The global business credit card market is expanding at a rapid pace. According to a report by Allied Market Research, the business credit cards market was valued at $33.5 billion in 2023 and is estimated to climb to $59.9 billion by 2032, growing at a steady CAGR of 7% from 2024 to 2032.
The use of credit cards is rapidly increasing, and businesses are keeping pace. However, along with the numerous benefits of credit cards come some added responsibilities, one of the most crucial being credit card reconciliation.
Credit card reconciliation is a process businesses of all sizes must follow to ensure that each transaction made using a credit card is accurately recorded in their accounting records.
In this article, we discuss credit card reconciliation and how you can automate the process using credit card reconciliation software.
What is Credit Card Reconciliation?
Credit card reconciliation verifies that your business's credit card transactions recorded in the general ledger match those on the credit card statements. It’s essential for your company to verify transactions and ensure that both sides of the records align to achieve precise financial reporting, budgeting, and analysis.
The credit card reconciliation process involves comparing the transaction's amount, date, and description in both records. It ensures that financial records remain accurate and any discrepancies found are quickly corrected.
For instance, if the closing balance on the credit card statement of your company at the end of the month is $21,800 then the closing balance recorded in your company’s ledgers should also be $21,800. If somehow, that is not the case, both the transactions are analyzed carefully for errors and omissions and aligned to match.
The whole process of comparing both the records, analyzing discrepancies, identifying the reasons behind those and then finally adjusting the records to make them equal is what constitutes a credit card reconciliation.
Usually, the reconciliation process is conducted at the end of every month by the financial controller or accountant of the company.
Types of Credit Card Reconciliation
Businesses typically perform two types of credit card reconciliation. These include:
1. Credit card statements
This type of credit card reconciliation generally includes all your business expenses, which involves payments that your company makes to purchase goods and services. If your company issues credit cards to every employee, then their credit card statements also have to be reconciled individually. This ensures that all expenses recorded by your team are justified and accurately accounted for.
2. Credit card merchant services
This reconciliation type covers all incoming payments that your customers make using a credit card. This includes sales, returns, and related fees and it requires more effort to track these than expense tracking. It is essential to get a clear picture of your business revenue.
Why is Credit Card Reconciliation Important?
A well-maintained general ledger captures every transaction made by the company. The credit card reconciliation process guarantees that ledger entries align with actual transactions, which enables your business to evaluate your financial standing and make informed decisions. Credit reconciliation is important because:
- Maintains accuracy: Credit card reconciliation verifies that every credit card transaction is accurately logged in the general ledger, ensuring that stakeholders and investors can trust your company's reported financial health.
- Prevents fraud: It helps identify fraudulent and unauthorized transactions. This allows you to quickly investigate discrepancies and prevent potential financial losses.
- Detects errors: Reconciliation helps identify errors such as duplicate charges, missed payments, and incorrect transaction amounts.
- Manages cash flow: Clear visibility into expenses and incomes is essential for managing cash flow effectively. With reconciliation, you can ensure that you have enough funds to meet liabilities and allocate resources for future growth.
Steps to Reconcile Credit Card
To reconcile your company’s credit card transactions, you must first collect the necessary data in the credit card statement and the ledger for careful comparison. The next step is to analyze both the records to detect any missing entries or unauthorized charges which are then investigated and rectified. Lastly, any adjustments made to equate the transactions are recorded in a document.
Here's a step-by-step guide on how to conduct a credit card reconciliation for your business.
Step 1: Gather all data
Collect all statements, invoices, and receipts related to your organization's credit card accounts. Make sure that all the credit cards issued by the company to its employees are accounted for.
Manually gathering data from multiple sources can be quite challenging and time consuming. However the process can be greatly simplified using credible and reliable credit card reconciliation software like Osfin.ai. It can seamlessly import data from multiple sources, including Enterprise Resource Planning systems (ERPs), Payment Service Providers (PSPs), banks, and ATMs.
Struggling with complex data collection and integration? Try Osfin.ai now!
Step 2: Compare statements
Compare the transactions in the credit card statements with those mentioned in the company's accounting record.
Step 3: Find discrepancies
Analyze the transactions in both the records and check for any errors or omissions. These may include missing entries, incorrect amounts, or unauthorized charges that need further investigation and correction.
Step 4: Investigate and rectify discrepancies
Determine the possible reason for the discrepancy and rectify them. These could stem from failed transactions, refunded purchases, missing receipts, timing differences between transactions and postings, or even any fraudulent activity.
Step 5: Record adjustments
Verify that the ending balance on your credit card statement is exactly equal to the ending balance of your company's ledger. After verifying, record any discrepancies and necessary adjustments made in a document.
Challenges During Credit Card Reconciliation
The credit card reconciliation process comes with several challenges, especially when handling high-volume transactions, which can make it time-consuming and complex. Additionally, importing data from multiple sources adds another layer of difficulty. If employees share the company’s credit card, tracking individual transactions becomes even more challenging. Manual errors remain a persistent risk, further complicating the process.
Let’s understand these challenges in detail.
High transaction volume
If your business deals with numerous transactions, you can face increased complexity in the reconciliation process. Every transaction requires precise matching and verification which makes the process quite daunting for processing high volumes of data on a daily basis, particularly without automation.
