If we told you that managing your inevitable payment reconciliation process could be performed without countless wasted hours and the hassle of manually sourcing data, would you want to know more?
Payment reconciliation software makes the lives of accountants and finance teams simpler by connecting disparate data systems, executing transaction matching, and providing utmost visibility while reducing errors.
Here’s everything there is to know about the reconciliation process and how an automation solution can be your golden ticket.
1. What is Payment Reconciliation?
2. How Does the Payment Reconciliation Process Work?
3. What is the Difference Between Operational Reconciliation and Finance Conciliation?
4. Why Reconcile Payment Transactions?
5. What are the Types of Payment Reconciliation?
6. What is Payment Reconciliation and Automation?
7. What are the Benefits of an Automated Payment Reconciliation Process?
8. What are Common Payment Reconciliation Pitfalls?
9. What are Payment Reconciliation Process Best Practices?
10. What is an Example of Payment Reconciliation?
Payment reconciliation is an accounting process that makes sure records are accurate and up-to-date. This cross-checking method looks at expenditures and cash inflow to ensure that your payment service provider records, bank statements, and internal ledger are all in line with one another.
It’s possible that discrepancies may arise, and so the point of the payment reconciliation process is to resolve them as quickly as possible so that your future financial statements are in order.
The payment reconciliation process involves the following steps:
Businesses record transactions internally. You may do this manually using spreadsheets or with the use of accounting software. At the same time, you’re likely to be saving receipts, invoices, and paper trails.
(Keep in mind that you can always digitise paper trails to make it easier to find in the future and reduce the likelihood of losing any valuable information).
Banks also keep a running record of all transactions. Then, banks provide your business with their statements, which include line items of information such as payer, payee, payment method, payment amount, and the date.
The whole point of the payment reconciliation process is to check that the internal and external records match. The total funds that go in and out of the business should reflect the same amount.
If it’s the case that something isn’t matching up or adding up, you’ll be tasked with finding the source of the discrepancy and making the necessary adjustments.
If you’re running a business that sells products, then beyond financial records and statements, you’ll need to also keep track of physical inventory. Operational reconciliation connects the inventory amounts that are recorded in your books to its actual inventory levels. This way, you can make sure there’s no discrepancy due to theft, loss, damage, or manual errors.
Operational reconciliation is not to be confused with finance conciliation. Finance conciliation occurs if an error is spotted and the organisation relies on a third-party entity to help remedy the discrepancy. For example, if two parties believe their records are correct (such as the bank and the business), then a third party may be called upon to help settle the dispute in good faith.
The reconciliation process is crucial for any type of business. It informs the company of its current financial health, which is used to make major business decisions. That’s why accuracy is key.
The purpose of reconciling payment transactions include:
Payment reconciliation helps you to catch errors before they go unnoticed or grow larger. For example, you can identify any unauthorised payments or take notice of a security breach should it occur.
It may be the case that your business’ financial statements are regulated, in which case having any errors could end up being detrimental and costly. Even without regulation, you’ll desire accuracy in your financial statements because it sets the foundation for your decisions.
Payment reconciliation also helps you keep track of any unpaid invoices, so you can settle outstanding payments.
There are multiple payment options, which is great for customers. However, this could spell disaster and stress for finance teams that are stuck performing reconciliations manually.
Payment reconciliation software like SolveXia connects seamlessly with all payment providers such as Amazon, Paypal, Wordlpay, Shopify and Stripe. It can save time and reduce errors to help take carry of the different types of payment reconciliation, including:
Bank reconciliation is a comparison against bank records, including payments from checks, PayPal, etc. As more digital options for payment become available, bank reconciliation could take more time, unless you use an automation solution that can pull data from every type of system.
Credit card reconciliation cross-checks monthly credit card statements with the internal ledger and bank statement (as you withdraw funds from the bank to pay for the credit card).
Cash reconciliation checks the physical cash in a register or cash box against sales receipts or petty cash use cases.
A digital wallet provider (cash or crypto) sends statements, just like that of a bank statement, for reconciliation to compare against internal ledgers.
If you’re dealing with currency exchanges, then you’ll also need to reconcile those transfers.
Real-time reconciliation is done with automated solutions that can cross-check data and transactions as they come through to make decisions immediately.
Manual reconciliation has been the way it’s been done for decades. However, with technological advancements and software solutions in the mix, companies are reaping the many benefits of such tools.
Automated reconciliation with software like SolveXia makes it possible to execute any type of payment reconciliation process without human intervention. The system can pull data from any payment systems, including ERPs, order systems, spreadsheets, and more.
SolveXia is a process-centric application that can perform transaction matching and data processing so you can reduce your payment reconciliation process time by as much as 98%!
Using SolveXia, you'll be able to:
When you automate the payment reconciliation process, everyone within the organisation has something to gain. The finance team has less manual and repetitive work, and stakeholders and management gain visibility into the company’s financial health.
Benefits of automating the payment reconciliation process include:
Performing the payment reconciliation process manually is like having access to electricity but using candles for a light source. There’s more risk involved, with less reward of going that route.
Some common pitfalls of manual reconciliations that you may face are:
Since your team has to work with close attention to detail and may be sourcing data from several sources, the chances for a data entry mistake or miscalculation is heightened.
When you have team members working across devices and in different locations, the use of spreadsheets or multiple systems leaves a lot of unanswered questions. Executives may be unaware of the status of the reconciliation and also lack financial visibility in a timely manner to make informed decisions.
When everyone is working on different spreadsheets and in different operating systems, there’s no version control or standardisation. Automated solutions can standardise reconciliation processes and outcomes for everyone involved in the process.
The reconciliation process should support your business in achieving its goals, rather than bog your team down with repetition and monotony.
Here are some best practices to try out when implementing or improving your payment reconciliation process:
It’s always recommended to perform reconciliation consistently so you can catch fraud early and resolve errors to ensure your financial information is accurate.
The process should be done at the minimum monthly, but it’s even better if you can do it weekly (or potentially daily if you’re in a high transaction business). With automation solutions, you can remove the time-consuming nature of manual reconciliation to make this consistency goal feasible.
We clearly can’t recommend automation enough. That’s because automation will dramatically transform how your business handles any payment reconciliation process. You can unlock increased profitability and financial growth by having access to your business’ financial health in real-time and by knowing it’s actually correct. At the same time, you can cut costs of administrative tasks.
Let’s look at how payment reconciliation works with this fictional example. Sports Equipment and Clothing runs a global online sporting goods business. They are growing fast, offer many products and have to order many items on a daily basis to keep stock levels.
At the beginning of the week, Sports Equipment and Clothing makes an order for Football boots for $3,000 on credit. The transaction is noted in the company’s internal accounting software. The supplier sends an invoice upon delivery with net 15 terms, but since it’s the end of the week and month, Sports Equipment and Clothing will pay the invoice to close the books.
Sports Equipment and Clothing uses a payment reconciliation tool like SolveXia, so SolveXia matches its bank statement withdrawal with the internal records at the end of the month – all looks good to go! Payment has been made, the internal ledger and bank reflect the same amount, and customers are happy with the new football boots.
With the growing volume of payment options, from credit cards to digital wallets, the payment reconciliation process is only going to become more complex over time. Businesses have to cross-check multiple different statements on an ongoing basis to ensure their financial records remain accurate, prevent fraud, and can close the books in time every month.
Enter the solution of automated reconciliation. A tool like SolveXia has removed the manual burden and time-consuming nature of reconciliations. The solution connects to your data sources, extracts what it needs, and reconciles in minutes. Want to see the system in action? See how it works in a scheduled demo.
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