The 5 Most Common Bank Reconciliation Problems for Small Businesses

A bank reconciliation is a process of comparing the balances between a business’s accounting records for cash to the corresponding information on a bank statement. In this process, the transactions recorded in the company’s cash book are compared to the bankbook to identify any discrepancies in the day-to-day transactions. 

However, there could be multiple errors—which are also known as bank reconciliation problems—in this process. This article will help you identify the top five most common bank reconciliation problems to avoid. 

Transaction-in-transit

In-transit checks and deposits can cause a gap for funds in a bank reconciliation process as the cash movement is not immediate. For example, when a cheque, online payment, ACH (Automated Clearing House) transfer, or cash deposit is received, the business has recorded this movement of money, but the funds haven’t arrived at the bank yet. This is particularly problematic in higher-volume accounts where the stream of cash flows into and out of an account is steady and simultaneous.

A business’s financial statement will not be balanced with its bank statement record if the time it takes for funds to pass through a bank spans a recording period (such as a daily closing or after month-end reporting). This time-lapse can be particularly noticeable when the reporting period coincides with a long public holiday when banks are closed. 

In this case, the way to avoid this problem is to make sure entries are booked to reconcile these accounts for the specified period.

Unpresented cheques

Unpresented cheques, also known as outstanding checks, are checks that have been made by a corporation but have not yet been paid by the bank on which they are drawn.

Bank reconciliation problems might arise when cheques are issued but not cashed or deposited in a timely manner. There is an easy way to avoid this problem: Booking an entry to carry this cheque balance over to the next month will reconcile accounting for the current reporting period while also allowing the company to keep track of check obligations.

Uncleared cheques that are never submitted for payment will also cause bank reconciliation problems. Once a standard timeframe in which the cheque should have been deposited (typically 90 days) has passed, the business needs to take extra steps to resolve the matter. In this case, reaching out to the payees to remind them to present the check for payment is an easy first step to resolve the problem. If a check never reaches the payee or a payee cannot be contacted, the original check should be canceled and a new check issued upon request.

Errors

Many bank reconciliation problems result from “typical” errors, such as:

  • Making an entry twice: This error produces a discrepancy equal to the amount of the entry in question.
  • Not accounting for a transaction: This error will also produce a discrepancy equal to the amount of the overlooked entry.
  • Making a mistake when entering a comma: This typo produces a discrepancy which can be easier to notice because the digits add up to 9. For example, if you enter $124.0 instead of $12.40, the discrepancy will be $111.60. (1 plus 1 plus 1 plus 6 is 9.)
  • Putting the numbers in the wrong order: This also results in a discrepancy which  can be easier to notice because the digits add up to 9. For example, if you enter $974 instead of $947, the difference is $27. 
  • Making a transaction by mistake: This is one of the most typical errors resulting from clicking the wrong button or misunderstanding the online bank apps’ features. 

Errors from the bank side also add to the most common bank reconciliation problems. For example, the bank records an incorrect amount, enters an amount that doesn’t belong on a company’s bank statement, or omits an amount from a company’s bank statement. 

In case the error is from the bank side, a journal entry or ledger adjustment is required to write it off. The bank will then correct the error, add a temporary adjustment on the Miscellaneous page until the bank adjustment appears on the following month’s statement. To save yourself from such cases, you should always keep a copy of the bank transaction receipt to double-check and notify the bank if any issues arise. 

Related article: What is a Bank Transaction Receipt and its Benefits for Your Business

Unaccounted fees

Unaccounted fees, like bank fees, overdraft fees, and NSF (non-sufficient funds) check fees, will cause discrepancies in a bank reconciliation if they are not included. Remember to include these fees after any cash movement for more efficient bank reconciliation. 

Ideally, these fees can be minimized naturally by using a smart cash flow management system with regular bank reconciliation procedures. Small businesses can consider selecting a bank that offers lower fees and stronger overdraft protection.

Unauthorized withdrawals

Fraud is a major issue that companies should strive to avoid. Whether they are made by an employee or by a third party who has maliciously breached the account, unauthorized withdrawals can bring a company to its knees.

