Understanding Payment Reconciliation from Capture to DepositPayments 101

Understanding Payment Reconciliation from Capture to Deposit


Last Updated on March 22, 2024

From small operations to multinational corporations, payment reconciliation is an incredibly important step in the overall payment processing landscape. Properly reconciling your payments ensures that all incoming payments are accurately recorded and deposited into your business’s bank accounts. Additionally, it is an essential aspect of assessing the efficiency and accuracy of your payments operations.

In this blog post we’ll provide you with an overview of what payment reconciliation entails so that you can ensure a successful process for each transaction moving forward.

What is Payment Reconciliation?

Payment reconciliation is an essential component of financial management that ensures the accuracy and integrity of your transaction records. By comparing financial data from different sources — such as your bank statement and accounting software — you can identify and correct any errors or discrepancies before they become bigger issues.

In the world of payment processing, reconciling your transactions can save you time and money while helping you make better-informed business decisions. Although it may not be the most thrilling task, taking the time to reconcile your payments can make a significant difference in the financial health of your business.

The Reconciliation Process

The payment reconciliation process starts with understanding all data sources in your payment stack and how each source can affect the flow of a payment transaction. There are a variety of data sources between capturing a payment and depositing into your bank account. In most cases, the payment flow includes at least:

  • a point of sale (POS)
  • a payment processor
  • the merchant bank account

The more data sources you have, the more points of reconciliation you will need. For example, some businesses may utilize a POS that feeds directly into the payment processor. You would need to reconcile records between the POS system and the payment processor.

In other cases the POS might connect to a gateway which then passes payment information to the processor. This means you would want to reconcile the POS system with the gateway and the gateway with the processor.

It is in your business’ best interest to reconcile records at every point where payment information is exchanged. This includes integrations to back-office software that communicate directly or indirectly to your payment processor.

Reconciliation Challenges

At each step or a payment transaction, there are nuances that could make reconciliation difficult. Records from your POS system, payment gateway, or back-office software may not match your payment processors records for any of the following reasons:

  • Connectivity issues — Nothing is 100% reliable. Systems go down and transactions can be missed or improperly recorded on either the business or processor side.
  • Blocking by fraud toolsFraud protection is extremely important for keeping your business and customers safe. However, transactions blocked by fraud may show up in the POS but will not end up in the final ACH deposit.
  • Voided transactions and errors — These issues typically happen on the business’s end of the transaction and may not show up on the processor’s records.
  • Gateway failover — While using multiple payment gateways is a smart decision in many situations, it can also cause discrepancies in records between your business and your processor.
  • Alternate transaction methods — If your business runs a transaction through your website, but then refunds that transaction through your call center, the records may show up differently.
  • Formatting differences — Different systems format transaction information in different ways. For example, one system may truncate card information using Xs, while another system may use dots. The difference in formatting can make it more challenging to reconcile transactions.
  • Mismatched dates — Dates may not match due to the time zones of the different systems or because of the lag between different steps in the payment flow.

Additionally, your payment processor’s records may not match your bank statements for the following reasons.

  • Transaction grouping — Processors typically group transactions into batches. The timing of the grouping could include unusual cut-off times that don’t match your records. You may sometimes see unusual groupings if refunds exceed sales for that batch.
  • Chargebacks and fees — Chargebacks and other fees or adjustments may be taken out of your ACH deposit or may be debited separately depending on the processor.
  • Third-party funds — Third-party funded transactions (e.g. American Express or Discover) may be deposited into your account separately.
  • Merchant account reserves and holds — If you have a reserve or hold on your account, the processor may hold your funds (or portions of your funds) for a specified time period before they are deposited into your bank account.

Tips for Effective Payment Reconciliation

Keeping track of financial transactions can be a daunting task for any business, but payment reconciliation is an essential aspect that requires your full attention. To ensure that your financial records match up with your bank statements, it helps to have information that makes each transaction unique.

The same card holder can make multiple transactions for the same amount on the same day. This means you should not rely on the combination of card number, amount, and date alone. Adding an order ID, transaction ID, and/or authorization code can help. Always check the uniqueness of each transaction before you attempt to reconcile it with other records.

To keep your records up-to-date, you should also consider the following tips:

  • Automate reconciliation with accounting software to speed up the process and reduce the risk of human error.
  • Regularly review your bank statements for any discrepancies or missing entries. This will help you identify and resolve any issues quickly.
  • Be meticulous with your records by organizing and maintaining them properly.

By following these tips, you can ensure that your payment reconciliation process is efficient, accurate, and stress-free.

Best Practices for Streamlining Your Payment Operations

Reconciling your payments is only one part of running a successful business. There are also several best practices you can adopt to streamline your payment processing operations, such as:

  • Implementing an automated dispute resolution process.
  • Ensuring that customer information is securely stored and updated regularly.
  • Integrating with third-party payment solutions to reduce manual data entry.

By embracing and following these best practices, you can ensure that your payment processing operations are secure, seamless, and cost-effective.

How to Monitor and Adjust Your Payments Strategy Moving Forward
Payment reconciliation is an important process, but it’s also just one part of the larger picture. It’s essential to create a payment strategy that not only utilizes the right payment partners and technology, but also encompasses the following strategic components:

  1. Connectivity — Expand into new markets with access to a global network of processors and gateways.
  2. Security — Protect your sales and customers by preventing fraud and reducing chargebacks.
  3. Recovery — Save lost sales and reduce decline rates.
  4. Adaptability — Keep your payment stack modern with access to new technologies and connections.
  5. Control — Avoid gateway lock-in by controlling your data and tokens.
  6. Optimization — Utilize automation to minimize operating costs.
  7. Redundancy — Create contingency plans for declined transactions, gateway outages, and processor disputes.
  8. Optionality — Command your payments destiny by maintaining gateway and processor choice.

With a long-term payment strategy in place, you’ll have increased ability to monitor and adjust your approach over time. Be sure to:

  • Track key performance metrics, such as chargeback rates, approval rates, and payment processing fees.
  • Perform regular audits of your customer data and financial records.
  • Evaluate and implement new industry trends or technologies.

By proactively monitoring and adjusting your payments strategy, you can stay ahead of the curve and make sure that you remain compliant with industry regulations. This will also help reduce risks and ensure that your business operates at its full potential.

Final Thoughts

Payment reconciliation is an essential process for any company managing financial transactions. The right payment strategy can have many benefits, but achieving these benefits requires a solid understanding and implementation of best practices. Automated reconciliation systems can make the process far more efficient, ensuring accuracy while saving time and money. To get the most out of your payment operations, it is important to monitor, adjust and refine your processes as needed.

Contact Nexio today to learn how our payment strategies help companies streamline their operations while providing ease of use, convenience and security. With our excellent support team ready to assist you in every step of the way, you can rest assured that we will provide the high-quality performance necessary to meet all your payment needs.

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