Payment Reconciliation

It’s important to keep track of business expenses and income. A tried and true method to keep on top of expenditures and inflow is to maintain a cross-check method, which is payment reconciliation. The concept involves internal documentation of expenses through an established system. When bank statements arrive, the costs and payments are cross-checked to ensure finances are correct. 

In essence, payment reconciliation is a method of bookkeeping that compares internally logged financial records with bank statements to ensure accounting is correct.  

While it may seem like busy work, keeping good, accurate records is one of the most important things a company can do. It’s very easy to make an entry error, or lose a receipt, or accidentally account for a payment that isn’t a business expense at all. On the other hand, companies want to make sure that the bank statements accurately reflect the businesses activity. That is, if the company account has been compromised by an outside party, a good reconciliation practice will flag the fraudulent activity. 

There are big picture reasons to reconcile payments in your company, too. 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. 

Reconciliation has two separate processes. The first is internal. Once a transaction in the form of billing or payment has been posted or scheduled, the company records this activity. Record retention can be established in a number of ways. Many companies have accounting software where transactions can be entered and discrepancies can be handled. Other methods include saving receipts and chits, and tracking billing paperwork, which has a high level of error involved since physical paperwork is easily misplaced. A middle option is to maintain a spreadsheet of inbound and outbound money. 

Externally, when transactions are processed, the bank records the activity.  When a monthly statement is made available, companies check the statement of record. Here, every transaction is listed, including cost along with the vendor and payment method. Income is also noted.  

To reconcile the transactions, the internal and external activity is matched up. For discrepancies, companies must determine if the errors are internal, or if they are at the fault of the bank, which could be the result of a breach. The event of a breach is uncommon but can happen, and actions should be taken as soon as the discrepancy is determined. 

There are many ways a company can ensure their records, finances, and supplies are in sync. Accurate records create a clear picture of the business, including strengths and areas to improve upon. One of the most important records to maintain is an inventory sheet. A system that tracks which goods are in stock and which have been sold helps establish an ordering schedule, as well as accommodate output for consumers. 

It’s not usually practical for employees to count their inventory every time they need to make a reference. Instead, records provide quick access to current information about what’s in stock and in what quantity. This provides easy, quick reference to enhance business workings. An operational reconciliation is needed to ensure the physical inventory matches the bookkeeping records. Not unlike payment reconciliation, operational reconciliation cross checks each item to make sure the books match the stock.

Financial conciliation is a very different entity. After a discrepancy has been found, a company may need to consult an outside source to remedy the problem. This occurs when both parties of the reconciliation process believe their records are correct, and the other entity’s records are in error. This third party comes in to settle the dispute in good faith. Both parties operate with the intent of coming to a mutual agreement on good terms. 

While they may differ in concept, every business needs to have access and abilities to conduct these important protocols. For global entities, this is even more critical since more products, services, and transactions add up in a multitude of ways. It’s important for businesses to keep their books straight, and EBANX offers both operational reconciliation and financial conciliation services. 

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. 

Often consultants, solopreneurs, and freelance workers have their own accounting system that’s integrated with their work income. This can make finances messy, so using a financial platform that will help allocate expenses and income helps separate business and work money.  

Keeping books is important, but for an accurate process, businesses should establish a reconciliation protocol that works well for their needs. Best practices usually have a weekly or monthly reconciliation event. It’s much easier to recall newer transactions than old ones, which means it’s a simpler process to solve discrepancies. With more frequent audits the task will feel less cumbersome since there will be fewer transactions to reconcile. During review, make sure accounting is complete for a given vendor or customer. Long term projects may have payments that carry over into another pay period. 

Businesses should have a clear and available process for reconciliation to alleviate confusion and to set expectations throughout the departments. Make sure accounting teams are aware of active vendors and consumers, and create systems that utilize accounting practices like purchase orders to keep books as up to date as possible. Finally, be willing to modify processes to continually improve efficiency and accuracy. 

Due to its tedious nature, companies would do well to invest in digital platforms that can help with automation. With its attractive start-up culture, Latin America is prime for technological advancements in the reconciliation field. 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.