Bank feeds are automatically created lists of the transactions (spent and received) in your bank account which are electronically ‘fed’ through a third party provider to your accounting software. Bank feeds have been around for a while as part of desktop accounting software and have been integrated into online accounting software only in the past couple of years.
The great thing about bank feeds is that they heavily reduce the amount of data entry for business owners or their bookkeepers. The method of collecting these feeds differ between software providers and banks.
How does it work?
Bank feeds work by linking the data in your business’s bank, credit card and PayPal accounts to your accounting software.
Once the transaction has arrived in your software it needs to be coded to a general ledger account. This is where the magic begins – once a transaction has been coded the first time the software uses rules and artificial intelligence to learn how to automatically code future transactions. You can further assist by setting up rules within your accounting software to auto-match all transactions and in this way minimize data entry.
For example, once you have allocated an account and tax code to a bank charge transaction all future bank charges with the same description will automatically be coded the same way. Of course if necessary the auto coding can be overridden.
Bank fed lines can also automatically match to any sales invoice or purchase invoice created in the software. If multiple invoices are paid at one time then matching to outstanding invoices can be completed with ease from the bank reconciliation screen.
The setup.
Generally setup requires signed bank forms which can be downloaded from within the accounting software. Sometimes direct links through online banking can be activated on the spot depending on the bank and type of account. This involves either:
- Accessing the bank account through online banking and activating to link with the accounting software selected (e.g. Xero, MYOB or Quickbooks) and the bank account created in the software
Or
- Accessing and printing bank forms from your accounting software, filling out the bank form information and getting the relevant people to sign forms (i.e. the signatories of the bank account). Then submit the forms to the relevant accounting software used. (Submission is usually via email to the accounting software provider)
Why are Bank Feeds So Important?
A large part of SME bookkeeping is coding bank statements into revenue and expense categories so a business can track its sales and costs. A user can set up rules to automatically match transactions from certain suppliers (e.g. a credit card transaction from an airline would be categorised as Travel). This coding occurs from within the bank reconciliation screen which is more efficient than older methods, and cuts out hours of manual data entry required to reconcile accounts.
Online accounting software collects bank feeds in two ways.
1. The Direct Feed
Larger software companies pay the biggest banks to receive bank feeds for shared customers’ accounts. The bank’s IT department prepares its systems to export a daily feed of transactions from its banking system to the software company’s databases that run the online accounting program (eg. Xero, MYOB).
Direct feeds are commonly used for everyday business and personal bank accounts, some loan accounts but not term deposits. It does depend on the banks setup of the banking accounts whether they can be fed or not.
2. The Indirect Feed
An online accounting program can also use a data aggregation service which collects bank feeds from thousands of banks.
The data aggregator used by most software companies is a US headquartered company called Yodlee. Yodlee sidesteps the cost of paying for fees by copying the list of transactions on the screen of users’ online banking portals.
Yodlee cleans up the list, removes duplicates and sends it to the user’s online accounting software as a bank feed.
This process is called “screen scraping” and initially created some controversy for two reasons.
- The technology is not perfect and the occasional transaction is duplicated or omitted. Online accounting programs that use Yodlee recommend checking reconciled accounts against the balances in your online banking portal.
- Yodlee is most commonly used for credit card feeds, although recently the ANZ Business One credit card has commenced feeding through using the direct method feed.
Pro Tips:
- Credit cards can be particularly helpful when using bank feeds as they contain more descriptive information than regular bank transactions. This description improves the effectiveness of rules and artificial intelligence.
- Contact FAJ Bookkeeping if you’d like advice or assistance with integrating your bank feeds into your accounting software.
Author: Jasmina Nesic
Email: jasmina@faj.com.au
