What is an automated bank feed and how does it work?

Automated bank feeds are an innovation in accounting. They are freeing up time for small business owners by dramatically reducing the volume of financial data they need to input daily. How data is collected differs depending on the software or bank in question; however, the basics remain the same.

Bank feed basics

In general terms, an automated bank feed is a list of automatically generated transactions both into and out of a business bank account. While this has been included in software-based accounting programs for some time, it has only recently become a common feature in online accounting.

A significant benefit of a bank feed is the fact that modern software can match payments with invoices generated by your business, in turn, saving time for other business activities. In smaller firms, where every single second spent away from the core revenue-generating activities counts, this can be a game-changer.

Why are they important?

When a small or medium-sized business runs their accounts, a significant percentage of this time is spent reconciling payments with invoices or decoding bank statements to track business expenses, sales and other costs. Using an automated bank feed can enable a business owner to set up defined rules as to how spending is recorded, ensuring that data is processed quickly and efficiently, saving a great deal of time.

Two main methods of collecting data

Most online accounting services offer one of two methods for businesses that want to automate their bank feeds. The differences between how data is collected and how it is then processed can help you to determine which is best for your business.

The direct feed

Larger software providers generally use direct feeds. This is a costly service, with some software houses paying seven-figure sums for access to the banks. Every day, the banks prepare an export of the daily transactions of businesses, which are then fed into the accountancy software ready for processing and analysis.

Indirect feeds

An indirect feed comes from a data aggregation service, which operates by collecting fees from different banks. Most software companies use a data aggregator called Yodlee for this, which significantly reduces costs. These aggregators work by copying the list of transactions from user online banking accounts. This so-called screen scraping approach means that the data aggregator is not required to pay for access to transaction details, but this reduced cost comes with a couple of caveats.

Firstly, the scraping technology is not infallible. With the scraping, together with the ensuing cleansing and housekeeping tasks, transactions can be either duplicated or omitted. It is recommended that where there is the use of an indirect feed, it is checked against actual bank balances to ensure that everything is included. 

Secondly, due to the way in which data aggregators work, log in details are required by the company. Some opponents of the indirect feed approach suggest that this breaches online banking terms and conditions.

Should I use a direct bank feed?

The automated nature of the direct bank feed means that transactions both into and out of your account can be accessed and itemised quickly and accurately. This allows business owners to keep tabs on all financial information in real-time.

Not only does this reduce the time spent at the end of the month reconciling information between statements and accounts, but it can also ensure that businesses know when clients have paid invoices. If a company can identify precisely when an invoice has been paid, this reduces the need for chasing payment and generating copy invoices. 

Ultimately, the decision is very much an individual one, balancing the time saved against the cost of the software application in question. 

Joined up thinking

All of this makes everyday banking that little more straight-forward, allowing businesses to track and reconcile spending and payments received daily. It is a crucial move towards joining up a range of financial services into one interface.

An automated bank feed can also work with a credit card account and even PayPal accounts. Depending on the financial institutions concerned, you can receive financial updates from these in real-time or as a batched daily update.

Automated bank feeds can provide up to the minute access to financial information, in a similar manner to online banking. The major difference for small businesses is that the coding and categorising of spending and funds received is done for you, saving hours for the finance or leadership team and freeing up time for other essential business activities.

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