Payment Reconciled: How it Works & Automation Tips

The two most crucial aspects of running any business are its people and its finances. Having a payment reconciled ensures that your finances are in order and good standing. With consistent record-keeping and reconciled transactions, you can achieve this for your business.

In this article, we’ll share what you need to know and look at how payment reconciliation software can automate the process to save your team time and your business money.

Coming Up

1. What is Payment Reconciliation?

2. Why is Payment Reconciliation Important?

3. How does Payment Reconciliation Work?

4. What are the Types of Payment Reconciliation?

5. What are the Benefits of Automated Payment Reconciliations?

6. What are the Challenges of Payment Reconciliation?

7. What are Payment Reconciliation Best Practices?

8. What is the Future of Payment Reconciliation?

9. Closing Words

What is Payment Reconciliation?

Payment reconciliation is the accounting process that verifies that account balances are right. It is performed by comparing internal and external records and statements to ensure their correctness.

In cases where mismatches occur, it’s up to the finance team or responsible party to determine the reasoning for the mismatch and update the records to reflect the right information.

In many cases, the reason for the mismatch is completely understandable, such as payment timing, deposits and pending transactions. However, in cases of fraud or actual mistakes, it’s of utmost value to catch them early on – which is why it pays to have payments reconciled.

Why is Payment Reconciliation Important?

Payments affect your income and expenses, and as such, your bottom line. The need for payment reconciliation is so that you can be sure you are getting and making payments in a timely and correct manner.

When every payment reconciled, your business benefits can:

• Maintain accurate records
• Prevent unnecessary fees (i.e. overdraft fees or bounced check fees)
• Take care of unpaid or late invoices
• Understand patterns in company spending
• Optimize cash flow
• Review the company’s financial health

This becomes even more pertinent as the volume of transactions within your business increases.

With the various forms of payments that customers can use these days, be it digital, cash, crypto, or checks, the process of payment reconciliation becomes the best and only way to make sure that you are actually being paid as you should be.

The option of many different payment providers, like PayPal, Stripe, Amazon, Worldplay, etc. and each of their respective formats adds more complexity to the process.

Luckily, automation solutions can help to streamline the process, standardise data formats, and compare transactions instantaneously. This increases accuracy and saves time for your business while allowing for daily payment reconciliation, if desired.

How does Payment Reconciliation Work?

Payment reconciliation can be performed manually or more efficiently with the use of automation solutions like SolveXia. The process of online reconciliation (or offline reconciliation) goes as follows:

1. Collect Internal Records

You’ll need to first access internal records such as invoices and business transactions. This could be part of an accounting software or through the use of spreadsheets.

The use of an automation solution could do this step for you by integrating all data sources and centralising the information to be automatically cross-checked.

What used to take many days (especially with multiple payment providers and several sources of data) can now be completed in just a few seconds.

2. Retrieve External Records

In order to perform transaction matching, you’ll need other documents to cross reference. This will be bank statements, payment processor statements, supplier statements, and the like.

3. Compare Documents

If you want your payments reconciled manually, you’ll have to go line-by-line to match up the records internally and externally. Alternatively, you can use payment reconciliation software to do it for you in a fraction of the time and with greater accuracy.

4. Investigate and Remedy

For any inconsistencies between records, you will want to identify the reasoning. Upon completion of understanding and matching records, you can produce (or the software will provide) a payment reconciliation report.

What are the Types of Payment Reconciliation?

As noted, there are various methods for payments to be made. As such, there are different types of payment reconciliation worthwhile to execute.

Here’s a look at what these are:

1. Bank Reconciliation

The majority of reconciliation can take place through a bank reconciliation. The purpose of a bank reconciliation is notable as most money flows into and out of bank accounts (even when payments are made using checks, PayPal, and other digital methods).

Reviewing bank statements to internal records helps to catch transaction fees, penalties, or service fees and understand how it affects records, for example.

2. Credit Card Reconciliation

The use of credit cards is continuously gaining popularity as the preferred payment method of choice. Credit card reconciliation compares credit card statements to internal records, as well as bank statements to make sure that there’s adequate funds to cover credit card bills.

