Best practices for credit card reconciliation

Credit card reconciliation is crucial to a business’s financial management. It is critical for maintaining a firm’s financial integrity, preventing fraud, and complying with accounting standards.

Take Lori, for example. Lori owns a florist, taking orders online and over the phone via credit card, and her two employees each hold a company credit card. Up until now, Lori has taken each statement at face value, not questioning any small discrepancies on a monthly basis, choosing instead to complete a full year’s reconciliation at a time.

But when she begins the most recent year, Lori finds fraudulent transactions on the latest statement. And looking back on previous months, there are similar transactions throughout the whole year totaling thousands of dollars paid for by her business.

Failing to complete an accurate and thorough credit card reconciliation each month - or even quarter - has cost her thousands of dollars and several days of lost income while she cleans up the mess and creates a new policy to avoid falling foul again.

What is credit card reconciliation?

Credit card reconciliation is the process through which businesses ensure that all their credit card activity is accounted for by confirming that transactions recorded in their accounting system match the transactions captured in their credit card statements.

Typically, reconciliation involves matching receipts with the business credit card statement and categorizing expenses to confirm that all transactions match up with the statement entries, ensuring accurate bookkeeping.

Some key objectives of include:

• Fraud prevention. Regular assessments should form part of a business’s risk management framework, as they help a business to spot suspicious entries quickly and deal with them accordingly.
• Financial reporting. A report can be produced at each month’s end that shows how the business is performing. This is an integral part of the accountant’s work.
• Expense management. You can determine whether spending is sustainable, or whether their spending policy should be updated due to budget constraints.

How to reconcile credit card expenses

You should communicate with teams – especially credit card users – to ensure appropriate procedures are followed. These include:

1. Gathering documentation. Before reconciliation can begin, key documents should be collected and organized. Receipts – both physical and digital – should be quickly checked off against the statement, allowing any missing information to be identified quickly.
2. Checking for discrepancies. Categorize the transactions using credit card reconciliation software and note of any discrepancies so they can be reported.
3. Creating reports. A report is created and sent to the finance team or business owner for their review. The firm’s accountant can use these reports to evaluate cash flow and the business’ overall financial standing.
4. Obtaining approvals. The report is approved or declined by the business owner or accountant based on the supporting information.
5. Maintaining a secure record-keeping system. The business should always ensure that their records are kept in a secure manner to avoid tampering and errors.

Types of credit card reconciliation

Credit card expense statements

Credit card expenses are reconciled by comparing credit card statement transactions against expense receipts. Reports show how the card has been used and ensure all expenses are legitimate, within budget, and essential to the business.

Credit card merchant services

When a business accepts credit card payments from customers, these transactions are also reconciled. Reconciliation reports feed into overall income reporting.

Best practices for credit card reconciliation

It’s important for business owners to follow best practices when processing a credit card reconciliation. Failure to do so could result in uncertainty around the company’s financial position and/or an increased risk of fraud.

• Establishing a clear reconciliation process. Arriving at a confirmed reconciliation method may involve training employees in expense management tools, the policy itself, and the requirements expected of both users and processors.
• Keeping detailed records and monitoring transactions. This can include implementing a process where all receipts are uploaded by the user to a secure server within the business at the time of purchase, mitigating the risk of receipt loss, and reminding users of the importance of detailed recording. Keeping immediate records of the transaction’s category can also help to reduce the time taken on reporting each month.
• Reconciliation frequency. In most cases, this will be monthly, with a more intense focus at the end of each quarter and especially the financial year.

Keeping on top of a business’s finances requires the right tools, strategy and collaboration. PayPal’s expertise and range of solutions can assist in starting a business. Find out how to open a PayPal business account.