Payment reconciliation: What exactly is it? And why is transaction-accurate payment reconciliation a good idea?

In a financial context «reconciliation» means matching – that much is clear. You can of course match all sorts of things though. In this article we define the term payment reconciliation/matching, explain what it means for your company, highlight the different types of payment matching (especially electronic payment matching) and clarify the differences between balance matching and transaction-accurate matching.

You’ll also learn how your company could make payment matching much simpler – saving you time and valuable resources in the process.

What types of reconciliation are there?

In principle there are very different forms of reconciliation. One well-known example is inventory: this is when the actual stock is compared to the accounting department’s stock list.

When we’re matching payment data we call it payment matching or reconciliation. In this article, we’re focusing on this payment matching (reconciliation).

Why is payment reconciliation so important?

Payment reconciliation is used for two different things: on the one hand, it is used in the sense of a control to check incoming payment flows and identify any discrepancies between the company’s own sales data (tracked by the tills or the webshop) and the data from external service providers (e.g. acquirer banks).

There is also a legal reason for payment reconciliation, however: all your company’s accounts (credit and debit) have to be reconciled for reliable annual accounts.

Why is payment reconciliation management a strategic issue?

Payment reconciliation is both a commercial and a legal obligation for companies. At the same time, it also takes up a lot of time and personnel, because matching payment data meticulously is a laborious task.

According to a study by PWC, reconciliation ties up 25 % of the resources in finance departments. 40 % of the total manual workload could be automated, freeing up the personnel for value-adding activities.

So it quickly becomes obvious why minimising the workload for payment reconciliation is an important strategic issue: companies can free up their employees, avoid human or technical errors – and save thousands of hours of work in the long term with intelligent automation solutions.

What does electronic payment reconciliation mean?

Strictly speaking, electronic payment reconciliation is a form of debtor matching , which affects retail companies in the consumer sector in particular. In this instance, the debtors are the payment service providers or the acquirers. Here, data for all electronic payments tracked by the tills is matched to data tracked and listed by the respective acquiring network. In short, you’re checking whether the data from different sources matches.

Electronic payment reconciliation presents companies with particular challenges due to its complexity. The amount of coordination required is often correspondingly high.

It’s not just about checking that all the transactions listed by the acquirer have actually reached the company’s own bank account. You’re also checking whether electronic sales, which were registered at the tills or in the webshop, match the payouts from the acquirer. It’s entirely possible for sales payments to be missing completely.

Why is electronic payment reconciliation particularly complex?

One reason for the complexity in electronic payment reconciliation is the time difference between the payments being made and the actual payments reaching the account.

Then there’s the fact that some payment providers work with collective transfers: this is when amounts for sales are collated within a certain period and transferred as one sum. The fees charged by payment providers also have to be taken into account with electronic payment reconciliation.

If a company has a multi-acquirer strategy, electronic payment reconciliation is even more complicated, because then different fee models, different transfer times and transfer methods all have to be matched. In these cases at the very least, intelligent software can substantially reduce the matching workload.

What is the difference between balance matching and transaction-accurate matching?

In electronic payment reconciliation we differentiate between balance matching and transaction-accurate matching.

Can you even use transaction-accurate matching for electronic payments?

As explained above, electronic payment reconciliation causes a particularly high workload for several reasons. If you want to use transaction-accurate matching on top of that, the workload for manual matching would be enormous.

The solution to this dilemma? Smart software solutions that automate electronic payment reconciliation – thus saving hours of work per month. Matchbox from treibauf is one such software for electronic payment reconciliation, which also facilitates analysis and control over electronic payments thanks to its integrated Payment Analytics Center.