These days, we use credit cards for just about everything. Cash may still be king in certain quarters, but plastic is definitely the more convenient choice. For businesses, the benefits of credit cards are two fold: they make it easier for customers to pay the business, and easier for the business to pay its suppliers. However for all its ease, the payment method has a complication: reconciliation. While reconciling accounts is a relatively easy process, reconciling credit cards can be challenging. As per soldo.com, credit card reconciliation is the process of ‘verifying the validity and integrity from the data held on credit card statements and comparing it having a business' internal records.’ Essentially, it’s how businesses ensure that the transactions on the general ledger and the transactions on the credit card are correct and valid. It’s an essential administration task and a vital aspect of closing. Here, we take a look at everything you need to know about credit card reconciliation and assess how charge card reconciliation software can help ease pressure of manual reconciliation by automating the procedure.
The Importance of Credit Card Reconciliation
Mistakes happen. Banks and credit card processors don’t get it right 100% of times. Apart from being useful in spotting innocent mistakes, reconciliation may also identify cases of fraud. Although the technology used by banks in detecting fraudulent activity has come on leaps and bounds in recent years, it’s still no substitute for human inquiry. Regardless of the sector the business operates in, auditors will always want to see confirmation of reconciliation to ensure the transactions on both sides match.
The Kinds of Credit Card Reconciliation
As floqast.com notes, there are actually two kinds of reconciliation, the first which looks at the expense side of charge card transactions, and the second which deals with the income side.
- Credit card statements: The expense aspect of credit card reconciliation covers payments produced by the business for goods or services along with credit cards issued to associates. Both will need to be reconciled using monthly credit card statements.
- Credit card merchant services: The wages aspect of reconciliation covers incoming payments from customers made with the business’s merchant account provider.
What is the procedure for Credit Card Reconciliation?
Reconciliation, both from a cost aspect and an income aspect, involves verifying transactions from a credit card statement against the transactions on your general ledger.
Credit Card Statement Reconciliation
To cover this facet of credit card reconciliation, you’ll require statements and receipts for any purchases made on the business credit account. If individual team members have been issued their own charge cards, you’ll need to ensure they each provide the necessary documentation. Once you’ve gathered all the required documents, you’ll need to compare the transactions on the statements against those for auction on your general ledger. You’ll also need to ensure that any credit card fees and interest amounts are listed correctly within the ledger. Many accounting systems have inbuilt charge card reconciliation software to simplify the process. Any discrepancies between the information provided around the credit card statements and the information on the general ledger will need to be investigated.
Merchant Services Reconciliation
Reconciling charge card statements is the easy facet of credit card reconciliation. Reconciling a merchant account is where things get tricky. Most charge card processors charge a fee for processing a transaction. Usually, this fee is deducted automatically in the total payment you receive. Thus, that which you receive into your bank account may be slightly less than what the customer actually paid. Although the difference is slight, it'll still mean that your sales records won’t be an exact match for your bank statement. Asking your credit card provider to charge the fees as a single monthly payment will help get around the problem.
As floqast.com notes, also that can arise during this aspect of the reconciliation process comes from the fact that while transactions in your sales reports are likely to be detailed, the credit card statement only will show a lump sum deposit. The issue is further complicated by the fact that there is often a difference of several days between the date of the sale and also the date the payment appears on a statement.
A final problem to be aware of is chargebacks. If a customer challenges a transaction and it is refunded, the refund will show against your statement along with various fees. As these might not always be legitimate, you will have to investigate any occurrences.
How Should Discrepancies be Handled?
Any discrepancies identified during reconciliation need to be disputed with the credit card processor. Records may also need to be amended in the event of any discrepancies in date, time, or item. As blackline.com notes, most merchant providers impose a time limit how long after the date of a transaction it can be disputed. It’s therefore vital to start the process as soon as the issue is identified. A full, auditable record should be kept of any discrepancies, along with details of what steps were taken to address them and the eventual conclusion of the dispute. Maintaining an audit trail in this way is a vital element of the overall process.
Can Charge card Reconciliation Software Help?
To help ease the strain of credit card reconciliation, many businesses are embracing credit card reconciliation software. The software automates the process by comparing imported data from general ledger systems and charge card statements. Any discrepancies are flagged. Typical features included on credit card reconciliation software includes automated transaction comparison, templates to standardize the procedure, workflows to identify, track, and help with the investigation of discrepancies, and integrated storage solutions.
Automating the procedure through the use of credit card reconciliation software can dramatically reduce the time spent on manual reconciliation, freeing up finance staff to investigate any highlighted discrepancies. The reduced time frame involved can make a factor to chargeback requests, in which time is of the essence. In addition to reducing the period of time spent on the reconciliation process, reconciliation software can also improve the accuracy of reconciliation by reducing the potential for human error.
Although it’s by no means mandatory, most businesses discover that automating the reconciliation process by using credit card reconciliation software greatly eases the strain of a process that, while necessary, is often both complex and time-consuming.