Your Guide to Credit Card Reconciliation

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If you thought that you had seen everything about the changes the COVID-19 pandemic brought to our lives, then you might be surprised to know that since 2021 businesses have faced a dramatic increase in credit card transactions. 

It makes sense, paying with a credit card is just simpler than getting a bunch of bills out of your pocket. This doesn’t mean however that your finance team doesn’t suffer a bit when it comes to reconciling credit card expenses. 

But what’s actually credit card reconciliation? And more importantly, how can we make it less of a pain at the end of every month?

Let’s discover it 

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What’s Credit Card Reconciliation?

In theory, it’s a simple task,  accountants only need to review the business’s credit card statements against the general ledger. If the information in both documents matches, then there shouldn’t be any problems. If by the contrary, what’s registered in the ledger doesn’t appear in any statement, then there’s a discrepancy that needs to be fixed immediately. 

Types of Credit Card Reconciliation 

It’s good to bear in mind that a credit card reconciliation can be related to the two sides of your business, income and expenses. Although we’ll be mostly focused on the expenses side of things, let’s review the differences between the two. 

Credit card statements 

Here, the information you review covers all your business expenses, that’s the money the company spends to buy products or hire occasional services. 

Credit card merchant services 

The opposite happens here, instead of reviewing the business expenses, it involves incoming payments that are delivered first to your merchant account provider before moving to your bank account. 

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Why Credit Card Reconciliation is Important?

Detects mistakes 

Mistakes happen, especially when processes are done manually, it could be something simple like a double charge or perhaps a bit more complicated like an erroneous transaction. Reconciling helps you catch these issues before they become too serious to handle. 

Fraud prevention 

And speaking about serious mistakes. Regularly checking your statements helps you spot unauthorized and potential fraudulent charges quickly, so you can take immediate action. 

Track your spending 

It gives you a clear view of where your money is going, which can help you adjust your budget accordingly.

Stay organized 

While credit card reconciliation might take some time invested from part of your team, it definitively helps on the long run to have a more structured approach to your finances management. 

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How to Reconcile Credit Card Statements

Collect your documents 

And by documents we mean receipts.They come in various forms and help you keep a clear record of what you’ve spent. Ideally you’ll have a record of the receipts of all the purchases that people in your company made with a credit card. 

To make life easier, companies often use expense reports to collect and store employee receipts. You can do this the traditional way with paper and Excel sheets, although you would be better off using an automated software. 

Compare 

Begin by matching each transaction from your credit card statement with the corresponding entry in your accounting records. Check off each item as you go. If a transaction doesn’t match, it’s time to review that thoroughly. 

Identify absent transactions

Next, look for any transactions recorded in your accounting system that don’t appear on your credit card statement. This could include pending charges or late transactions that fell outside the statement period.

Let your bank know about any mistake

Mistakes can happen, and while in most cases there won’t be any bad intention behin,it’s important for your finance team to stay vigilant. Make sure they’re quick to spot and report any errors to the bank.

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What are the Challenges in Credit Card Reconciliation?

Lack of accuracy 

How can you get an accurate report if your data is not precise? Well, that’s a problem for many financial teams. Even a single digit entered wrong or missed can deeply impact the reconciliation process. To fix that, additional time and effort needs to be invested in. 

Increased number of transactions 

Even if we were to live in a perfect world and nothing is missing, teams would be still struggling with a considerable rise in credit card transactions. The fact that credit card use is becoming more popular than ever is great news but remains a problem for your accounting department.

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Best Practices for Reconciliation 

Automate

Yes, credit card reconciliation might take some work but relying on automation makes things simpler. So why not consider investing in a good accounting software? This will automate transaction matching and simplify the whole reconciliation process. Many tools integrate directly with your bank accounts and credit cards, saving time and reducing errors.

Capture receipts 

To avoid creating a mess of information and missing documents later in the process, it’s a great practice to capture receipts the moment they are created. 

Nowadays employee cards come with handy mobile apps that can take a quick photo of the receipt right when a purchase is made. This way, you’ll have the document saved before it has a chance to get lost or damaged.

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Train your team 

If you have employees handling financial tasks, ensure they understand the importance of reconciliation and how to do it properly. A well-trained team can help manage the process with more efficiency. 

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Final thoughts 

At this point, you are probably more confident in your understanding of the importance of keeping your finances in check and the steps to do it effectively. Remember, regular reconciliation isn’t just a dreadful task, it’s a quite beneficial practice that helps you track spending levels and prevent dangerous mistakes. 

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