Internally, a division of responsibilities can aid in the prevention of fraud. Employees who are in charge of reconciling accounts should not also be in charge of recording transactions or disbursing cash. Embezzlement might occur otherwise, and the proof of such actions could be easily disguised. For this reason, many business owners hire a third-party finance professional to perform unbiased bank reconciliations.

Externally, to avoid fraudulent transactions businesses can enable supplemental bank protections to bolster account security. The bank can automatically reject transactions that have not been pre-approved. However, these measures are not standard on most business banking accounts; some institutions offer them as a premium option or for chosen clientele.

The bottom line

Bank reconciliation is a necessary process for companies to undertake, but it can also be excessively tricky and tedious. However, by bearing in mind these kinds of errors and paying close attention to the amount in question, you can easily identify the source of the discrepancy. This will save a lot of time and headaches doing bank reconciliation. 

And don’t forget that there are various business automation tools available to automate this process (or part of it) to make it more efficient and more controllable! The Shoeboxed app is a tailored accounting app for freelancers, accountants, bookkeepers, and small business owners to simplify their accounting and bookkeeping processes. Shoeboxed helps users turn their paper receipts into digital, clearly categorized data

Additionally, Shoeboxed’s OCR (Optical Character Recognition) function and human-verification features ensure that your receipts are clearly scanned and well categorized. You can rest assured that your digital receipts are legibly accepted by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. Moreover, Shoexboxed proudly supports users with many other business tasks, such as managing expenses, storing business cards, tracking mileage, and so much more! 

Sign up for Shoeboxed today to claim your limited 20% offer! 

Don’t forget to sign up for the Shoeboxed blog if you’d like to explore more accounting tips and tricks, tax news, engaging success stories, together with the latest Shoeboxed product updates.

A Beginner’s Guide to Business Automation: Definition, Benefits, and Examples

Over the past decades, automation has significantly impacted almost every industry — from IT, engineering, and finance to customer services, sales, and marketing. Business automation tools free up employees to focus on more strategic projects, minimizing costs, increasing efficiency, streamlining processes, and so much more. 

This article will walk you through the term business automation, from its definition to its basic types, and why it matters to your business. 

What is business automation?

Business automation is a term for using technology applications to execute recurring tasks or processes, which frees up employees for higher-value work. Business automation usually includes business process automation, robotic process automation, and AI-powered automation.

Why is business automation important to your business?

Whether you’re a small business owner or running a large enterprise, automation is an excellent way to streamline operations and drive business growth. Business automation tools are designed to replace manual processes with machines so you can put human resources to work elsewhere in the business.

Additionally, business automation is critical for a rapidly changing world. For example, with the help of business automation tools, you can collect and analyze data to predict post-pandemic customer behaviors — from wildly fluctuating demand to heightened health and safety precautions. Automation, especially when combined with AI, can help you fix or refine these data analytics and reports, resulting in higher revenue, better use of resources, and greater customer satisfaction.

There are some other compelling reasons to automate your business processes, which are the following: 

  • Improve efficiency: Business automation tools pinpoint inefficiencies or hotspots in your operations to help determine where automated processes can provide the greatest impact. This involves process mining and modeling.
  • Apply intelligence: The data from automating your operations, together with machine learning and AI, can recommend actions and allow people to focus more on strategic tasks.
  • Automate core operations: Apply core automation capabilities — document processing, workflow orchestration, decision management, and content services — to key operational areas to meet business needs.
  • Smarter management: An automation tool makes process management much easier. You can make changes and improvements without introducing all the changes to your team. The information under a system is saved somewhere in a database, so you won’t need to repeat to team members how things should be done on specific processes.
  • Streamlined processes: Streamlined processes are one of the great outcomes of a process automation system. Clear accountability, customizable notifications, valuable insights, and faster turnaround times make eliminating wasteful activities easier and focusing on enhancing core-valued tasks.
  • Increased customer satisfaction: Customer satisfaction is a key differentiator in any industry. Focusing on process and operational excellence helps you exceed customer expectations with ease. When you consistently meet promised standards, customers are more likely to develop a preference for your company.

Four common uses of business automation

1. Marketing automation

Marketing automation is a powerful tool for businesses of all sizes. Through marketing automation tools (which are usually in the form of software), companies can generate higher qualified leads that are ready for sales engagement. Companies can also use these tools to track and measure a prospect’s activity, better identify target customers by automated messages via social media and deliver leads to sales as soon as they meet predefined criteria.

