In the current world of digital payments, a lot has changed in terms of sending and receiving money. The adoption of digital payments is also showing up in the rise of such transactions. The number of digital payment transactions across India in the FY 2021 stood at 43.71 billion – a 3X increase from 14.59 billion in FY 2018.
While these numbers talk about the bright side of India’s payment ecosystem, there is one aspect that often gets undermined – payment reconciliation.
Payments are the heart of every business. But it’s cash flow and financial details that act as a brain to keep everything in order. Keeping track of income and business-related expenses is essential for growth and maintaining good financial health.
Here, we will cover the fundamentals of payment reconciliation to help you manage things in a better way.
What is payment reconciliation?
Payment reconciliation refers to the process of comparing financial records with bank statements to ensure accurate accounting. It helps verify the account balances to ensure all sets of data are accurate and up-to-date.
In other words, payment reconciliation is a way to keep track of business expenses/income to ensure that the internal financial records match all the external statements you receive from banks or vendors.
As a business owner, it is up to you to decide if you want to reconcile your account on a daily, weekly, or monthly basis to detect discrepancies, fraud, or balance sheet errors if any.
How does the payment reconciliation process work in general?
The payment reconciliation process unfolds in two stages – external and internal. Let’s find out more about these stages.
Internal reconciliation
It includes recording a transaction (payment or billing) in different ways, like using accounting software, saving receipts, or maintaining a spreadsheet of payment records. The right choice of internal payment reconciliation method is crucial as there is a high degree of risk involved with manual paperwork.
External reconciliation
When payment transactions are processed, the banks also record the activities and pass them on to the business in the form of monthly statements.
As a business owner, you can cross-check the statements with internal records and deal with errors – both external and internal, when detected. Ideally, you would want the total amount coming in and out as per internal records to match the entries in the external records.
Recommended Read: Impact of Real-Time Settlements on Business-related Payments
Most common payment reconciliation pitfalls to avoid
- Chasing late payments that ultimately leads to misalignment between the internal and external records
- Not having a clear idea of which customers or vendors have delayed the payment
- Not having a centralized source to keep the financial records, which makes it difficult for you to jump on disjointed sets of information
- Irregular payment reconciliation
Why do you need to reconcile payment transactions regularly?
Many business owners think of payment reconciliation as just another chore on their regular to-do lists. Ideally, it should be considered as a crucial process to maintain compliance and cash flow.
Given below are three primary reasons why your business should reconcile payments periodically:
To uncover errors and unauthorized transactions
With periodic payment reconciliations, you can stay in tune with the business-related finances, thereby finding it easier to catch errors sooner and ensuring a faster resolution. It will also help you detect security breaches and unauthorized transactions that can otherwise result in the loss of millions of rupees.
To get paid on time
One of the core pillars for every business is to get paid on time to minimize the chase for unpaid invoices and late payments. With regular payment reconciliation, you can keep a track of missed or late invoices and follow up on the same for timely settlements.
To maintain the accuracy of business’ financial records
Accurate transactional records are vital to stay on top of the financial health of your business. With timely reconciliations, you will find yourself in a better position to make informed business decisions and demonstrate the financial standing to investors or lenders whenever needed.
Types of payment reconciliation
Payment reconciliation meaning and the process followed may differ from one type of business to another in terms of complexities involved and types of payment transactions. In general, there are five types of payment reconciliation:
- Bank account reconciliation
- Credit/debit card reconciliation
- Digital wallet reconciliation
- Real-time automatic payment reconciliation
- Global currency reconciliation
Payment reconciliation best practices
The primary payment reconciliation meaning is to contribute to the profitability and growth of your business. Keep in mind the following best practices while reconciling records to maintain cash flow:
Maintain an optimum frequency to reconcile records
If you do not want to trawl through truckloads of financial statements by the end of a financial year, opt for a higher frequency of reconciliation. You can do it once a week or month at least to keep things under control.
Automate the reconciliation process
Since the manual process is more prone to human errors and inconsistencies, a better way to deal with this is to automate it with the help of third-party software. You can invest in software that can integrate with your current transaction reporting systems to boost efficiency.
Select the right payment gateway to collect payments online
A reliable payment gateway allows you to collect and reconcile payments automatically, thereby reducing the additional effort required to do the same.
Risks related to payment reconciliation
- Loss of accuracy in reconciling payments from multiple accounts
- Fraudulent payments
- Delays in payments to suppliers and vendors
- Affected cash flow management process
- Delays in issuing or obtaining periodic financial statements
Switch to Paytm Payment Gateway for automated payment reconciliation
For your business, you might be accepting payments through different payment options, be it credit cards, debit cards, or others. If you use a payment gateway, you must have opted for batch settlements for a particular period. The settlement cycle follows as per the integrated payment gateway and can result in delays for two to five days in some cases. Then, there are separate timelines for chargebacks and reversals, which can further complicate the reconciliation process.
Looking for a solution to simplify the payment reconciliation process? Switch to Paytm Payment Gateway and benefit from its automated settlement reconciliation system. Its intuitive and all-inclusive merchant dashboard helps in reconciling payments from different payment options in one place.
Some of the best features of Paytm Payment Gateway for payment reconciliation include:
- Powerful settlement API that helps map/match every transaction with the amount received in your bank account
- Settlement dashboard with advanced reporting features
- SMS notification features for keeping a check on the payment received
- Individual transaction status update (successful, failed, or pending) to manage payments and resolve disputes if any
For more information, click here.
