Chances are you’ve noticed an incorrect charge on your credit card before, be it a personal or business credit card. For businesses, performing the credit card reconciliation process is highly crucial to ensure that the business’ financial statements are accurate.
Given that businesses rely on these statements to make important decisions, you can understand why it’s necessary to keep them up-to-date and properly managed. Let’s review what the credit card reconciliation process entails, as well as how automation software can make it easier to handle.
The credit card reconciliation process is a system by which accountants check credit card statements versus the general ledger. Since every company transaction exists within the general ledger, you’ll need to make sure that whatever is displayed on a credit card statement is in line with what’s reflected on the general ledger, and vice versa.
If the statement and general ledger match, then you can close the books. If there are discrepancies, then you have to resolve them by finding out who made the payment and why there is a mismatch of data.
While it is technically possible to perform manual credit card reconciliations, it is less than optimal in practice. The sheer amount of transactions and time it takes to locate data and compare it could be better spent on high-level, strategic, and analytical tasks. Hence, the help of automation tools (which we will touch on again shortly).
Accountants rely on the general ledger as a foundation to deduce the company’s overall financial health.. Along with balance sheets and income statements, the general ledger needs to maintain accurate records.
General ledgers can be affected by fraud or incorrect information, which could make the company’s books look better or worse off than reality. So, having reconciliation is a checks and balances system that helps to make sure everything is right.
Additionally, a company will need the general ledger to be properly stated especially in the event of an audit. A third party or tax regulation agency may perform an audit on your general ledger. Performing account reconciliations and credit card reconciliations is part of the requirements to protect the ledger’s integrity.
In the event that multiple hands within your business have access to the company’s credit cards, then you can use the credit card reconciliation process for internal oversight to see where expenses are being made.
From a bird’s eye view, the credit card reconciliation process consists of matching general ledger records to the credit card statements. But, let’s dive deeper into the process (by doing so, you can also begin to see why automation is so useful here).
Your receipts serve as proof of expenses. Receipts should be collected, organized, and stored. Some companies will use receipt scanners, expense reports, and Excel sheets to store receipts digitally.
Now comes the fun part- you’ll need to check through every expense on the credit card statement in comparison with the general ledger. Clearly, depending on the number of transactions you have, this can become a very time-consuming endeavor. Or, you can utilise an automation tool like SolveXia that can automatically perform transaction matching.
Should there be mismatched data, you’ll have to figure out why. If there’s an error on the bank’s side, reach out to notify them. Some common errors can include a charge for a failed transaction, duplicate charges, or a missing refund for a canceled purchase.
With the use of automation software, the tool will notify you immediately so you can rectify these issues in a timely manner rather than having any further delay or issues arise.
There are two types of credit card reconciliation to be aware of. These include:
Any purchases that are made by employees with access to the credit card or business leaders will be displayed on a statement from the company who issues the credit card.
However, credit card statements don’t always match up with the time at which you perform your month-end close process. You’ll have to take the timing differences into consideration.
If it’s the case that you process payments from customers via credit card, then your merchant account service provider will supply you with documentation. This serves as a middleman between the customer, the transaction processing portal, and your company’s bank account.
Although the idea of matching transactions between two documents seems like a no brainer, it can become quite complex when it comes to the credit card reconciliation process. A few reasons why it can get challenging are:
In many corporate settings, multiple people have access to the company card. This can make it more complicated to track down receipts and the responsible party for transactions that may show up incorrectly.
To overcome this, every person can get their own company card. It’s a great solution, but it will add more credit card reconciliations into the mix (which isn’t an issue if you’re leveraging automation solutions that handle data collection and transaction matching for you).
As mentioned, the statement dates of your credit cards don’t always line up perfectly with your month end close process. In fact, they rarely do.
How often do you write letters by hand instead of sending an email? Chances are, very rarely. In the same vein, the days of holding onto paper receipts have been long gone. Incorporate a system that digitises paper receipts and ensures that your team members with access to the company card are submitting accurate expense reports (with digital copies of the receipts for easy referencing).
When it comes to paying suppliers, many companies receive an invoice from the supplier, along with the credit card statement, and a receipt from the supplier for proof of payment. Those are three different documents that support the same purpose, namely proof of expense.
If you have to manually pull those three documents to go through a single line item, imagine how long that takes for hundreds or thousands of line items. Automation software will centralise all your data in a single repository and perform transaction matching.
Because of these common challenges of the credit card reconciliation process, automation solutions like SolveXia have been developed to help finance teams across organisations. Let’s take a look at some ways by which you can make your credit card reconciliation process a lot easier, efficient, and effective.
Rather than having your finance team and employees manually input and verify expenses, you can use software to handle data entry and matching. Not only is this a time-saving solution, but it also reduces the risk of manual error. Your team can spend hours, days, or weeks matching transactions and still run the risk of missing fraudulent or duplicate charges.
Paper receipts can easily get lost in the shuffle. And, a receipt is often the necessary missing piece of the puzzle to verify whether or not a transaction actually took place.
As soon as any person completes a transaction with a credit card and receives a receipt, they should use a mobile app to snap a photo and upload it into a system that the company has access to. When performing account reconciliation via a solution like SolveXia, you can connect your systems through APIs so data is pulled.
With software, you can design and repeat an efficient credit card reconciliation process. Having a well-documented and well-thought out credit card reconciliation process that is automatically executed will help every responsible party understand their roles and uphold accountability.
Since there are various phases involved, each team will know what falls under their list of responsibilities.
As you can see from the solutions above, automation solutions play a major role in reducing the hassle that can come along with the credit card reconciliation process.
Software automation platforms can import data from various systems, perform transaction matching, analyse expense details, and identify mismatching records.
With the use of an automation tool like SolveXia which can manage your company’s account reconciliation processes, your finance team benefits from time savings, error reduction, and streamlined workflows.
Your executive team benefits from internal control, cost savings, access to timely financial statements, and reduced compliance risk.
The credit card reconciliation process is a necessary aspect of conducting business. With the advancement in technology, it no longer has to be a time-consuming and dreaded process for your finance team who once had to track down data, organise paper receipts, and manually check every line item for accuracy.
To see how SolveXia can help your company perform its account reconciliations, request a demo!
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