Rethinking the Necessities of Reconciliation (Part 1)

Maximize the Value, Minimize the Effort

The customer facing side of the payment process is often prioritized over the quieter, more mundane back office processes. On the front end, it’s all about mobile apps, speedy authorizations, and headlines related to payment card security. The back office processes like settlement and reconciliation are less glamorous but just as essential. Of course it is; it’s what puts the cash in “order-to-cash”!

Depending upon your transaction volume, the reconciliation effort can represent significant costs as well be prone to human error. Additionally, you run the risk of downgrades and fees if not completed in a timely manner. However, there is hope! Done properly, reconciliation can be automated, reducing the time, cost, and risk to your organization.

Let’s start by considering a single day of transactions that result in a settlement file totaling sales of $1000.  At the end of the business day, this file is cleared through your current processor. Your goal is to close the related items in AR.

Most finance staff would start by downloading the following two items:

• AR report listing current open items (invoice or receipts)
• Summary of daily transaction details from their depository bank

Now what? One approach might be to sum up open items and compare to the net deposit amount in the bank statement. I would wager that those amounts would not be the same due to processing fees.

Or you might download the “cleared” items from your processor and use that list to compare to open items in AR. But since the AR report contains open items from several days (or weeks) ago, how could you possibly match the exact referenced item?

The challenge is that the open items in AR and the daily deposit from the bank both represent “sliding windows” of activity. Neither is a clearly defined snapshot of what happened yesterday. Rather, each is a snapshot of the results of what happened in the days leading up to yesterday. A significant difference, to say the least!
This constrains your back office staff to one of the less desirable options described above. To make matters worse, the finance department has no transaction detail and is simply trying to compare transaction amounts with bank deposits. But since fees, penalties and interchange have been netted out of the deposit, the task is near impossible. They resort to rounding to the closest item—not the most precise method of reconciliation.

Most ERP applications, like Oracle and SAP, cannot accept a deposit file from your processor without enhanced middleware or customizations to the application. However, service providers like CardConnect can extend the capabilities of your application and automate reconciliation for you. When properly implemented, your Oracle or SAP system can perform the following:

1. Retrieve the deposit file from the processor
2. Map banking reference numbers to invoice or receipt numbers in AR
3. Match the deposit details to open items in AR
4. Close the associated items
5. Stage journal entries for processing to your General Ledger (GL)

And what about your Open Items report in AR? No surprise that most if not all items have been updated to a “Closed” status. And for those that remain at “Open” (or “Remitted”) status, the number is greatly reduced. Now you’re managing only the exceptions!