Reconcile Payments with Automation: Benefits & Tips

It’s ideal for businesses to get a lot of cash flow coming in, but we can’t forget 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. 

Rather than being consumed by the tedious process month-in and month-out, companies can leverage payment reconciliation software to assist. We’re going to look at the payment reconciliation process and see how a reconciliation system streamlines each step. 

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What is Payment Reconciliation?

Payment reconciliation is an accounting process that reviews a company’s transaction records with what’s recorded internally in its books to make sure that they are in alignment with one another. 

By doing so, businesses can ensure that their financial records are maintained in proper order. The most common external statement used for payment reconciliation is bank statements. Not only does it show that a company is properly paying its vendors, but should also be used to check that employees are getting paid the right amounts. 

How Does Payment Reconciliation Work?

The payment reconciliation process can be broken down into a few steps:

1. Data Collection

Perhaps the most straightforward aspect of the process, but also sometimes the most time-consuming, is the first step: data collection. 

Data collection requires the responsible party to bring together all relevant documentation, including bank statements, credit card statements, mobile payment services, and the like. Without automation, this step can take a lot of time and often be the cause of much frustration. 

2. Transaction Matching

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. 

For anything that doesn’t match, it’s necessary to investigate. Again, reconciliation automation software can perform transaction matching in a fraction of the time with less margin of error than a human. 

3. Reconciliation

The namesake of the process occurs at this point– where it’s crucial to investigate the reasoning behind any discrepancies that have been caught. Either correct, review, and approve the change or make note of the reasoning behind why it may exist with good reason. 

4. Finalization and Reporting

Once all records have been reconciled, you can adjust general ledger accounts and confirm that ending balances match. 

What are the Types of Payment Reconciliation?

As mentioned, when you reconcile payments, there are a few different types of reconciliation that must be conducted. This way, you can know with full confidence that all outgoing (and incoming) payments are being made correctly. 

Keep in mind these types of payment reconciliation: 

1. Bank Reconciliation

Bank reconciliation compares records in the general ledger to the transactions shown on a bank statement.

2. Credit Card Reconciliation 

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. 

3. Account Payable Reconciliation

Accounts payable reconciliation checks that invoices, credit notes and payments that are made align with the accounts payable ledger. This way, businesses can know that what they owe and pay their suppliers is accurate. It helps to protect business relationships. 

4. Account Receivable Reconciliation

On the other hand, account receivable reconciliation checks that customers are paying invoices for the right amount into the business. By doing so, businesses can successfully resolve any underpayments or overpayments.

5. Payroll Reconciliation

Another important type of payment reconciliation is that of payroll. You always want to be sure that your payroll transactions, including deductions, wages, and taxes, are in accordance with that of bank statements. 

This is critical for employees to receive what they are owed and also for businesses to pay the right payroll taxes and report deductions accordingly.

What are the Benefits of Payment Reconciliation?

To reconcile payments is necessary for businesses in every industry. When you perform payment reconciliation, your company is able to:

1. Prevent Fraud

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. 

2. Catch Errors

Humans make mistakes, no matter how good they are at their jobs. With regular account reconciliation, it’s possible to find these errors and fix them. Even the smallest data entry mistake can spell disaster for a company. 

3. Improve Cash Flow Management

It’s vital to know your business’ cash position at any point in time. By reconciling accounts, it’s easy to understand cash at hand and make informed decisions about where to spend versus where to hold back. 

4. Enhance Key Relationships

Stakeholders and investors take kindly to being able to access precise financial records. Additionally, vendors and customers can trust businesses better when relationships are cared for and maintained with timely payments. 

5. Conduct Audits

With a cohesive payment reconciliation schedule and standardized practices, auditors can revel in reviewing reconciliation documents with less hassle. 

6. Boost Operational Efficiency

It’s possible that account reconciliation will also shine the light on areas of the business that require some extra attention. As such, business leaders and management personnel can improve internal controls to reduce costs and boost efficiency. 

7. Comply with Regulations

The reconciliation process is also mandatory to comply with regulatory requirements and reduce risk. 

What are the Challenges of Payment Reconciliation?

In some instances, payment reconciliation is seamless and clear cut. And, at other times, you may find yourself running into many mismatched records. Some potential challenges that can arise are:

• Errors: Manual human error can be the reason for records that don’t match. 

• Distributed data: When dealing with manual payment reconciliation, the chances are high that data is disparate. Having no single source of truth can make it hard to trust your work. 

• Lack of standardization: When teams and individuals are using different systems and software, it’s possible that data exists in multiple formats. This makes it hard to conduct comparisons and match transactions. 

Luckily, reconciliation automation software will remove all of these challenges by centralizing and cleansing your data, standardizing the format, and preventing any manual mistakes. 

What are Best Practices for Payment Reconciliation?

Since payment reconciliation is a must-complete process, these best practices can help to make it a smoother and more efficient process for all:

1. Be Consistent

One of the most important tips for making the most out of your reconciliation procedures is to be consistent. Conduct payment reconciliation as often as you can, depending on your transaction volume. 

With greater transaction volume and use of payment processors such as Amazon, Paypal, ebay, Stripe etc, it only makes sense to rely on reconciliation automation technology to handle the many moving pieces of data. This improves compliance and frees up time to provide greater insights for the business.

2. Allocate Responsibilities

Assign responsibilities and access controls to establish a checks and balances system. 

3. Leverage Automation Software

One of the greatest best practices that you can adopt is to use automation software. This is because automation software will provide you with a single source of truth and the ability to standardize your processes. 

Along with standardization, you can always remain confident in trusting that the software is minimizing errors. Say goodbye to bottlenecks and key person dependencies. Give back your team’s time to focus on strategic tasks that require human thought, instead allowing the software to handle the nitty gritty and data-heavy to-do’s. 

4. Provide Training

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. 

5. Track and Document Progress

Keep track of the process and progress. By monitoring your reconciliation process, you can spot room for improvement and make adjustments on-the-go. 

This is especially easy to do when you use no-code automation software. This way, you can edit processes in real-time and immediately assess the outcome. 

How Does Automation Improve Payment Reconciliation?

Using automation for payment reconciliation feels like emerging from the Stone Age. Having to rely on your employees to perform manual, tedious, and repetitive tasks not only opens the door for error, but it also creates a work environment that can be plagued by frustration. 

With automation, your business can:

• Execute processes faster
• Reduce fraud 
• Adhere to regulations 
• Improve employee satisfaction 
• Gain greater transparency and internal control 
• Meet deadlines 
• Achieve time and cost savings 
• Scale processes 
• Understand cash flow 
• Make informed decisions 

The Bottom Line 

Having to reconcile payments doesn’t have to be a burden. With payment reconciliation automation technology, every business can streamline their monthly (or even daily/weekly) reconciliation process, free up their team member’s time, and rely on accurate data with less worries.