However, with the help of Osfin.ai, you can reconcile multiple transactions in just minutes accurately and efficiently with the help of AI-driven automation.
Time-consuming
Reconciling data manually requires a lot of resources and time and tends to divert valuable personnel from strategic financial functions. Instead of focusing on high-impact activities, your financial team has to spend significant time matching transactions, identifying discrepancies, and making necessary adjustments.
Diverse data points
When a supplier invoice is paid via credit card, it generates multiple records—an invoice, a receipt, and a credit card transaction. While storing and accessing this data seems simple, the risk of errors and lost records increases without a centralized storage system, especially with high data volume.
Shared credit cards
To control spending, companies often issue a limited number of credit cards to employees. However, this leads to card-sharing, making it difficult to track who made each purchase. If discrepancies arise during financial closing, tracing the source of transactions becomes a challenge.
Manual errors
Manual reconciliation processes are susceptible to human error, whether during data entry or while tracking transactions. Such mistakes can lead to inaccurate financial records, which can cause financial mismanagement and challenges with decision-making within your company.
How to Automate the Credit Card Reconciliation
To overcome manual reconciliation issues, you can adopt automated credit card reconciliation, which is more efficient and quicker. It leverages the latest technologies like artificial intelligence (AI), robotic process automation (RPA), and machine learning (ML).
Automated reconciliation is performed by seamlessly integrating a comprehensive credit card reconciliation software with your financial systems. The software can help your business in the following ways:
Centralized dashboard
Corporate credit card reconciliation software consolidates credit card transactions from various sources into a centralized dashboard, providing a clear audit trail and enhanced visibility for finance teams.
Automated data entry
Automating data entry eliminates human errors from manually inputting receipts and statements. The software directly imports transaction data from credit card accounts into the general ledger and proactively scans for discrepancies. This takes less time and significantly reduces the chances of errors.
Real time data integration
Automated reconciliation systems use real-time data integration to sync financial transactions instantly from multiple sources like bank feeds and credit card networks. This ensures up-to-date, accurate records by reducing manual errors and flagging discrepancies as they occur.
Fraud detection
Automated credit card reconciliation software enhances fraud detection by continuously monitoring transactions, identifying anomalies, and flagging suspicious activities in real-time. These systems detect duplicate payments, unauthorized charges, and unusual spending patterns, helping your business prevent financial losses.
Regulatory compliances
These software help your company stay compliant with regulatory requirements by ensuring accurate financial reporting, maintaining audit trails, and adhering to tax laws. With built-in compliance checks and secure data storage, these systems reduce the risk of fraud, errors, and regulatory penalties, making financial audits smoother and more efficient.
Manual reconciliation is time-consuming and prone to costly errors and compliance risks. That's why it is essential to use an efficient and reliable automation platform like Osfin.ai.
Osfin.ai offers a powerful, automated platform capable of reconciling millions of entries within minutes, ensuring accuracy and efficiency in financial management. The platform imports data from multiple sources, leverages automated workflows, and delivers a robust end-to-end solution to enhance financial data processing.
Simplify Credit Card Reconciliation with Automation
Credit card reconciliation is a crucial process that safeguards the financial integrity of your business by ensuring accuracy in transaction records, detecting discrepancies, preventing fraud, and maintaining compliance with regulatory standards. However, the traditional reconciliation process relies on manual methods, which are time-consuming, error-prone, and resource-intensive. Leveraging specialized software for automated credit card reconciliation is the optimal solution for these challenges.
Osfin.ai is one such automated credit card reconciliation solution. This financial operations platform can help your firm seamlessly automate the reconciliation process with exceptional accuracy and efficiency. Moreover, it also provides real time visibility and lightning-fast processing speed by reconciling millions of entries in mere minutes.
Book a demo with Osfin and streamline your credit card reconciliation process now!
FAQs
1. What is a credit card reconciliation?
Credit card reconciliation is a process through which businesses verify and match their credit card statements with their general ledger. The process guarantees accurate accounting of transactions, identifies discrepancies, and corrects errors to uphold the financial integrity of the business.
2. How often should a credit card reconciliation be performed?
Credit card reconciliations should ideally be conducted monthly, as credit card statements are issued once a month. Regular reconciliation helps promptly identify and resolve discrepancies which ensures accurate financial records and a smooth cash flow.
3. What is the importance of credit card reconciliation?
By performing credit card reconciliation, you can identify errors, unauthorized charges, and missing payments in your company’s accounting records. This can ultimately improve the financial transparency and cash flow management and also help in informed decision-making.
4. What challenges are there in performing a credit card reconciliation?
The challenges in credit card reconciliation include data discrepancies, high transaction volumes, and duplicate or missing entries. Manual reconciliation is time-consuming, prone to errors, and makes fraud detection challenging. However, automating the process can greatly help in combating these challenges.
5. Who conducts credit card reconciliation?
The credit card reconciliation process is typically managed by the finance or accounting department of a company. Within these teams, accounts payable specialists or financial analysts ensure accuracy, detect fraud, and maintain accurate, up-to-date financial records.
