How we built a powerful reconciliation system from the ground up
I like to tell people that reconciliation is like the beating heart of the company. Dramatic? Yes. Exaggerated? No. Now, I work at Melio, a payment platform company, and reconciliation plays a central role in our everyday operations. But I do believe that reconciliation is necessary and important for all companies whether big or small, SaaS or marketplace providers. Let me introduce you to what reconciliation is, why it’s important, and how we tackled it.
If you ask any 10 people on the street or in the office what reconciliation is, 8 out of 10 will describe it as the act of two people making up after a fight. Even Merriam-Webster defines it as the act of restoring friendship or harmony. Financial reconciliation is less top of mind for people, unless they’re part of a finance team.
Reconciliation in financial terms means to check accounts, or financial data, against another for accuracy. As a FinOps professional, I do see it as an activity that restores and maintains harmony — but more in a financial sense.
How does reconciliation work?
Reconciliation means that first you take:
- The bank data (the single source of truth; this is what really happened to your funds)
- The internal database or ledger data of the company (this is what you planned will happen)
- And, if available, any third party providers’ data.
Then, you need to consistently check them against each other to ensure that all datasets are matching. It is a monitoring system that, when built and run correctly, enables strong financial control and oversight in your company through the detection of unusual transactions (fraud attempts, process inefficiencies, bugs, etc.) and the prevention of loss.
When the triangle of detection-prevention-control workswell in your company, it will not only impact your financial governance but also trickle down to customer experience. The state of reconciliation and financial operations in general directly impacts the trust you will be able to build up with your customers.
Why it matters to your customers
But why would my customers care about the state of reconciliation in my company? It’s only something that investors are worried about, right? When people ask me these questions I always answer with another question:
What are people most protective and sensitive about?
People care first and foremost about their family and then about their wallets. No one wants others to access their funds without permission, and everyone wants to know where their money is.
When reconciliation works well at a company, it makes you not just audit ready, but also accountable and reliable from a financial point of view. There won’t be a customer whose payment or order won’t be trackable. There won’t be a situation where you won’t know the answer to the question: Where is my money?
Different companies, different methods
Reconciliation is handled very differently at small, medium, and large companies. The processes and systems used differ not just by company size but also by industry. Financial tech companies require the smartest and most scalable solutions. They usually have a choice to make: keep larger but low-tech reconciliation teams that will spare much-needed engineering resources. Or build specialized small recon teams with a highly developed reconciliation tool that requires engineering and product involvement. At Melio we decided to build that tool and enable the scaling of business through automation.
Our origin story
The idea of building a reconciliation tool that would automate over 95% of all reconciliation activities was born in early 2021. We were a small but strong team of domain experts, product managers, and engineers. And we set out to build the first version of our reconciliation automation tool named ‘Riki’. Riki was a backend program, not a platform yet.
At the time, the idea was to focus on building a strong foundation for a future platform. Riki was created to handle bank vs. database reconciliation through the use of matchers — the system looked for a match for every single bank record in the database. The matchers are the rules that Riki used to analyze each bank record, extract a string of data points (unique ID, amount, date, etc.) and look for matches in the database.
Before the creation of Riki, our reconciliation team spent 4–6 hours on daily ACH bank transfers reconciliation, and 3–4 hours on check reconciliation. With Riki’s help, the happy flow was automatically reconciled. This saved us hours of manual work and function creation in Excel sheets. And it allowed the team to focus on the exception handling, and the completion of DB vs. bank reconciliation.
The evolution
The next big step for our team was the creation of Reco V1 in the summer of 2022. Reco turned Riki’s brain into a platform. Our new smart tool was given a much needed user interface and enabled the team to move partially away from Excels.
Although all finance team members love Excel, and it does hold up the world of finance in itself, for us it was important to move towards automation. While Excel is able to perfectly support reconciliation efforts, it does not allow for scalable growth.
Reco V1 enabled the full reconciliation of about 30% of our customer payments. It allowed the team to improve the overall user experience, refine the existing matchers, and face the high growth of daily transactions without the need for extreme team expansion.
Volume 2
In November 2022, we released Reco V2. With it, we achieved our dream: 100% of FBO accounts reconciliation completed with the help of our in-house tool. With the financial controls greatly improved, a small team of 5 was able to smoothly run the day-to-day reconciliation of all customer funds and support the future growth of the company with ease.
Now the platform provides a home to the team. The dashboard shows:
- Important insights and information for workload planning.
- Modules per payment method where the actual reconciliation activity happens for unmatched records.
- A menu of self-service options enabling the team to complete all tasks in a timely manner and with the highest possible accuracy.
Reco: the time saver
Time management plays an important role in reconciliation. The ability to uncover fraud attempts, process inefficiencies, and unusual financial activity in the shortest possible time enables the teams to react quickly in any given situation. We need to continuously strengthen processes, and reach a level of financial control that is driven by proactive efforts (prevention) rather than reactive (recovery).
Besides improving our controls and with that increasing our own system’s resilience and reliability, this powerful automation tool allowed Melio to be more cost-effective and efficient in our reconciliation processes.
The Reco family
Allow me to close my blog by expressing my gratitude to the team who created Reco, because Reco is a child of many. I am beyond proud of this team that built Reco: our VP Finance Lena Loiberg, engineers, product managers, domain experts, and UI designers. But I would especially like to thank my team: Ira, Gili, Leanne, and Josh without whom Reco could not have become what it is today.
