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Payment reconciliation

Payment reconciliation is the process of comparing bank account and credit card statements (and more) with your internal bookkeeping records. The aim is to ensure that your own records match these statements, identify and correct discrepancies, and ultimately to have accurate company accounts.

Every month, quarter, and year, companies need to ensure that the payments recorded did in fact take place (money left the account), and that every transaction in the bank statement matches a purchase made by a team member.

How payment reconciliation works

Financial reconciliation has traditionally been a largely manual process. Your accountant or financial controller receives a paper or PDF bank account statement each month, and confirms that each payment made was accurately recorded (and approved) internally.

The simplest way to explain this process is in two parts: internal records vs external.

Internal processes

For the sake of this article, we’ll focus only on what happens after a payment is made. In fact, you need a clearly defined company expense policy to determine who can pay for what, under which conditions. Good controls here make a huge difference for your finance team.

Once the payment occurs, it needs to be recorded. This can happen in a few ways:

  • The spender or finance manager enters the payment and all relevant details in a spreadsheet. This is obviously highly manual, but for small businesses with limited spending it’s usually enough.

  • Using receipt collectionapp to create financial records from expense receipts. This is fast and efficient, but doesn’t work where employees forget to submit receipts or no receipt is collected.

  • Using spend management software that connects your payment methods directly to financial reporting software. The moment a payment is made, a record is created including the payer, the approver, the receipt, and the reason for spending. We’ll look into this further shortly.

External resources

The second step in the process is to compare the documentation created above with bank records. As noted above, this can be as (theoretically) simple as placing the two data sets side by side and validating that each matches the other.

This includes checking the amount spent, the vendor (not always clear from credit card data), the date (processing dates can be different from payment dates), and any other important information for your records.

But nothing is ever as simple as we’d hope, especially for finance teams. Reconciliation can take far longer than expected, thanks largely to a few key issues.

Challenges in the payment reconciliation process

A smooth payment reconciliation process is essential to good financial health. Not only is this a standard accounting practice that must be followed, delayed or overly complicated reconciliation makes it hard to make smart cash flow decisions.

Here are a few classic causes of issues.

Separate payment methods

There’s a key issue with the way that most companies pay for goods and services. They’ll often have a handful of shared company cards, make payments through bank transfers, and ask employees to file expense claims. Each of these is a different payment method with its own process, timeline, and statement format.

This typically leads to individual reconciliation processes for each payment method, which just adds time and complexity to the month end.

Limited access to data

Another challenge with separated payment methods is that data access isn’t uniform across them. For example, you may receive a credit card statement at the end of each month. But your team may not submit expense reports until the end of the quarter. And if you have credit cards with different providers, these likely have their own schedules.

When the finance team sits down to reconcile payments for a given period, they may not actually have all the information they need. Or just as crucially, they may have to reformat large amounts of data just to start the process.

Unclear paper trails

In a perfect world, the finance team merely needs to assess records side by side and validate what they find. But as soon as they spot issues, the real work begins. Suppose a payment is listed on the credit card statement but not in the internal financial records. The finance team needs to “find” this missing payment - a detective exercise that could take them all over the company.

This problem often arises from shared company credit cards. While one person might technically “own” each card, if the whole company uses it you don’t truly know who made each payment, or why. This is true both for in-store purchases and software subscriptions. Companies often have dozens or hundreds of tools with no clear owner and little record of why they were chosen in the first place.

Inadequate help from others

As much as you might love your teammates, not everyone is diligent and conscientious with company money. Humans always make mistakes, and you have to rely on others who don’t fully know or respect the process.

Key issues here include missing or inadequate information about payment transactions, unclear purchase orders, or purchases that haven’t been recorded at all.

It’s not anyone’s fault, but leaning on non-finance staff for important details usually leads to more work (and lots of conversations) further down the line.

And the simplest solution to all of the above challenges is good automation.

How to automatepayment reconciliation

As mentioned above, spend management software is the best account reconciliation tool available. Spendesk in particular provides better operational efficiency and ensures financial health.

The process is simple:

  • A team member requests funds for a purchase. Their manager approves, and the funds are instantly available. (Payments can also be pre-approved where appropriate.)

  • The employee makes a transaction in person, online (for e-commerce purchases or travel bookings), or creates a software subscription. They pay using secure credit or debit cards, an expense claim, or invoice automation (accounts payable) tools provided by Spendesk.

  • They immediately upload their receipt through the mobile or desktop app.

  • The finance team has a digital record by default, and can quickly check any unclear payments.

  • Thanks to integrations with accounting software and ERP, the general ledger is updated and all finance records are permanently up to date.

Because the payment methods (cards, expenses, and invoices) are included in the platform, there’s no need to wait for a bank or credit card statement. You already have a real-time record of all payments, and account reconciliation is essentially automated on the first payment date.

Streamline your payment reconciliation process

The true key to faster reconciliation is better integrations between payment methods and accounting software, and putting your finance team in control of the whole spending process.

Whether you’re tracking direct debits, accounts payable (invoice payments), cash disbursements, subscriptions, or one-off payments worldwide, you need to see it all in real time.

Spendesk controls all of your non-payroll spend from one central platform, connected via API to accounting tools like QuickBooks, Xero, Netsuite, or Datev. And because every payment is categorized and complete by default, you save days per month on payment reconciliation.

That’s what spend management is all about: operational efficiency, control, and visibility over spending.

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Last update: 2 February 2022