Payment Reconciliation: What It Is and Its Process

Reconciliation of payments involves comparing payment information from two different sources, such as bank statements and invoices, to make virtual accountant sure everything matches up. With proper reconciliation processes in place, businesses can easily resolve discrepancies quickly and efficiently while ensuring maximum accuracy with their finances. Reconciliation of payments is a process that businesses use to ensure that all customer payments are correctly accounted for. It involves comparing the bank and accounting records to verify how much money the company has received, how it was paid, and whether or not it has been recorded correctly. The reconciliation process is an important step in any organization’s financial management, as it helps with cash flow management, prevents fraud, and ensures accuracy in financial records.

Document the process

First, detailed books give a sense of financial health in the form of a snapshot. Managed records can also prevent overdraft fees, bounced checks, and show patterns of spending and cash inflow, which can be useful in operational plans. However, as a company grows and acquires more accounts, vendors, and payables, it can become difficult to keep track of all payment data with the same accuracy and efficiency. Without it, missed invoices, manual data entry errors, or intentional fraud could go undetected, resulting in financial consequences for an organization. It can also lead to believe that businesses have more cash on hand than they should, which could result in overspending.

What Is a Payment Processor and How Does It Work?

• Gather any supporting documentation or statements related to payments made during a given period.
• With or without automation, it’s imperative to adequately train your team members on the reconciliation process and what’s expected of them, especially when they come across discrepancies.
• Go through each discrepancy you find and resolve it by correcting the related records and making any necessary changes to retrieve the funds or identify why they were not received or recorded correctly.
• In the event that an audit is triggered, accurate payment reconciliation and record-keeping will help resolve any issues and lower the risk of incurring penalties.
• When you find a discrepancy, you should note the discrepancy along with all related documents and information.
• While they may differ in concept, every business needs to have access and abilities to conduct these important protocols.

Similar to that of bank reconciliation, credit card reconciliation compares the same internal documentation against credit card statements. One of the main purposes of credit card reconciliation is to protect against fraudulent charges. It’s ideal for businesses to get a lot of cash flow coming in, but we can’t forget reconcile payments meaning about the money that also has to be paid out. In order to ensure the accurate and timely payment of what is owed, businesses have to reconcile payments. Regular payment reconciliation is necessary for improved regulatory compliance, more accurate forecasting, effective cash flow management, cost reduction, and establishing good business practices.

Payment Gateway Vs. Payment Processor Vs. Payment Orchestration: What’s the Difference?

An established, well-regarded accounting software program is very likely to include robust security features to protect your company’s sensitive financial information from hacking and data theft. However, before you begin with a new accounting software tool, it’s important to do your due diligence and ensure it has the right security measures in place. Yes, even small businesses that make and receive very few monthly payments still need to routinely reconcile payments in order to keep their books current and understand the financial health of the business. It’s much easier to reconcile payments “as you go” as opposed to letting them pile up and waiting until the end of the tax year to resolve them.

Effective Cashflow Management

Individuals sometimes reconcile their own finances to ensure their personal budgeting is in line with their spending. This helps with investment planning, growing home improvement funds, and creating a savings strategy. The balance between being thorough and efficient often plagues teams, though it doesn’t mean the process should be any less of a priority for growing businesses. For this reason, any discrepancies should be thoroughly investigated, not only to reverse any errors but also to prevent similar issues from occurring in the future. Gather any supporting documentation or statements related to payments made during a given period.

What are the Types of Payment Reconciliation?

Employees have to manually compare the statements and records, which often results in delays and inaccuracies, making the entire process a mess. Having a payment reconciliation solution means you can compare the financial records from multiple sources and ensure accuracy. Your external records include bank statements, payment processing records, and other documents you access via financial institutions or third-party services. Your business may use slight variations on each step based on how you receive payments and other factors. However, almost every business will follow these steps to ensure a consistent payment recognition process.

• To reconcile the transactions, the internal and external activity is matched up.
• A common trait among the most successful small businesses is that they keep highly detailed financial records.
• A tried and true method to keep on top of expenditures and inflow is to maintain a cross-check method, which is payment reconciliation.
• One of the main hurdles of completing payment reconciliations is that it’s a time-consuming and tedious process.
• The exact type of reconciliation you use will depend on a number of factors relating to the nature of your business and the type of transactions you process.

Recently, Latin America was proclaimed the best region to take a risk on fintech innovation. There’s no better place for advancement in payment reconciliation automation, which is already in development. New cloud technology is already underway to streamline and simplify merchant reconciliation. Companies are moving to better record retention with better platforms to become more efficient.

Leverage Automation Software

Executing account reconciliation on a regular basis can be a primary way to prevent fraud. If someone notices irregular payments or charges, they can take action immediately, rather than when it’s become too late. Next up, it’s time to conduct transaction matching, which requires precise attention to detail and again, a fair amount of time. During this step, the professional must compare each record on the external document to that of the internal ledger. Once you complete these integrations, you can quickly perform payment reconciliations without manually entering or transferring data. Your general ledger reconciliation will provide an overview of your overall accounting records.

This involves carefully reviewing each transaction, payment, or entry in both sets of data to identify any discrepancies or inconsistencies. Usually, large businesses combine the payment analytics provided by payment gateway with sophisticated ERP systems for accounting. (more on this later) In the case of instant settlements, reconciliation is much faster and efficient. Performing reconciliation with multiple large files results in unnecessary time and a waste of dedicated resources. This trial balance increases the risk of manual errors, making the reconciliation process more complex. Payment reconciliation offers insights into your cash flow and overall transactions allowing you to monitor your payments easily.