In today's digital age, the use of credit cards for transactions has become more prevalent. This shift towards a cashless society has accelerated during the pandemic, causing businesses to experience an increase in credit card transactions. While credit card transactions may seem straightforward, the reconciliation process can be complex and time-consuming, particularly for fast-growing startups that rely heavily on procurement.
In this article, we will discuss the importance of credit card reconciliation for hardware-centric and procurement-heavy startups. We will explore how the reconciliation process works, the types of reconciliation, the importance of reconciliation, the challenges involved in the process, and how to simplify the process using accounting software.
One of the key takeaways from this article is that credit card reconciliation helps startups track their expenses on corporate cards and keeps their financial statements up-to-date. It also helps to ensure the accuracy of the general ledger and protects the integrity of the company's financial records, which is essential for third-party audits.
We will also discuss how automated accounting solutions can simplify the reconciliation process by digitizing receipts, automating data reconciliation, and using individual debit cards rather than shared corporate cards.
By the end of this article, readers will have a better understanding of the credit card reconciliation process and its importance for hardware-centric and procurement-heavy startups.
Key Takeaways
- A credit card reconciliation form helps track your procurement expenses against your general ledger
- Fast-growing startups face serious but avoidable challenges with account reconciliation
- Procurement software is the best integration for real-time account reconciliation for startups
- Digital receipts provide an easy accounting method and a source of future reference
- Credit card reconciliation process helps fast-growing start-ups to track expenses on corporate cards
- A reconciliation software notifies procurement team of any errors made by your bank
- The use of credit cards such as American Express makes it easier to do transactions in big company deals
What Is The Credit Card Reconciliation Process?
The credit card reconciliation process is when the finance personnel in a company cross-check the credit card statement against the general ledger. Like other financial reconciliation processes, it is how you verify the transactions.
Companies record transactions in the general ledger. And so, you must verify the credit card statement against the one on the general ledger.
If the statements match, you may close the books. Resolve any discrepancies between the credit card statement and the general ledger. Check for the persons who made the payments and why the transactions do not match.
A manual credit card reconciliation process is possible; it's hectic and less ideal. The manual reconciliation process takes time, and this is where accounting software comes in. We will discuss more on this later.
Most businesses close their financial books at the end of each month. Larger firms close their books each quarter (every three months), some at the end of the financial year.
Types of Reconciliation
Credit card transactions influence both incomes and expenses. Therefore, it is logical to have two types of reconciliation, namely:
- Credit Card Statement: The company must pay its bills, so it makes the payments for services or items using credit cards. The reconciliation process of the card is then done using your credit card statement each month. A credit card reconciliation process must be done for credit cards issued to managers or other staff members.
- Credit card merchant services: Some clients may make payments using credit cards, processed through your merchant account provider.
The provider is a mediator between the online gateway where transactions occur and the bank account. The reconciliation process of incomes is tricky compared to the expense side; but with little brushing, it is realizable.
The Importance of Reconciliation
The general ledger is the accountant’s reference when summarizing the company’s financial health. The ledger shows all the transactions within a specified period. It also plays a part in keeping the records accurate together with the balance sheets and income statements.
Inaccurate record keeping on the general ledger has a negative impact on company books in the end. Theoretically, an accountant may feed an incomplete or unexplained amount on the ledger just to keep it clean. But thanks to reconciliation, you stay updated and ensure that the business's financial status presents a true and fair view of the books.
The reconciliation process requires other vital documents to ensure the accuracy of the general ledger. Credit card statements and receipts are critical documents in verification.
Again, a company requires a properly-stated general ledger if a third party requests an internal audit. To protect the ledger’s integrity, you must carry out accounts and credit card reconciliation.
You may want to have a look at some of your team’s spending using the company's credit card, which is good. But, when more people have access to it, using the credit card reconciliation process can help monitor the expenses made.
Credit Card Expenses Reconciliation
- Receipts Collection and Organizing: Receipts are proof of your expenditures. You should collect, organize and keep them well for future use. Companies store receipts in different ways; some in digital form in excel sheets, and others use receipt scanners or files.
- Match the Expenses: Now, this can go well until you get mismatching transactions. To stop recurrence, compare each expense on the credit card statement with the one on the general ledger. One way is to use accounting software to match these transactions.
- Correct Errors: Where you get a mismatch of data, trace the root cause. Sometimes, your bank may make an error and so notify them to rectify it. The most common mistakes may be duplicate charges or charging failed transactions.
Challenges Involved In the Credit Card Reconciliation Process
- Shared Cards: Most corporate companies give their staff access to corporate cards, making it hard to trace the respective individuals responsible for producing incorrect transactions. To overcome this challenge, everyone should use their company card. Isn't this a great idea? But, each person having a company card means more reconciliation process, which is nothing with automated accounting solutions.
- Statement Dates: At times, the statement dates of your credit cards might not match with the month-end close process. Obviously, maintaining accounting books with mismatching data is not advisable if you fail to track expense after expense.
