Credit Card Reconciliation: Solved with Automation

With credit cards being the second most popular form of payment (after debit cards), it’s easy to understand the importance of performing a credit card reconciliation. As the volume of credit card transactions increase, organisations turn to credit card reconciliation software to automate their credit card reconciliations.

In this article, we will cover all the bases: we’ll talk about what credit card reconciliation is and the various different types, why it’s so important, how to execute it, and how your business can improve the process.

Coming Up

1. What is Credit Card Reconciliation?

2. What are the Types of Credit Card Reconciliation?

3. Why is Credit Card Reconciliation Important?

4. How to Reconcile Credit Cards?

5. How to Reconcile Merchant Services?

6. What are the Challenges of Credit Card Reconciliation?

7. How to Improve Credit Card Reconciliation?

8. Credit Card Reconciliation: Optimised and Streamlined

What is Credit Card Reconciliation?

Credit card reconciliation refers to the accounting process of comparing credit card statements to the business’ general ledger. The goal is to ensure that the two forms of financial records are in accordance.

If you notice a mismatching line item, then you’ll have to figure out the cause and rectify the discrepancy. By doing so, you can make sure that your financial statements and your financial close process are accurate.

What are the Types of Credit Card Reconciliation?

Credit cards are used to both pay for things and to receive payment. In turn, they impact the company’s income and expenses. Let’s break down how these differ:

Credit Card Merchant Services

If you are a merchant who accepts credit cards as a form of payment from customers, then the credit card transactions will be processed through your merchant account provider. This is the intermediary between your point-of-sale hardware and your bank account.

It’s of utmost importance to your bottom line to ensure that these transactions are showing correctly because it will affect your income and inventory.

Think about this: you have a high volume of many low value transactions from multiple different service providers. When this is the case, it’s increasingly convoluted to keep track of all transactions, reconcile in a timely manner, and scale your operations.

With the aid of an automation solution, finance teams can free up their time by automating their reconciliations, while also providing greater accuracy and insights.

Credit Card Statements

On the expense side, credit card statements show the payments made for goods and services. To perform credit card reconciliation, you’ll compare your business’ credit card statements to your general ledger accounts.

Why is Credit Card Reconciliation Important?

Every form of financial reconciliation matters to a business. The fact of the matter is that both merchant service providers, banks, and accountants make mistakes. Without credit card reconciliation, transactions may show incorrectly which can result in incorrect financial statements at the end of the financial close period. This will undoubtedly affect business decisions.

Additionally, credit card reconciliation can help to detect fraud. As such, it’s valuable to perform credit card reconciliation on a consistent basis. However, no accounting team has the time to do so frequently if they are expected to do so manually. This is especially true when transaction volumes are high.

Luckily, there exists financial automation software that can perform reconciliations automatically. For example, SolveXia’s robust financial automation tool is equipped to handle credit card reconciliations and all other types of account reconciliation so that your finance team can spend their time on high-level strategy and analysis, rather than cross-checking statements.

How to Reconcile Credit Cards?

The process of credit card reconciliation itself is straightforward. The complexities arise as transaction volume grows and accounting teams have to manage so much on their plate. Before we jump into the challenges and solutions for credit card reconciliation, let’s recap how it’s done in the first place.

1. Data Collection:

Collect the documents needed to perform the reconciliation process. This may include credit card statements, merchant provider statements, and your internal chart of accounts.

2. Data Comparison:

Run through the line items of transactions and accounts side-by-side to check that all transactions are properly recorded.

3. Data Correction:

If you come across inconsistencies, then it’s necessary to figure out why and remedy them. It could involve disputing transactions or contacting your credit card provider to edit their inputs. If the error is internal, then you’ll have to adjust your journal entries.

4. Data Storage:

Once the process is complete, you’ll want to securely store the data and actions taken for audit purposes.

How to Reconcile Merchant Services?

While the credit card reconciliation process is straightforward when it comes to the expense consideration, it becomes much trickier on the merchant services, or income, side of things.

The reason is that most merchant service providers will charge a fee for each transaction that occurs. This means that the sales reports don’t typically match the bank deposits exactly because there’s a fee to account for. One way to simplify this overall is to request a per month fee from your merchant provider rather than a per transaction fee.

