Credit Card Reconciliation Process

It is undeniable that almost everything in the world is moving from analog to digital. Nowadays, you would hardly find people using cash when it is absolutely unavoidable.

Recently, the pandemic pushed most companies to digitize faster by going cashless. Credit card transactions or payments via an app on the phone have since been the order of the day. Therefore, businesses are experiencing an increase in transactions processed using credit cards. 

Credit card transactions such as American Express allow customers to pay their bills. On the other hand, we can also pay our dealers and suppliers; this looks simple, right? Well, that isn’t the case behind the scenes. 

The reconciliation process involving credit card transactions is quite important. For smooth business operations, card reconciliation is vital. So, it would help to keep your financial statements up-to-date.

This article will discuss how the credit card reconciliation process works. We shall also look at how reconciliation software simplifies the process and the importance of having clean books.

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;

  1. 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. 

  1. 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

  1. 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.
  1. 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.
  1. 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

  1. 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.

  1. 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. 

  1. 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.

  1. 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.

Embrace Credit Card Reconciliation Process Today

The credit card reconciliation process is a critical part of your business. Streamlined procedures for your finance team let you know your company's financial position, empowering you to make smart decisions. To experience the joy of this accounting process, reach out to ControlHub.