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Balance Reconciliation is the process of verifying and ensuring:
- That the expected and actual balances in a given account are correct
- That the actual balance of an account is sufficient to cover planned transactions
Balance reconciliation is especially relevant in the case of For Benefit Of (FBO) accounts, lines of credit, certain custodial accounts, or any other cases in which a business is holding funds on behalf of a customer.
In addition to tracking expected and actual balances, balance reconciliation must also take into account the total amount of planned payments—known as expected payments, or payment intents. Payment intents are the planned payments that will be made from a bank account, whether on behalf of an individual, a business, or another entity.
For the purposes of balance reconciliation, it is essential to confirm that the sum of these intended payments aligns with the available funds in the bank account to prevent overdrafts, returned payments, or other issues and to ensure that previous transactions against the account have been properly accounted for and reconciled.
How Does Balance Reconciliation Work?
Balance reconciliation generally follows the same process as most types of reconciliation: gathering relevant data and documentation, matching transactions, flagging and investigating any discrepancies, and keeping detailed records of the reconciliation process.
Balance reconciliation has two main objectives:
1. Tracking actual vs. expected account balances. For example, if a fintech company is holding money on behalf of a customer, they will need to perform balance reconciliation regularly to be certain that the balance they are holding for their customer is accurate and to ensure that it maintains its accuracy over time.
This is especially important for businesses that are holding funds on behalf of more than one customer, as the complexity of balance reconciliation compounds with each additional account that needs to be accurately tracked and reconciled. When there are hundreds, thousands, or even millions of customers storing funds with a business, it can become problematic quickly if balance reconciliation is not correct.
Let’s look at the Starbucks mobile wallet app as an example. For each customer that uses the Starbucks app and holds funds there to pay for their daily coffee, Starbucks needs to ensure that their individual balance is correct. This is essential both because customers need to have accurate access to the funds they’re holding in the app and because Starbucks needs to be certain that the funds are allocated to the correct customer.
If there is a discrepancy between the actual and expected balances in the account, balance reconciliation can help to identify where the delta between expected and actual balance began and how to resolve it.
2. Tracking payment intents against actual account balances. Additionally, that same fintech holding funds for their customer can perform balance reconciliation using payment intents, to ensure that the planned payment amounts are correctly aligned with the funds available in the account—thus preventing any issues with the planned transactions for the account.
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Balance Reconciliation is the process of verifying and ensuring: -That the expected and actual balances in a given account are correct -That the actual balance of an account is sufficient to cover planned transactions
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