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A Guide to Automated Credit Card Reconciliation

Posted on 04/01/2024

With credit cards being the second most prevalent method of payment (behind debit cards), it’s easy to see why credit card reconciliation is so important. Credit card reconciliation software is being used to automate credit card reconciliations as the number of credit card transactions increases.

In this post, we’ll cover everything: what credit card reconciliation is and the numerous forms, why it’s necessary, how to do it, and how your organization may enhance the process.

What exactly is credit card reconciliation?

  • What are the different kinds of Credit Card Reconciliation?
  • What is the significance of credit card reconciliation?
  • How do I balance my Credit Cards?
  • How should Merchant Services be Reconciled?
  • What are the difficulties of Credit Card Reconciliation?
  • How Can Credit Card Reconciliation Be Improved?
  • Credit Card Reconciliation: Improved and Simplified

What is the definition of credit card reconciliation?

Credit card reconciliation is the accounting process of reconciling credit card statements to the general ledger of a firm. The idea is to guarantee that both types of financial records are in sync.

If you find a mismatched line item, you must determine the source and correct the error. You may ensure the accuracy of your financial statements and the financial closing process by doing so.

What Are the Different Kinds of Credit Card Reconciliation?

Credit cards are used to both pay for and receive money. As a result, they influence the company’s revenue and costs. Let’s look at how they differ:

Merchant Services for Credit Cards

If you are a merchant who accepts credit cards from customers, your credit card transactions will be handled by your merchant account provider. This is the bridge between your POS hardware and your bank account.

It is critical to your bottom line that these transactions be appropriately recorded since they affect your revenue and inventories.

Consider this: you have a large number of low-value transactions from a variety of service providers. When this is the case, keeping track of all transactions, reconciling in a timely way, and scaling your operations become more difficult.

Finance teams may save time by automating reconciliations with the help of an automation system, while also improving accuracy and insights.

Statements from Credit Cards

Credit card accounts show payments made for products and services on the cost side. Credit card reconciliation involves comparing your company’s credit card bills to its general ledger balances.

What is the significance of credit card reconciliation?

Every kind of financial reconciliation is important to a corporation. The truth is that merchant service providers, banks, and accountants all make errors. Transactions may appear inaccurate if credit card reconciliation is not performed, resulting in incorrect financial statements after the fiscal closure period. This will surely have an impact on corporate choices.

Furthermore, credit card reconciliation may aid in the detection of fraud. As a result, doing credit card reconciliation continuously is beneficial. No accounting staff, however, has the time to do so regularly if they are expected to do it manually. This is particularly true when the number of transactions is significant.

Fortunately, financial automation software exists that can execute reconciliations automatically. For example, Velan’s powerful financial automation solution can handle credit card reconciliations as well as all other forms of account reconciliation, allowing your finance staff to focus on high-level planning and analysis rather than cross-checking statements.

How Do I Balance My Credit Cards?

The procedure for credit card reconciliation is simple in and of itself. The problems develop when transaction volume increases and accounting personnel are overburdened. Before we get into the issues and solutions for credit card reconciliation, let’s first go over how it’s done.

  • Data Collection: Gather the papers required for the reconciliation procedure. Credit card statements, merchant provider statements, and your internal chart of accounts may be included.
  • Data Comparison: Compare transaction and account line items side by side to ensure that all transactions are accurately recorded.
  • Data Correction: If you find discrepancies, you must determine why and correct them. It may include challenging purchases or contacting your credit card company to change their entries. If the mistake is internal, you’ll need to make changes to your journal entries.
  • Data Storage: Once the process is finished, you should securely save the data and actions made for audit reasons.

How Do You Balance Merchant Services?

While the credit card reconciliation procedure is simple when it comes to expenses, it gets considerably more difficult when it comes to merchant services or money.

The reason for this is that most merchant service providers will charge a fee for each transaction. This implies that sales records may not always perfectly match bank deposits since there is a charge to account for. One option to simplify things is to ask your merchant provider for a monthly charge rather than a per-transaction cost.