3. Cash Reconciliation

When cash is used to pay for goods and services, the cash reconciliation process physically takes place where the cash is. The register or sales receipts are compared to the business records. This is a useful way to catch any theft quickly.

4. Digital Wallet Reconciliation

Digital wallet spending is on the rise. While most digital wallet providers don’t send statements, companies are relying on their own policies to document digital wallet transactions to keep track of them.

What are the Benefits of Automated Payment Reconciliations?

Through every step of having payments reconciled, you could face complexities and time-consuming processing. Rather than having to be manually bogged down and waste time, financial teams can leverage payment reconciliation software to streamline the entire process.

With automated payment reconciliations, businesses gain the advantages of:

1. Maximised Accuracy

There’s no doubt that even the best financial professional has made a mistake (or two). The truth is that when it comes to spreadsheets, numbers, and meticulous data, human error is inevitable.

Automation software like SolveXia overcomes this hurdle and can process numbers and match transactions with utmost accuracy.

2. Minimised Administration

With automation, financial professionals can allocate their time to tasks of high value that require human thought rather than having to deal with administration tasks, like collecting records.

3. Fraud Detection

When records don’t match during the reconciliation process, it could be because of valid reasons or suspicious activity. With payment reconciliation, you’ll be able to become aware of any malicious activity quickly in order to prevent it from worsening.

4. Scalability

Automation solutions grow alongside your company. As your transactions scale, so too can your processes, making it easier to grow your business without suffering from any burdens.

This is particularly true if you are using multiple payment providers or are interested in offering more options for your customers and vendors.

5. Improved Compliance

When you perform automated payment reconciliations, you are taking compliance measures seriously and are able to stay up-to-date with any industry regulations.

As a result, you can prevent having to pay for any penalties due to noncompliance. Plus, automation solutions make audit trails a breeze. Check out how to create audit reports using SolveXia here.

What are the Challenges of Payment Reconciliation?

When performing payment reconciliation manually, there’s an array of challenges that are likely to arise and slow down your company’s processes. In fact, improper reconciliation can create a ripple effect of negative financial consequences since business decisions are made based on the company’s financial health.

With manual reconciliations, you could run into:

1. Lack of Standardisation

With different systems, it becomes harder to standardise data and upkeep version control.

2. Mistakes

As mentioned above, human error is inevitable, especially when dealing with numbers and high volumes of transactions.

3. Reduced Visibility

When companies delay their payment reconciliation, the financial close process is also delayed. This affects the company’s view of its cash flow.

What are Payment Reconciliation Best Practices?

To make the most out of your payment reconciliation process, here are some of our top recommendations and best practices to keep in mind:

1. Practice Consistency and Frequency

The more frequently that you are able to reconcile payments, the faster you’ll be able to spot errors or fraudulent activity. Additionally, you’ll have a hold on an updated view of your financial health, which helps to inform better decision-making.

2. Utilise Technology

Our biggest tip is to make use of automation solutions that exist to help you! Automation software like SolveXia allows you to perform reconciliations quickly, accurately, and effectively.

The system will collect all data for you and can connect to any of your existing software. Transaction matching is performed in a fraction of the time it takes manually, and if an anomaly occurs, you’ll be notified.

What is the Future of Payment Reconciliation?

The future of payment reconciliation, much like the future of most financial processes, is automation! Along with automation software, companies are benefiting from the advantages that come along with ERP systems and cloud computing.

SolveXia offers a cloud-based solution so that your team can access data in real-time from anywhere that they may be working from. This enhances visibility and collaboration, while remaining secure.

Technology evolves at a rapid pace, and entire financial ecosystems can talk to each other, with or without the need for human intervention. Luckily, this means that companies get to benefit from time savings, cost savings, and error reduction.

Closing Words

With payment reconciliation software and automation, it’s easier than ever to have payments reconciled in a timely manner and with increased frequency. When you are able to align records, you will be able to make sure that you get paid what you are owed and you pay what you owe without delays.

Having each payment reconciled is vital for accurate financial health and standing within any kind of business. To see how SolveXia can benefit your business, feel free to schedule a demo with our team.