Today Indian merchants have enabled various payment methods like cards, UPI, wallet, net-banking, etc. other than cash, so that buyers can transact without any trouble. The merchants when paying the partners or suppliers, can pay through any payment mode. At this point, fraudsters can make their way to squander a ransom amount during both customer's and merchant payments. However, proper reconciliation assists the merchants in tracking their payment records with bank statements to identify any unusuality.

What Is Payment Reconciliation?

Payment reconciliation roughly means matching or comparing two sets of transaction records to ensure 100% accuracy. Yes, it is the traditional bookkeeping process that helps to point out the mismatches and irregularities in the transaction recorded by the merchant's financial system and the bank.

With proper reconciliation, merchants can easily understand fraudulent activities (like unauthorized withdrawals, and missing payments), payment errors (failed payments), etc.

How Does Payment Reconciliation Work?

Even though it sounds simple, payment reconciliation is a long and complex process involving many people for quite a long time (depending on data quantity for comparison). Below, we tried breaking down the process for easier understanding:

1. Data gathering both internal (from merchants like invoices, receipts, accounting software reports, etc.) and external (from bank/payment solutions like statements, reports, etc.) sources
2. Tallying the records (transaction ID, amount, date, etc.)
3. Detecting the mismatches (for example, missing transaction – open invoice –  no payment received, or deduction without a receipt)
4. Investigating and resolving these mismatches with the help of concerned people
5. Mentioning the reason/adjustment that clarifies the discrepancy
6. Verifying opening and closing balance
7. Preparing the reconciliation report
8. Reviewing and approval of the report

In short, 4 key steps for payment reconciliation are 1. Retrieving data or records from different sources, 2. Matching records, 3. Identifying and fixing discrepancies, and 4. Final report recording.

Here, matching the records, resolving the discrepancies, and preparing the reconciliation reports take the maximum time and effort.

Payment Reconciliation Types

Merchants can go for different kinds of payment reconciliations from the following list:

1. Bank reconciliation – Bank statements are matched with company’s transaction records – It is one of the most popular reconciliation methods.
2. Credit card reconciliation – The reconciliation officer matches only the statements of credit card transactions with company’s records
3. Cash reconciliation – Receipts of cash payments are matched with collection.
4. Wallet reconciliation – Transactions made through digital wallets are matched with external reports.
5. Account payable reconciliation – The reconciliation officer matches the supplier invoices, loan interests, etc. with the expenses of the company
6. Account receivable reconciliation – Income (in any terms) record of the company is matched with the bank records.
7. Payroll reconciliation – Wages, taxes, etc. are compared with bank records.  
8. Intercompany reconciliation – Payments to subsidiaries are matched with the bank details.

Why Is Payment Reconciliation Important For Any Business?

At present, many small to medium companies believe that they do not even need reconciliation as they operate on a small scale. But, discrepancy can creep in anywhere – in small, medium as well as in large enterprises. So, payment reconciliation serves a purpose and it holds huge importance for any business – here are a few to point out:

1. Fraud Prevention

Without reconciliation, the business owners may remain unaware of the discrepancies and frauds. Until the reconciliation officer matches the business transactions with bank or payment gateway statements, the transaction discrepancies (all irregularities and abnormalities) may remain unseen. Once these are identified, investigation starts and the bigger picture becomes visible. So, reconciliation is essential for a healthy supervision of the transactions.

2. Super-Fast Resolution of The Discrepancies

Payment resolution not only points out the discrepancies, but also aims at fixing the mismatches before submitting the final reports. So, it is a fast process where the company gets to know about the discrepancies, understands the cause, and finds a solution. 

3. Improved Cashflow

With proper reconciliation, business owners get the confidence that there are no monetary glitches. Also, they get a clear idea about their income and expenditure, hence they can make wise decisions on their future investments.

4. Audit Assistance

Payment reconciliation directly assists the future audit process. The adjustments in the reconciliation report help the auditor further in preparing the audit report and in managing future adjustments more efficiently.

Also, payment reconciliation benefits the businesses by:

1. Safeguarding the company from law penalties
2. Building stronger and transparent relationships with the partners and all stakeholders
3. Assisting the budget planning by presenting error-free income and expenditure reports 
4. Minimizing the burden on the business administrators
5. Identifying failed transactions and their causes

Payment Reconciliation: Best Practices

For healthy and organized transaction reconciliation, here are a few practices that business owners must follow:

1. Mandatory payment reconciliation at the month-end
2. Automate reconciliation for further accuracy and speed
3. Distribution of reconciliation responsibilities for a smoother process
4. Thorough documentation and wise approval from the reconciliation manager
5. Maintain a threshold till discrepancies are acceptable to prioritize the discrepancies that need immediate investigation 

Common Challenges In Payment Reconciliation

Some roadblocks to accurate payment reconciliation are:

1. The process is yet to standardize well – different entities use different methods to compare the records
2. Verified sources for resolving the discrepancies are low
3. Unnecessary delay that keeps postponing the final reconciliation report

End Words…

Right now, automated payment reconciliation is a hit because it waives the possibility of manual errors. Manual reconciliation is also very time-consuming; however, with automation, no matter, how large the dataset is, crosschecking it with the bank statements or payment gateway reports will be accurate and fast.

To help the merchants onboarded with PayG payment gateway, we offer the option to obtain accurate reconciliation reports in one click. You too can avoid the reconciliation miscalculations and errors by signing up with PayG.