What is payments reconciliation?

Reconciliation is the process of cross-referencing payment records with accounting books to ensure accuracy and consistency while hunting for any errors and discrepancies along the way. This process is particularly important in the context of global workforce payroll payments.

The three main stages of payment reconciliation

There are three prime steps of payment reconciliation.

Reviewing transaction records: The first stage involves reviewing material like accounting records and bank and credit card statements. This is to make sure that all transactions have been properly recorded.

Spotting discrepancies: The second stage has to do with spotting discrepancies in the data. This can come in the form of duplicate transactions, discrepancies in account balances, and incorrect payment amounts or dates. Once all the discrepancies are spotted, they need to be solved. This involves reaching out to relevant parties, like banks and payment processors to get the information needed to solve the errors.

Verifying accuracy of records: With the discrepancies now solved, the next stage is checking that all transactions have been accounted for – comparing the company’s accounting system against the reconciled transaction records.

Four drawbacks of manual reconciliation

• Human error: Relying on humans only to carry out the reconciliation process can lead to missed transactions, misinterpretation of data, and data entry errors – in other words, reconciliation gone wrong.
• Risk for fraud and manipulation: Unfortunately, with human error comes the added risk of fraud, as the people doing the reconciling can either intentionally or inadvertently alter the accounting data or payment records.
• Lost time: Manual reconciliation input is a huge time drain, and even with time budgeted — delays are a given.
• Giving up quality for quantity: Companies with a greater number of payments to process will probably suffer most as a result of manual reconciliation, as these businesses’ finance teams may not be able to keep track of all the data.

Speeding up the reconciliation process

Speeding up the reconciliation process really comes down to a few basic actions:

Establishing clear procedures and workflows. Underlining clear procedures and workflows for your financial team to follow will create a smoother overall process and reduce time spent fixing communication problems.

Staying up to date with the latest best practices. Knowledge is constantly evolving and that means a constant stream of new facts and pointers you need to keep in mind concerning your reconciliation to-dos.

Relying on automated reconciliation tools. What’s the best way to decrease human error in reconciliation? Consider software tools specifically designed to automatically reconcile payments and integrate the data into your accounting systems.