R2R Benchmarking Report: Is Reconciliation the Top Challenge?

Is reconciliation the Achilles' heel of financial automation? The R2R Benchmarking Report reveals that 30% of finance professionals grapple with it monthly. Unpack the numbers and see how this critical challenge is shaping the landscape of financial operations globally.

In the bustling world of financial automation, the R2R Benchmarking Report serves as a beacon, illuminating the twists and turns of record-to-report processes across the globe.

Drawing on data from nearly 200 companies spanning 31 countries, this report peels back the layers of routine financial operations to reveal the core challenges and innovations shaping the future.

As we stand at the crossroads of tradition and transformation, one question emerges: Is reconciliation the hidden hurdle tripping up companies as they race toward automation?

Dive into the depths of our findings and discover the pivotal role of reconciliation in the evolving financial landscape.

30% Identify Reconciliation as Top Month-End Challenge

In a survey among 200 companies’ finance and accounting professionals, 30% pointed to reconciliation as the primary challenge during the month-end close process, due to its foundational role in financial accuracy and integrity.

Close behind, 27% of respondents highlighted the overall management of the close process as their biggest hurdle, especially given the complexity of coordinating numerous tasks across diverse systems in global settings. 

As organizations mature in their automation efforts, they increasingly focus on areas like intercompany transactions, journal entries, and compliance, with 13%, 10%, and 8% of professionals identifying these as key areas for future automation. 

What makes reconciliation challenging during the month-end close?

High Volume of Transactions: Large organizations often handle over 100,000 transactions monthly, each requiring verification against documents like invoices and bank statements. The sheer volume increases the complexity and potential for discrepancies.

Stringent Deadlines: Companies typically have about 10 days to complete the financial close, putting intense pressure on reconciliation to be quick and accurate. Errors in this phase can lead to misstated financial results and impact regulatory compliance.

Challenges by Industry:60% from Banking & Insurance Struggle with Reconciliation

Survey results across different industry verticals reveal varied challenges in the month-end financial close process. Notably, 60% of respondents from the banking and insurance sectors identify reconciliation as their primary challenge, reflecting the complexity of handling both company and client funds

In retail, 38% point to transaction matching as their biggest issue, double the rate seen in other sectors, highlighting the strain of managing high transaction volumes.

Other industries report diverse focal points: 24% in manufacturing and retail find reconciliations difficult, while close management concerns 21% in banking and insurance.

In energy, utilities, and telecoms, 15% struggle with intercompany transactions, and 22% in the same sector find journal entries challenging.

Why is reconciliation challenging in banking and insurance?

High Transaction Complexity: In banking, each transaction—whether it involves loans, deposits, or investments—requires exact matching against corresponding entries. Banks process millions of such transactions monthly, each needing verification to ensure financial statements are accurate and reflect true balances.

Regulatory Compliance Pressure: Banks operate under stringent regulatory scrutiny. They must ensure all transactions comply with financial regulations such as Basel III and the Dodd-Frank Act. Any error in reconciliation not only risks hefty penalties but also affects the bank’s operational license and reputation, emphasizing the need for precision and efficiency in their reconciliation processes.

Challenges by Seniority: Nearly 35% of Executives & Managers face Reconciliation Challenges

The survey data analyzing month-end close challenges across different seniority levels—executive, manager, and staff—illustrate nuanced variances critical in shaping organizational operational priorities. 

For executives and managers, the challenges are quite aligned, differing by no more than 2% across various categories.

Specifically, 34% of executives report challenges with reconciliations, closely followed by 25% citing close management. For managers, these figures are slightly higher, with 35% struggling with reconciliations and 27% with close management.

Staff-level employees, on the other hand, show a distinct pattern: 21% find reconciliations challenging, but a significant 29% are concerned with close management. 

Additionally, staff are more involved with transaction matching (15%) and journal entries (18%) compared to their higher-level counterparts, reflecting their engagement in more detailed, operational tasks.

Why do Executives & Managers struggle with reconciliation?

Strategic Focus: Executives and managers prioritize broad financial strategies over detailed reconciliation, potentially missing discrepancies in transaction-level data.

Decision-Making Speed: Pressured to make rapid decisions, both executives and managers may overlook thorough verification in reconciliation, increasing financial report errors.

Operational Overload: Managers often juggle daily operational demands, detracting from the time-intensive reconciliation tasks and leading to potential oversights.

36% Identify Standardization as a Reconciliation Barrier

Survey results reveal that among professionals who identified reconciliations as their primary challenge, 36% attribute their difficulties to a lack of standardization. This issue is particularly pronounced in global organizations where enforcing uniform processes via spreadsheets is challenging. 

Other significant barriers include exception management and managing one-to-many matches, each cited by 17% of respondents. 

Additionally, 15% struggle with the quality and consistency of source data, while manual errors and ensuring consistent operation of controls are concerns for 6% and 5% of the professionals, respectively. 

Why is lack of standardization a major reconciliation hurdle?

Diverse Regulatory Environments: Global companies must reconcile accounts across different financial regulations, like U.S. GAAP and European IFRS, which complicates creating a uniform reconciliation process.

Fragmented Financial Systems: Organizations often use a mix of financial systems that aren’t fully integrated, leading to inconsistencies in data formats and processing capabilities, which hinder standardized reconciliation efforts.

Charting the Course: Financial Automation's Future Through 2025

As the R2R Benchmarking Report illuminates the evolving terrain of financial automation, it’s clear that the path forward is marked by both challenges and significant opportunities for innovation. 

Throughout the survey, reconciliation emerges repeatedly as a critical, yet challenging area, underscored by issues ranging from high transaction volumes to the pressures of regulatory compliance. Notably, 36% of professionals pinpoint the lack of standardization as a pivotal obstacle, reflecting the complexity of global financial environments and fragmented systems.

Looking ahead, the focus shifts towards transforming these challenges into streamlined processes. By 2025, a substantial 36% of organizations aim to prioritize standardization and streamlining of financial processes. 

This aligns with the 29% planning to leverage RPA and automation technologies, which collectively promise not only enhanced productivity but also better insight for decision-making—a key area for 12% of respondents.

In essence, as financial sectors continue to navigate through the intricacies of R2R processes, the drive towards more integrated, automated, and intelligent financial systems is not just a trend, but a strategic necessity. 

The journey towards financial automation by 2025 reflects a crucial shift from reactive problem-solving to proactive optimization, heralding a new era of financial governance and strategic foresight.

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