to reconcile your bank statement on a regular basis - especially if you make a lot of financial transactions. This will help you better understand your financial position and protects you from the financial damage that may take years to recover.
Got a poor bank statement and in dire need of financing for a business or personal purposes? At Positive Lending Solutions, our team of bad credit loan experts can help you get the loan you need while building your good account conduct and credit score. Call us on 1300 722 210 now.