Additionally, there are timing differences to take into consideration. For example, your business’ bank account may receive the cash for a transaction days after the customer made the payment.

Since the timing differences can create chaos, your team may create a credit card clearing account to manage it. Additionally, it could be that you are leveraging multiple merchant service providers and handling a high volume of transactions.

This may create a hurdle if you’re trying to keep up and grow. (Of course, the solution is to automate your credit card reconciliation process, and we will soon share how you can do so smoothly).

As you can see, the merchant side of credit card reconciliation isn’t black-and-white. It’s a handful to manage and that’s where finance automation software can really make a positive impact on your business’ functioning.

You can streamline and automate the transaction process so that your accounting team doesn’t have to be bogged down dealing in the details.

What are the Challenges of Credit Card Reconciliation?

We’ve touched on some of the challenges of credit card reconciliation already, especially with regard to the merchant services side. But, there are even more challenges than meets the eye.

Some common hurdles associated with the process include:

1. Timing Differences

In an ideal world, a credit card statement would align perfectly with the month’s close. But, as you know, we don’t live in a perfect world and this is rarely the case. So, keeping track of credit card transactions in a timely manner to close out the month isn’t always so neat.

With automation software, all data can be automatically collected, stored, and noted so that nothing falls through the cracks, even with the timing differences of statements.

2. Personal vs. Business Charges

Although employees shouldn’t use business credit cards for personal use, mistakes can happen. Without keeping a close eye on credit card transactions, these types of use cases could be missed.

But, they still do affect the company’s financial statements, so spotting this type of anomaly is essential to manage a business’ finances properly. Automation solutions can perform transaction matching quickly and efficiently so that this type of scenario would be flagged.

3. Transaction Volume

Spreadsheets are incredibly powerful, but when transaction volume is high and fast, it makes for a time-consuming endeavor. It’s inefficient and error-prone by nature. In effect, companies take on unnecessary risk by using spreadsheets to handle major financial functions like credit card reconciliations.

4. Chargebacks vs. Fraud

In the event a customer disputes a credit card charge, the funds (and fees) could be withdrawn from your business’ bank account. While this could happen for legitimate reasons, it also could be a signal of fraud.

Through manual credit card reconciliation, these instances or patterns could go unnoticed and result in a much bigger issue down the line.

How to Improve Credit Card Reconciliation?

By now, you’ve probably caught on to the biggest solution to streamline your credit card reconciliation process and make your business run smoother. It’s credit card reconciliation software!

Credit card reconciliation software is able to pull data from various sources, be it credit card statements and bank accounts to merchant accounts. The software then carries out the transaction matching process seamlessly and automatically by comparing every transaction’s details and highlighting any discrepancies.

1. Time Savings

The biggest and most immediate result? Time-savings! Instead of doing this all by hand, your finance department can continue with their high-value responsibilities as the software such as SolveXia’s

executes the process.

2. Internal Control and Transparency

While the process runs, it also increases internal control and transparency as stakeholders can keep a pulse on the reconciliation status. Since credit card reconciliation typically requires sign-off, the approval process can also be automated.

Once the transactions are matched and any discrepancy has been resolved, the final outcome can be sent to the responsible party for approval. This way, companies reduce bottlenecks and can finalise these necessary processes in time to close the books.

3. Risk Reduction

By automating the credit card reconciliation process, it becomes standardised and compliant. In the event of fraud, businesses get to spot it before it gets out-of-hand.

4. Reporting Accuracy

Automation solutions like SolveXia not only automate important finance processes, but they also help to reduce data errors. As a result, your team can rest assured that their financial statements and reports are in tip-top shape because the data that the reports are based on are all correct.  

Credit Card Reconciliation: Optimised and Streamlined

You know what should match the speed at which you can charge your credit card? The speed at which you can execute credit card reconciliation. With automation software like SolveXia, that prospect is a reality!

With the sheer volume of credit card transactions, be it on the merchant or expense side, the optimal solution is automation. Automation will relieve your team’s workload, save everyone time, and result in increased accuracy and efficiency. There’s really no downside.

Ready to automate your credit card reconciliation process? Book a demo with SolveXia.