With email marketing automation tools, companies can send out emails to a client distribution list on a predefined schedule, which reduces the costs of running the campaigns manually. Some tools can provide a framework for teams to target, build, implement and measure the success of marketing campaigns, taking the complexity out of lead qualification and conversion. 

2. Financial and accounting automation

For businesses of all sizes, accounting is time-consuming and includes many manual steps. By automating their accounting and bookkeeping tasks, companies can save considerable time on accounts receivable, accounts payable, billing, collections, credit card applications, data backup, and other financial processes that are managed regularly. 

Companies can also apply automation to core processes like closing their books, general ledger management, and bank account management. Automation makes a complex process more manageable by removing manual elements from the accounting team’s work and handling the number-crunching and transactional work. Businesses can focus on important tasks like analysis, strategy and improve their core values. 

For example, an automated system for accounts payable management saves businesses money and time as data entry is automated, invoices are automatically matched to documents, and approvals are electronically routed. It reduces data errors and helps prevent fraud through a system of “touchless” controls that happen behind the scenes. Accounts payable automation software also frees up cash flow. Any team member can submit invoices, manage approvals, and process payments through a single platform with swift approvals, better visibility, and greater control over important financial processes and data.

The Shoeboxed app this a typical example of an accounting automation tool. Shoeboxed helps freelancers, accountants, and small business owners scan their receipts, track and manage their expenses, and easily generate expense reports. 

What’s more, Shoeboxed offers OCR (Optical Character Recognition) function, and a human-verified data feature to ensure that your receipts are legibly scanned, clearly organized, and accepted by both the Internal Revenue Service and the Canada Revenue Service. Trusted and recommended by thousands of users worldwide, Shoeboxed is your go-to option when it comes to automating your business’s financial and accounting processes. 

3. Sales automation

Sales automation tools enable sales teams to spend less time logging their deal-related activity and more time meeting clients, making phone calls, and closing deals. The tools can automate repetitive tasks throughout the sales process, whether qualifying leads based on their buyer journey, assigning prospects to the right rep, or creating data-backed sales forecasts. 

Companies that sell physical products can also benefit from these sales automation tools. Using these tools, sales reps can track stock from anywhere, at any time while consulting with their customers. They can also log order information to the system, making it easier to track every step. Should any problem arise, the sales team can find where it’s at and solve it quickly. 

Other sales tasks that software can perform are the following: 

  • Automated order entry
  • Automated batch processing
  • Automated report generation and distribution

4. Human resource management automation

Human resource management systems can handle various HR tasks, including processing job applications, scheduling interviews, sending offers, onboarding, managing payroll, and benefits administration. Since these systems automate all aspects of human resources management, it provides complete analytics across these processes, bringing accurate insights into the company’s workforce productivity and efficiency. For example, if a company is experiencing a high employee turnover rate, the business owners can use an HR management tool to pinpoint the specific problem and solve it.

There are other tasks that human resource management automation tools can handle, including: 

  • Recording employees’ retention and retrieval
  • Reviewing job applications submitted online
  • Generating work contracts, confidentiality agreements, waivers, and other new-employee documentation.
  • Calculating employee taxes
  • Providing training documents for new employees

The bottom line

Automation tools are transforming business operations and processes, making it possible to control and scale up your businesses with ease. No matter what kind of business you’re running, you can always find the perfect automating solution. If you’d like to take your business to the next level, start today with Shoeboxed
Don’t forget to sign up for the Shoeboxed blog if you’d like more information on how Shoeboxed has helped our clients automate their business processes and other engaging success stories, DIY accounting, together with the latest Shoeboxed‘s product updates.

Why Cash on Hand Is Important to Your Business?

Cash on hand is a crucial part of running a business as it influences numerous choices and decisions a business makes. If you want to run a sustainable business, you might want to consider the concept of cash on hand. In today’s article, we define what cash on hand is and its importance to a business.

What is cash on hand?

Cash on hand, also known as cash or cash equivalents (CCE), refers to the sum of all available cash a business has. This includes actual cash as well as accessible balances in checking, savings, money market assets, and other such accounts. In some cases, available credit funds may also be included.

