June 2024

That free reconciliation tool you have is costing you a fortune

By James Maxfield, Chief Product Officer.

“We already have a tool for that,” is a common refrain we hear when talking to firms about their reconciliation.

They often receive something as part of a software bundle from their vendor, especially if they’re buying multiple core systems for their operations.

We get it, it doesn’t feel great to start paying for something that you’re already getting for free. But here’s the problem – you are paying for it.

You know what they say about free lunches. The fact is, your free reconciliation software comes with a lot of hidden costs. Let’s shine a light on them.

Face value versus total cost of ownership

Software, especially the on-premise kind, is about much more than just the price tag. It’s the total cost of ownership (TCO) that’s important, alongside the value you derive from it. TCO covers far more than just how much you pay (or don’t, in this case) for the software licence.

Imagine someone gives you a free car. You still have to pay to insure it, fuel it, service it and so on. And that’s assuming that what you’ve been given is brand new and top-of-the-range. What if you’ve been given something barely better than a write-off? In this instance you’re also forking out for regular repairs, and it so often fails to start that you still end up paying to take the bus to work while your ‘free’ car sits on the drive.

It’s the same with software. Here are some of the things you need to think about when calculating the total cost of ownership of your reconciliation tool.

The impact of poor match rates

The strength of any reconciliation tool is its matching engine. You want your solution to match as much of your data as possible, so that what you’re left with are real exceptions. Is it likely that a tool being given away for free is going to have market-leading match rates to minimise the noise of false breaks and reduce the amount of work needed to manage them?

The reality is that most reconciliation tools generate a lot of ‘false’ breaks – just because they can’t find a match doesn’t mean that there is an error in the data.

These ‘errors’ still have to be investigated and resolved, which takes a lot of time and effort; especially because most tools just tell users that there is a break in the data, not where. Users first have to find the problem before they can figure out the cause. All this means Operations workers are tied up doing repetitive tasks that only exist – you guessed it – because of the shortcomings of that tool you got for free.

Upgrades and maintenance

Most reconciliation tools on the market are on-premise software. This means they’re installed on servers in your data centre; you own, run and maintain the hardware and your IT team is responsible for looking after it. The existence of this tool therefore puts a burden on your IT team.

On top of this are the costs of upgrades. On-premise systems can’t be regularly updated with performance improvements, new features and bug fixes like Software-as-a-Service (SaaS) platforms can. Instead you’re stuck with an upgrade cycle – usually 12 months – and these upgrades are often mandatory. Even if you don’t have to pay for them, you do have to pay for the testing that happens after these upgrades to make sure the changes haven’t broken your existing processes.

Opportunity cost of hard-coding

Traditional reconciliation tools are hard-coded. This means that you need developers to build new reconciliations or make changes to existing processes. In other words, your Operations team can’t operate their own software, so you’re spending your IT resources on keeping this ‘free’ tool working.

And IT have lots of other important things to be doing. They can’t drop everything every time Operations needs a new reconciliation, or a process changed. Requests can spend months in the development pipeline, but the business often can’t wait that long. In these instances, teams often resort to a spreadsheet-based reconciliation instead.

A ‘free’ tool that leaves users turning to other software – that can present risks of data errors, version control issues, lack of automation, and security concerns – to do the same job? Maybe there’s a clue there to why the tool is being given away or heavily discounted…

Great reconciliation software creates value

The true cost of a ‘free’ reconciliation tool is enormous once you factor in all of the hidden and indirect costs mentioned above. Your investment was nothing, but the returns are negative!

But reconciliation software can deliver massive value that dwarfs its cost and gives you a positive ROI.

Industry-leading match rates

The better the match rates, the less noise you have from false exceptions. Operations teams spend their time fixing and investigating real data issues, thereby reducing inefficiency and risk. Because they aren’t also dealing with thousands, or tens of thousands, of false breaks, they have time to do other tasks that add value as well.

Autonomy for business users

No-code technology has changed how users interact with technology. Hard-coding isn’t necessary when it comes to building new reconciliations or changing existing ones. This brings much greater agility for the business, while removing the need to resort to opaque and risky spreadsheets.

Always innovating

The best reconciliation software should always be up-to-date and running the latest features. This isn’t possible in an on-premise world, but it is when you buy SaaS. Cloud computing makes it possible for vendors to seamlessly deliver their latest updates, capabilities and performance improvements.

You also don’t have to worry about the cost of hardware and maintenance when you buy a cloud platform.

You get what you pay for

Reconciliation, when done properly, enables you to have trust in your data. It helps you to find and fix errors, and ensure the accuracy of your data for everything from P&L calculations to regulatory reporting.

But free tools often come with more than their fair share of cost, while failing to deliver what you need. Instead of paying for a best-in-class solution that delivers immense value, you’re instead shelling out indirectly for the resource required to operate an inflexible and inefficient system and to compensate for its shortcomings.

Paying for something you currently get for free may seem unappealing, especially when budgets are concerned, but it’s important to think about the value you are getting for your investment. And when you do this, you’ll realise that having a free tool that introduces a lot of operational complexity that you have to resource for is actually a negative investment.

Regardless of your provider, the fact is that you are paying for reconciliation software.

But are you getting any value out of it? That’s the real question.