- Paper Receipts: In this day and age, when you need to reach out to customers, suppliers, partners, and other parties, your best option is an email. Not only do emails work faster than letters and faxes, but they are also easy to create and send.
Paperless transactions are possible and easy to implement. That said, it’s advisable to incorporate digital receipt systems. And ensure that anyone with access to the corporate card submits valid expenditure receipts. A digital receipt will always be present for easy accounting and future references. - Diverse Sources of Data: Most suppliers will send you an invoice, credit card statement, and a receipt. These three separate documents are vital, but they all show expenses. So, imagine practically taking each document and going through them all for one commodity. How long will you take to do the same for hundreds of other items in line? But with reconciliation software, you can merge all data and match the transactions.
Simplifying Credit Card Reconciliation
Card reconciliation is good for business. But how do you overcome the accounting challenges involved in the reconciliation process? The only way is to avoid credit cards altogether.
That does not mean doing every transaction by wire transfer. We suggest having an accounting solution that works just like a credit card.
Here are ways to make card reconciliation simpler and more effective.
- Automate Data Reconciliation: Use the software rather than overworking your finance team with manual account reconciliation. The software saves time and minimizes accounting errors during manual data matching.
- Digitize Receipts: Losing a paper receipt is easy, and this is your only proof of a transaction. After a credit card transaction, take a pic and upload the receipt to a system that your company can access.
- One card per user: A shared corporate card may encourage fraud. Instead, introduce staff debit cards with personal limits where you approve particular purchases. This will help you know who uses the card and how much they spend.
Learnings
In today's digital world, credit cards have become a popular mode of transaction, causing an increase in credit card transactions processed by businesses. Startups with a hardware-centric focus that rely heavily on procurement face unique challenges with credit card transactions and the reconciliation process.
Credit card reconciliation is a vital process that ensures the accuracy of a company's financial records by verifying transactions against the general ledger. The process involves matching expenses to credit card statements and receipts to protect the integrity of the company's financial statements.
The credit card reconciliation process is complex and time-consuming, especially for fast-growing startups that rely heavily on procurement. The process involves dealing with multiple sources of data, statement date mismatches, and paper receipts. As a result, startups need to simplify the process, which can be achieved by using accounting software.
Accounting software automates data reconciliation, saves time, and minimizes accounting errors. It also digitizes receipts, making them easily accessible for future reference. Startups can introduce staff debit cards with personal limits to monitor expenses better, and all expenditure receipts should be submitted for proper documentation.
Credit card reconciliation is a critical aspect of a startup's financial health. The process enables finance teams to track expenses on corporate cards and ensure that the company's financial statements are up-to-date. Startups can protect the integrity of their financial records by carrying out credit card reconciliation, which is crucial for third-party audits.
In conclusion, credit card reconciliation is vital for hardware-centric and procurement-heavy startups. The process ensures that the company's financial records are accurate and protects the integrity of the financial statements. Startups can simplify the reconciliation process by using accounting software and embracing best practices.
Frequently Asked Questions
What is credit card reconciliation, and why do startups need it?
Credit card reconciliation is like a superhero accountant that checks your credit card statement against your general ledger to keep your financial records accurate and clean. It's a must-have for any thriving startup because it boosts your business to new heights!
What are the different types of reconciliation for startups?
We've got two tasty flavors here: credit card statement reconciliation and credit card merchant services reconciliation. Just like choosing between chocolate and vanilla, both are equally delicious for your financial health.
Why is credit card reconciliation important for startup success?
Think of your general ledger as a treasure map. With reconciliation, you ensure that your financial books are top-notch, impressing potential partners and investors. It's the key to unlocking investor confidence and third-party audits.
How do I reconcile credit card expenses, and is it complicated?
Fear not, young entrepreneur! Reconciling credit card expenses might feel like playing detective, but we've got neat accounting software tricks up our sleeves to make it smooth as butter. You'll be matching expenses, collecting receipts, and uncovering any discrepancies like a pro.
What challenges might I encounter during the reconciliation process?
Keeping it real, there might be some road bumps in your reconciliation journey, like shared cards causing confusion or mismatched statement dates. But fret not, we've got clever solutions for each one!
How can I simplify the credit card reconciliation process?
Drum roll, please! Here's the grand finale – simplifying the entire process. Introducing staff debit cards with personal limits – a fantastic way to keep track of expenses and prevent any funny business. You'll wonder why you didn't think of it sooner!
How can credit card reconciliation benefit my hardware-centric startup?
Credit card reconciliation is the key to financial success for your startup. With the right tools, like accounting software and a little creativity, you can conquer any financial challenge and rock those startup dreams!
Any parting words of wisdom for aspiring entrepreneurs?
Embrace the power of credit card reconciliation, and your business will thank you later. Stay optimistic, stay creative, and keep on rocking those startup dreams! Remember to hit that like button if you found this video helpful, and subscribe for more money-smart content. Peace!