To put it short, cash on hand doesn’t include only cash. It also comprises any liquid asset that could be quickly turned into cash—typically within 90 days. These include:

  • Money market assets
  • Marketable equity securities (stocks)
  • Marketable debt securities (bonds)
  • U.S. Treasuries assets
  • Mutual funds
  • Exchange-traded funds (ETFs)

The key distinction between cash on hand and other sorts of assets is the immediacy of access. In general, it isn’t necessary for the funds to be  physically present on the premises to be considered “on hand.” As long as the business has access within an immediate time frame, the funds are considered part of this category.

Four situations in which cash on hand is needed

Cash on hand is important to any business because it can mitigate risk and come in handy in a variety of situations. We discuss the major ones below. 

Cover expenses on time

Expenses are a necessary part of any business because they are the costs required to run a business. Expenses range from office rents and utility bills to marketing or sales campaigns budgets. 

Let’s say the utility bill is due on the 18th of the month. It’s the 15th, and you haven’t collected enough payments from your clients for some reason. It seems like you have to use extra business funds to cover this expense. 

Unfortunately, funds are already allocated to different uses or purposes, and there are no “spare” funds you could use. If you miss this payment, you’ll be charged a late fee. More importantly, your service may be switched off, and it’ll cause disruption to your business activities. 

Having cash on hand ensures you always have enough available cash or credit to cover expenses at all times and to avoid any unnecessary late fees. Additionally, you should always have an adequate contingency fund so that unexpected, urgent expenses can be paid without interrupting business activities. 

You might be also interested in: 5 Tips to Control Your Business’ Expenses

Reduce transaction costs

Transaction costs are fees incurred when you pay for a product or service through a gateway. If non-cash payments are your main payment option, chances are your business will have to pay a large amount of transaction fees. 

For small businesses or startups, it’s important to keep expenses as low as possible. One way to achieve this is by cutting out unnecessary or undesirable expenses such as payment processing fees from wire transfers, credit/debit cards, or gateways. 

However, when non-cash payments are becoming increasingly the norm in today’s world, it’s impossible for a business to stay completely cash-only. But you can at least lower payment processing fees by:

  • Choosing a low-fee payment processing system
  • Factoring these fees into your pricing
  • Negotiating lower fees
  • Accepting multiple forms of payments to balance out these fees

See more: Business Transaction: Definition, Types, And Example.

Survive an economic downturn

The COVID-19 pandemic has affected day-to-day life and has slowed down the global economy. It’s reported that over 200,000 businesses in the U.S. had to shut down their operations permanently due to the pandemic. 

If your business can survive this dark time and be able to reopen, not only will you have to adjust many of your business operation activities but also follow requirements to adapt to the new conditions. Organizations like the CDC issue such requirements to help businesses and their employees prevent exposure and infection of the Covid-19, for example, cleaning and sanitizing the facility, adding a new ventilation system, or plexiglass partitions. 

Having money on hand might be a lifesaver during these trying times. It’ll assist you in adapting to the “new normal” without going into debt.

Scale the business

Expanding your business may help you increase your customer base, improve sales, and most importantly, get higher profits. But scaling up a business requires both much harder work and lots of investment. 

When upscaling your business, you’ll have to invest in new technology and/or recruit new people. Technology, including software and machines, are frequently one-time purchases. So, rather than taking out a loan or a line of credit and having to pay interest for years, it makes more sense to use your current assets.

Sometimes, your business can grow bigger by acquiring another business. Mergers and acquisitions have become a popular business strategy for companies looking to expand into new markets or territories, gain a competitive edge, or acquire new technologies and skillsets. This sometimes appears to happen overnight. Without having immediate access to the funds to acquire a valuable business, you might miss out on a great opportunity.

The bottom line

Cash on hand refers to a business’s funds that can be used immediately. It comprises cash, any accessible balances in checking, savings, money market and liquid assets. Cash on hand is important to any business because it ensures there will be enough funds to cover expenses, survive an economic downturn or even scale a business.


If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on Shoeboxed. Shoeboxed is a cloud-based software that helps businesses turn their piles of paper receipts into digital data. With Shoeboxed, you can do tasks such as scan, store, and organize receipts, manage business expenses, and even track mileage for business travelers. It’s simple to install and easy to use.