What is Reconciliation?

Typically reconciliation is a concept widely linked to accounting, being bank account reconciliation one of the most known and performed types.

Bank account reconciliation helps businesses match up the data in their accounting software with the data provided by their bank account, ensuring that the monetary values match for a specific date. If the balances are the same, there you go, the bank account is reconciled.

Depending on the type of business you are running, you might have to go through other reconciliation processes, including vendor reconciliation, customer reconciliation, or intercompany reconciliation.

Reconciling your company’s accounts regularly allows you to have a better grasp of the amount of money your business has on hand. From double payments and computing errors to fraudulent transactions, there is a wide range of issues that could compromise your accounting records' accuracy.

Payment Reconciliation

When it comes to payment reconciliation, the process brings a few extra challenges. Payment reconciliation is a form of bookkeeping that involves comparing batches of payments and other transactions or invoices and accounting records against payouts you receive in your bank account to ensure everything matches and that there are no discrepancies.

In this process, you need to make sure that the payments you receive and perform are in line with the bank statements and the information coming from your payment providers. That includes transaction fees, service fees, and rejected or outstanding payment amounts not yet cleared by the financial institution.

The reconciliation process might be reasonably straightforward for smaller businesses, where customer data and funds are communicated from fewer sources and banks. But if you are running a scaling company or an already established global business, with various bank accounts and payment methods in different countries and currencies, you have more sophisticated payment needs.

This setup requires more advanced reconciliation processes that can become complex and time-consuming when performed manually and solemnly through spreadsheets.

The advantages of automatic reconciliation

Many companies are still doing reconciliation manually, having to undergo a series of labor-intensive activities. The financial teams need to handle and analyze bank statements, sales records, invoices, and cost statements that are presented in the most diverse formats. Even for a small business, this can represent hundreds, or even thousands, of transactions every month.

Ensuring that the items are all coherent in the different documents for both incoming and outgoing payments takes time and opens the door for the fated human error.

The advantages of having an automated reconciliation process include the following:

Produce optimal records in real-time.

When businesses don’t reconcile payments quickly enough, the month-end and year-end closing used to generate financial statements can be delayed. If payments reconciliation is out of control, financial records and financial reporting could be erroneous.

Automatic reconciliation systems allow you to apply business rules more consistently and monitor your financial operation in real-time. As a result, financial records become more accurate and are continually updated for analysis.

Save on time.

Automation helps to produce results at a faster pace. The number-matching and item-matching software work through the reconciliation process quicker than any person can manage and without tiring eyes missing a problem along the way.

Focus on exceptions.

Automating reconciliation processes leaves you more time to analyze the potentially problematic transactions. It allows you to identify and handle errors or missed and unexplained transactions much quicker, rather than going over every single transaction that passed through correctly.

Manage cash flow processes.

When payments aren’t timely reconciled, managing cash flow processes becomes more challenging to handle and might cause a delay in the revenue to be cashed in the organization.

Spot and chase overdue invoices.

Late payments have a significant impact on your cash flow management. With automated reconciliation, you can quickly identify invoices that do not have a payment match on your bank statement and promptly follow up to amend it.

Recover lost revenue.

When making your reconciliation processes automatic, the time you save helps you identify wrongly rejected payments and follow up with the respective financial institutions more rapidly to recover the value of failed transactions.

Get fee breakdowns.

Automated systems can disclose the amounts processed, refunded, and disputed. You can have complete visibility of your payments at an action level and specify the gross processed amount, any deducted fees such as interchange, scheme, chargeback, or other service fees — ultimately, it allows you to figure out your net processing revenues.

Automated reconciliation can cut down on mistakes and ensure that your reconciliation operations deliver consistent results. It helps you handle a higher volume of data than people can, meaning that you’ll see consistent performance regardless of the number of transactions you’re attempting to reconcile.

Plus, it can keep skilled employees from spending too much time on admin-heavy activities allowing them to develop their talent in more core business activities.

Reconciling payments with multiple providers

Reconciliation becomes even more challenging when your business relies on multiple payment providers with different reporting structures.

Switch developed a reconciliation engine that processes transaction statements from different sources and formats sent from multiple providers.

Whether the data is available in a CSV file, XLM, Excel, or API call, Switch publishes settlement events that automate and simplify the monitoring process since the information is easily consulted on the Switch Dashboard.

Switch Reconciliation makes it easier to better control unit costs and spot fee inconsistencies of millions of transactions. With this, businesses know the commission variations across providers, markets, and payment methods.

You can keep track of settlement schedules directly impacting working capital and generate custom reports based on your needs and timing, having a detailed overview of your business’s financial activity.

With Switch Reconciliation, we uncovered a gap of €150.000 between the funds processed and the ones settled in a client company. After reaching the payment provider, the company recovered its funds.

The Switch Reconciliation empowers your team to perform reconciliation processes quickly, efficiently, and accurately, reducing the stress and unnecessary efforts conducted by the financial staff.

Do you want to learn more about automated processes for reconciliation? Reach out to us to know how the Switch Reconciliation application can help you.