What is credit card reconciliation?

The process of credit card reconciliation consists of verifying the validity and integrity of the data held on credit card statements and comparing it with a business’ internal records.

Firstly, there is a comparison of the transactions on the business credit card with the records kept for these accounts by the company using the credit cards. Once this has taken place, the balances are verified. If the verification fails, this means the accountants or finance function need to carry out an investigation in an attempt to correct any errors.

The following article will look at what credit card reconciliation is and the importance of the process. 

Why is reconciliation important?

In reconciling your credit card transactions, you are ensuring that your record-keeping is completed accurately, giving you confidence in the integrity of your financial data. Furthermore, it demonstrates to any interested parties, including potential acquirers, investors and other stakeholders that your business is handling financial matters with accuracy. Accountability is also crucial here, allowing early opportunities to catch any errors or fraudulent activity. 

Understanding the process

Reconciliation is initiated when credit card statements are generated and received by a business, or once a financial period has closed. Accountants or the finance team will check through each transaction on the statement, reconciling it against the company’s internal financial systems.

This process is carried out both for payments that have been made on company credit cards, and payments received from customers. If there is a discrepancy, transactions are thoroughly investigated to ensure the differences are reconciled.

Going it alone

Smaller businesses may not be able to afford to contract an accountant to carry this operation out every month, so business owners need to be aware as to what they need.

In some cases, payments may not appear to have been processed in the first instance, meaning payments may be requested again. Only by diligently checking credit card statements at the end of the month can errors of this kind be uncovered and rectified. 

Similarly, if card data has become compromised at any point or fraud is being committed on your account, smaller amounts are likely to be stolen first to ensure that details are valid. Spotting unfamiliar transactions on a credit card and taking immediate action can stop fraudsters in their tracks.

How are discrepancies dealt with?

Transactions may be disputed with the credit card processor if there is an error in the amount of a transaction. Records might require amending in terms of date, time or item. Depending on the contract with your firm’s merchant services provider, the time in which a transaction can be disputed could well be limited, so speed is of the essence, as is the accuracy of the accounting systems and methods employed.

To improve future practices within the business, an audit trail of all issues uncovered, the steps taken to rectify them and the outcome of any actions taken should be kept and stored. This forms an integral part of your overall verification of financial data.

Software systems can take the strain

Technology can help companies that need to reconcile their credit card data but have neither the time nor available resources to complete this task every month. Credit card reconciliation software can automate the steps taken through the process, interrogating all statements and running them against the company’s financial data, identifying any issues. 

Automating this initial search dramatically reduces the time and attention required by accountants or finance staff to fix the errors, leaving them to focus on any investigatory work. 

In addition to an increase in the efficiency of the accounting function, reconciliation software can improve the accuracy of searches. Also, faster processing and turn-around time means that firms can benefit from greater success in chargeback requests.

Other features available in credit card reconciliation software include clear workflows to identify and track discrepancies, templates to help standardise the reconciliation across an organisation, and the storage of documentation.

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