Bank Feeds (#319)

Bank Feeds in Accounting Systems

Some accounting software packages allow you to download transactions from your bank directly into your accounting system, so you don’t have to record them manually. Or, if you’re using Paypal or Stripe to process payments, they can be accessed for a bank feed. For example, Quickbooks has a bank feeds feature that pulls in these types of transactions.

Advantages of Bank Feeds

There are some advantages to doing this. First, it’s really convenient. Once you’ve got it set up, it’s quite easy to import the transactions. Depending on the software, you may not have to manually log in to the bank’s system. Again, depending on the software, the bank transactions are imported into a holding account, where you can review them and decide whether to grant permission to import them. If you have a lot of bank transactions, then this can be a decent time saver. That’s the good news.

Disadvantages of Bank Feeds

There are also some downsides. The main issue relates to transactions for receivables and payables. In both cases, don’t accept whatever suggestion the software makes for how to apply it. Instead, manually apply incoming cash payments to specific open invoices, and manually apply outgoing cash payments to accounts payable. Otherwise, you can get some really screwy transactions in the system that you might have to track down and fix months later.

Also, in general, it’s too easy to skim through the suggested transactions recommended by the system, press the accept button, and then realize that some of the recommendations weren’t exactly what you wanted. And then you have to go into the system, find them, and fix them. Which takes way more time to fix than the time savings you generated from setting up the bank feed in the first place.

The real worst case occurs when you don’t spot an incorrectly recorded bank transaction, and the auditors find it at year-end instead. This can be quite a shock if you’ve created the year-end financial statements and think you have a good case for a certain profit number, and are then embarrassed when the auditors spot your mistake.

When to Use a Bank Feed

So, there are the pros and cons. My suggestion is, if you only have one bank account and not many transactions are running through it, then the efficiency gain from a bank feed is pretty minimal. In that case, just stick with manual entries. On the other hand, if you have to record a lot of bank transactions on a recurring basis, then it makes more sense to set up a bank feed. If you choose to do so, then conduct a 100%, very detailed review of all proposed transactions for the first few months, just to make sure that the system is working properly. Then switch over to a scheduled spot check every few months to see if the transactions are still being recorded correctly. If you spot anything wrong, then immediately schedule a detailed analysis to figure out what happened, and make corrections as needed.

And on top of those reviews, conduct a leisurely examination of all transactions proposed by the accounting system for bank feeds. And to keep people from reviewing them too fast and making mistakes, include bank feed accuracy in the performance criteria for whoever is put in charge of it. And one more thought is to put a senior accountant in charge of this who has a solid understanding of the transactions running through the bank feed.

Related Courses

Accounting Information Systems

Lean Accounting Guidebook