Reconciliation Workflow: A Step-by-Step Guide

A reconciliation workflow is the backbone of financial integrity for any modern business. It ensures that your internal records accurately reflect external reality, such as bank statements or payment processor reports. Historically a manual and error-prone task, modern workflows leverage automation to handle high transaction volumes with precision.

What is a Reconciliation Workflow?

The reconciliation workflow is a series of steps used to compare two sets of data and resolve any discrepancies between them. In fintech and high-growth companies, this often involves matching internal ledger entries with external bank data or payment gateway reports.

Step 1: Data Ingestion and Normalization

The first step is gathering data from all relevant sources—internal databases, banks via APIs or SFTP, and payment processors like Stripe or Adyen. This data must be normalized into a consistent format so that fields like "transaction_id", "amount", and "timestamp" can be compared accurately.

Step 2: Automated Matching Rules

Once data is normalized, automated matching rules are applied. These rules can be simple (one-to-one matching based on a unique ID) or complex (many-to-one matching based on fuzzy logic, date ranges, and grouped amounts). The goal is to automatically "clear" as many transactions as possible without human intervention.

Step 3: Exception Handling

Transactions that do not meet the matching criteria are flagged as exceptions. Exception handling is the process of investigating these discrepancies. Common causes include timing differences, bank fees that weren't accounted for, or duplicate entries. A robust workflow provides tools for teams to annotate, research, and resolve these items quickly.

Step 4: Variance Analysis

Variance analysis involves looking at the aggregate differences between the two data sets over a period. It helps identify systemic issues in the money movement process, such as a misconfigured payment gateway or a recurring bug in the internal ledger logic.

Step 5: Final Approval and Posting

After all exceptions are resolved and variances are explained, the reconciliation period is closed. The final results are often posted to the general ledger, providing a "gold source of truth" for financial reporting and audits.