What Are Bank Feeds and How Do They Work?

What Are Bank Feeds and How Do They Work?

In modern financial management, bank feeds streamline the accounting process by automating the flow of transaction data directly from financial institutions into accounting software. This automation reduces the need for manual data entry, which traditionally consumed significant time and was prone to errors. Bank feeds provide a more accurate and timely overview of an entity’s financial position.

Defining Bank Feeds

Bank feeds establish a direct, digital link between a bank account and accounting software, automatically importing transaction data like deposits, withdrawals, and transfers. This automation saves considerable time and effort for businesses of all sizes. It also enhances the visibility of cash flow, making it easier to track income and expenses and to make informed financial decisions.

How Bank Feeds Connect

Bank feeds operate through a secure digital transfer of data from financial institutions to accounting software, often leveraging Application Programming Interfaces (APIs). These APIs act as secure digital bridges, allowing different software systems to communicate and exchange information efficiently. Financial institutions may also use other secure data transfer methods, such as Secure File Transfer Protocol (SFTP), to ensure reliable data movement.

Security is a primary consideration in the design of bank feed connections. Data transmitted via bank feeds is typically encrypted, ensuring sensitive financial information remains protected during transfer. These connections are generally read-only, meaning the accounting software can access transaction data but cannot initiate or alter transactions in the bank account. This read-only access, combined with multi-layered encryption, provides a strong security framework, preventing unauthorized access or manipulation of funds.

Activating Bank Feeds

Activating bank feeds typically involves steps within your accounting software to establish a secure link to your financial institution. Before initiating the connection, gather necessary information, including your online banking login credentials, account numbers, and any multi-factor authentication details. This preparation helps ensure a smooth setup process.

Within most accounting software, you will navigate to a section often labeled “Banking,” “Bank Feeds,” “Connect Bank Account,” or “Integrations.” From there, you will usually be prompted to search for your specific financial institution from a list of supported banks.

Once selected, the software will guide you through an authorization process, which often involves securely entering your online banking username and password directly into a secure portal provided by the financial institution or its authorized data aggregator. This authorization grants the accounting software permission to access your transaction data.

The process may also require additional security checks, such as entering a one-time code or answering security questions. While the general steps are similar, the specific interface and prompts can vary depending on the accounting software you are using.

Managing Bank Feed Transactions

Once bank feeds are active and transaction data flows into your accounting software, the next step involves managing these imported entries. A primary task is categorization, where each transaction is assigned to the appropriate income or expense account within your chart of accounts. For instance, a payment to a utility company would be categorized under “Utilities Expense,” while a customer payment would be assigned to a revenue account.

Another important process is matching, which involves linking imported bank transactions to existing entries already recorded in your accounting software. For example, a bank deposit might be matched to an invoice marked as paid, or a bank withdrawal could be matched to a bill that was previously entered. This matching helps prevent duplicate entries and ensures the accuracy of your financial records.

To further streamline these tasks, users can set up rules that automate categorization and matching for recurring transactions. For instance, a rule could automatically categorize all transactions from a specific vendor as “Office Supplies” if they meet certain criteria. These rules significantly reduce manual effort and improve efficiency.