The risks of inaccurate financial reporting include penalties, fines, legal action, reputational damage, poor operational decisions, economic loss, and even bankruptcy.
Part of ensuring accurate financial statements is performing credit card reconciliation. In this article, we will review what the credit card reconciliation process includes, and ways to make it smoother, including reconciliation automation.
Introduction to the Credit Card Reconciliation Process
Every company requires clean books.
Good accounting isn’t just important for a profitable business – it’s also legally required. However, it can be the source of much confusion and eats into companies’ valuable time.
And of course, we mustn’t forget the one task that unites all financial teams in misery: credit card reconciliation.
This is a process wherein accountants check credit card statements against the general ledger (GL). Every company transaction exists in the GL, and you will have to ensure that the information on the credit card statement matches what is in the GL.
If the GL and statement match, the books can be closed. However, if there are discrepancies (and there often are), you will need to resolve them by finding out why there is a mismatch and who made the payment.
Accountants depend on the GL to gauge the company’s financial health. General ledgers can be affected by incorrect information or fraud, which can make the books seem worse or better than in reality. Reconciling credit card transactions is part of the system that helps to make sure everything is right.
Credit Card Reconciliation Challenges
In a world where accountants aren’t mildly traumatised at the end of each month, GL accounts and credit card statements would always match.
The controller or accountant would simply close the books after scanning through them, or a reconciliation automation software like CrushErrors would do it for them.
Unfortunately, it’s not that simple. Here are some of the key challenges in credit card reconciliation:
Separate data points: Separate data sources due to separate payment methods lead to more places for controllers to look. For instance, take software subscriptions. The invoice comes from the supplier, the payment comes through the credit card, and so on.
Physical receipts: Paper receipts are just extra documents that can easily be lost. If there are any issues in reconciliation, they will be much harder to resolve, especially as time goes on.
Ambiguous statement dates: Ah, one of those beloathed quirks of banking that have no place in modern life. Generally, the books are closed at the end of a given period, usually the month. Yet credit card statements are often issued after the end of the month. This forces you to push back the reconciliation process and close the books later.
Shared company cards: In many companies, especially if they are growing, credit cards are passed around fairly casually. This makes knowing who to turn to for discrepancies difficult. For instance, if receipts are missing, who will you go to first?
How to Streamline the Reconciliation Process
1. Don’t Manually Reconcile Card Spends
Don’t make your teams waste time in manually verifying, inputting and approving business expenses. Unfortunately, due to human error, fraudulent or duplicate entries may still slip by.
You can mitigate the worst of the risks by using automation software that virtually extracts transaction details from the receipts.
2. One Card Per User
Shared company cards are both inefficient and fraud risks. The many users make it difficult to know who is spending on what.
But everyone having their own card can be risky as well – if everyone can access credit, you may just find yourself staring at a mile-long bill at the end of the month.
A solution to this is employee debit cards, which have limits and are assigned to individual employees. Purchases and changes to limits can be approved by managers or the CFO.
Since each payment is logged in real time, you’ll always know who is spending on what.
3. Reconciliation Automation
Using debit cards is one aspect of removing paper from finance processes.
The other, bigger one is reconciliation automation. There’s no need for your financial team to hold paper credit card statements against laptop screens or go through spreadsheets line by line.
You can use reconciliation automation software, or hire an accounting company like NextGen that uses such software. Either way, you’ll save hundreds of hours in the process.
4. Digitize Receipts
Often, receipts are the necessary puzzle pieces needed to verify transactions. And paper receipts easily get lost in the daily hustle and bustle of work. One solution is for people to take a photo of each receipt and uploaded it into a centralized company system.
5. Real-Time Credit Card Statements
It can be frustrating to work with delayed card statements. To avoid this, you can compile card spends in a single, up-to-date dashboard that is accessible at any time. You’ll be able to see the payment, receipt, supplier, and even rationale by the spender.
Conclusion
The reconciliation process is a crucial part of running any business. However, it can also be tedious and error-ridden.
To take the burden off your shoulders, NextGen Accounting offers credit card reconciliation services, bank reconciliation services, reconciliation automation, financial consulting, financial reporting, and audit and anti-fraud assurance. Our services are specially tailored to firms with vast amounts of data that are extremely difficult to reconcile.
To give you the fastest and most accurate reconciliation, we use our patented software CrushErrors, which you can also obtain as a product if you’d rather conduct reconciliations in-house.
NextGen Accounting’s management team has decades of experience and includes former executives of Barclays Bank, Bank of America, and ICBC. Contact us today for reconciliation solutions or book a free demo if you’d like to get CrushErrors!
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