Furthermore, there are temporal issues to consider. For example, the cash for a transaction may arrive in your company’s bank account days after the consumer makes the payment.

Because the scheduling variations might cause havoc, your team may want to set up a credit card clearing account to handle it. Furthermore, you may be using many merchant service providers and managing a huge number of transactions.

This might be a problem if you’re attempting to stay up and develop. (Of course, the answer is to automate your credit card reconciliation procedure, which we shall discuss shortly.)

As you can see, the merchant side of credit card reconciliation isn’t as simple as it seems. It’s difficult to handle, and here is where financial automation software can truly help your organization run smoothly.

You may simplify and automate the transaction process so that your accounting staff isn’t mired down in the intricacies.

What are the Difficulties with Credit Card Reconciliation?

We’ve previously discussed some of the difficulties associated with credit card reconciliation, particularly those related to merchant services.

The following are some of the most typical roadblocks encountered throughout the process:

  • Distinctions in Timing

In an ideal world, a credit card statement would coincide with the end of the month. But, as you are aware, we do not live in a perfect world, and this is not always the case. Keeping track of credit card transactions to finish up the month isn’t always easy.

With automation software, all data can be gathered, saved, and reported automatically, ensuring that nothing goes through the cracks, even with statement timing variations.

  • Personal vs. Commercial Charges

Employees should not use corporate credit cards for personal purposes, but errors sometimes happen. These sorts of use cases may be overlooked if credit card transactions are not closely monitored.

They do, however, damage the company’s financial accounts; therefore detecting this sort of abnormality is critical for effectively managing a business’s finances. Automation systems may execute transaction matching quickly and effectively, flagging this kind of issue.

  • Volume of Transactions

Spreadsheets are very strong, yet they are time-consuming when transaction volume is large and rapid. It is inherently inefficient and error-prone. Companies, in effect, assume needless risks by employing spreadsheets to conduct key financial activities such as credit card reconciliations.

  • Chargebacks against Fraud

If a consumer challenges a credit card charge, the cash (together with any fees) may be removed from your company’s bank account. While this might occur for genuine reasons, it could also be a symptom of fraud.

These incidents or trends may go undiscovered due to manual credit card reconciliation, resulting in a much larger problem later on.

How Can You Make Credit Card Reconciliation Better?

You’ve probably figured out the best way to optimize your credit card reconciliation procedure and make your company work more smoothly by now. It’s software for credit card reconciliation!

Credit card reconciliation software may take data from a variety of sources, including credit card statements, bank accounts, and merchant accounts. The program then performs the transaction matching procedure automatically and flawlessly by comparing the data of each transaction and identifying any inconsistencies.

  • Saves time

The most significant and immediate result? Time-savings! Instead of performing it all by hand, your finance staff can focus on higher-value tasks since tools carry out the procedure.

  • Internal Governance and Transparency

While the process is running, it improves internal control and transparency by allowing stakeholders to monitor the progress of the reconciliation. Because credit card reconciliation usually needs permission, the approval procedure may also be automated.

Once the transactions have been matched and any discrepancies have been handled, the final result may be sent for approval to the appropriate party. Companies may decrease bottlenecks and complete these important operations in time to close the books this way.

  • Risk Mitigation

The credit card reconciliation procedure becomes uniform and compliant by automating it. In the case of fraud, firms can detect it before it spreads.

  • Reporting Precision

Velan automation solutions not only automate critical financial procedures but also help eliminate data inaccuracies. As a consequence, your team can be certain that their financial statements and reports are in top form since the data upon which the reports are based is accurate.

Credit Card Reconciliation: Enhanced and Simplified

What should be as fast as the pace at which you may charge your credit card? The speed with which credit card reconciliation can be completed is now a reality thanks to automation tools.

With the sheer number of credit card transactions, whether on the merchant or expense side, automation is the best answer. Automation will reduce your team’s effort, save time for everyone, and boost accuracy and efficiency. There are no drawbacks.

Are you ready to automate your credit card reconciliation? Request a call from Velan.




Topics: Accounting




About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

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