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5 Reasons to Reconcile Bank Transactions Daily

By Tracey Van Allen, Accounting Support Specialist

Does your dealership still reconcile bank transactions at the end of every month, using paper bank statements and Excel spreadsheets? Recently I visited a dealership that still used paper ledger books and pencils to reconcile. I understand that old habits die hard, but in today’s digital age it’s difficult to justify using antiquated accounting methods.

Cash is King, and cash flow is the lifeblood of every business. Knowing how much cash you have on hand on a daily basis allows you to confidently and quickly make new investments or substantially reduce interest expense.

I’m not familiar with every dealership management system (DMS) but I’m sure that most if not all of them offer the ability to electronically reconcile transactions on a daily basis. If your accounting team is not already doing this, here’s why they should.

Reduce employee theft

Recently, a dealership I worked with had to let an office manager go because they found out she’d been writing company checks to pay off her own vehicle loans and credit cards. This woman routinely wrote checks to pay off liens for trade-ins. The checks were written to financial institutions so she figured, who would notice if an extra check paid off her own vehicle loan? Then, once she paid that, she paid off her son’s car loan. These transactions didn’t stick out as unusual because they were paid to financial institutions.

Most GMs and GSMs have a pretty good thumb on the pulse of their business, but if you wait until the end of the month for reconciliation, memory can get fuzzy. However, if you do daily bank reconciliations, you remember that you took in six trades on Saturday, so sometime between Monday and Wednesday you’re paying off those trades. Daily reconciliations make it easier to keep tabs on how many checks are going out the door.

Catch employee and bank errors faster

It’s rare but it does happen occasionally that a check written for $20,000 might clear for $200,000 or $2,000. Both scenarios cause a headache and take time to resolve.

The sooner you catch errors, the easier they are to resolve. If you sold $8,000 in customer pay ROs yesterday, but only $5,000 in cash was deposited, you’ll notice the discrepancy right away and can look into it. If you wait until the end of the month, you don’t remember what your customer pay ROs were three weeks ago.

Know your cash balance at any given time

If you want to pay off an aging floorplan unit, or purchase new equipment, you have to know how much cash you have on hand.

Recently I was onsite at a dealership that sells 1,200 used vehicles every month. They have nine buyers on the road, constantly accumulating inventory at auctions. This dealership needs to know how much cash they have on any given day. If you’re not sure what your cash balance is, you might only authorize five purchases, when in fact you can afford six or seven.

Cash Management Account

In the last dealership I worked with, the average interest expense we paid monthly on our floorplan was $20,000. Using a cash management account (CMA), also known as a sweep account, we were able to reduce that by $3,000 to $5,000 every month.

A CMA is an electronic banking function that takes a snapshot of how much cash you have available in your bank account at the end of the day. The bank then sweeps that cash against your floor plan line. Let’s say you have $1 million in floor plan loans and $100,000 in cash in your bank account. That $100,000 in swept into the CMA, reducing the balance of your floor plan so your daily interest is calculated on $900,000 instead of $1 million. That’s a lot of dollars back in your pocket.

Reconciling bank transactions daily allows you to free up more cash that can be used to reduce your floor plan interest payments.

Positive Pay

Positive Pay is a product offered by most banks. There’s a fee involved but it’s worth it because it lets your dealership off the financial hook when mistakes are made. At the end of the day or first thing in the morning, you upload or send to the bank a list of all cash disbursements done for that day. In effect, you’re telling the bank “Here’s a list of all the transactions that we have processed and that you’re allowed to clear.”

This list includes the payees, dates and amounts of transactions. If the bank allows a check to clear for a different amount than the check was written for, or if the check clears to a different party than the name on the check, the bank takes responsibility to fix the error. This saves your office staff an enormous amount of time trying to figure out where errors occurred and chasing down other parties.

Setting up a New Process

If your dealership’s principal is concerned about giving office staff access to their bank account, there are workarounds. Your bank might be able to setup a separate login in “view only” mode. Or the principal can email a list of transactions to the office manager every morning, or even print out a physical copy.

Reconciling transactions on a daily basis only takes five to 10 minutes every morning, once the process is set up in your DMS. Once established, all you have to do is check off what’s in the DMS against what’s in the bank. As a bonus, your DMS won’t accidentally transpose numbers or make other errors that humans make.

Ask your DMS provider for help with implementing this process and if necessary, provide staff with formal training. Training is not a lengthy process and the benefits far outweigh any resistance your staff might have to overcome in order to change their antiquated accounting methods.

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