Credit Card Reconciliation: Meaning and Process

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As the world transitions into a cashless economy with surging online payments, businesses enjoy easier incoming and outgoing payments than ever before. However, they need to be prepared for more complicated financial management, particularly reconciling credit card transactions. The rising business transactions across all industries using credit cards makes its reconciliation process more pressing due to the number of intricacies involved.

Credit cards are being used prominently by customers, especially the millennial population and businesses. The Indian credit card industry has recorded a Compound Annual Growth Rate (CAGR) of 23% in the last three years. The number of credit cards in use crossed the 78 million mark in July 2022. Talking about overall credit card spending, it reached its highest level at Rs. 1.14 lakh crore in May 2022, an increase of 118% over May 2021. Kotak Bank is one of the banks that witnessed the highest month-on-month M-o-M growth at 15%.

Here readers can understand the credit card reconciliation process, key issues, intricacies, and its importance for businesses for clean bookkeeping.

What is Credit Card Reconciliation?

Credit card reconciliation is a process of matching receipts and invoices with the credit card statement. It helps to know if all expenses on a credit card were indeed what has been reported..

In case of businesses, it ensures that entries are made in accounting records correctly and the transactions in the company's credit card statement match those in the company's ledger.
The reconciliation process of credit cards is done at the end of each month, quarter, and fiscal year.

Finance teams working on the credit card transactions have to make sure the expenses a business made are recorded correctly on both sides of the general ledger. If both sides are matched, the ledger is maintained accurately and the books for that period can be closed. If there are discrepancies, accountants need to find out the reasons for the same.

Why Credit Card Reconciliation Deserves Attention?

Credit card reconciliation is a part of the closing process in the bookkeeping system. Therefore, a second glance at a credit card statement before paying for it is advisable. It is vital because:

Identify frauds or errors: The process helps in finding out if there was fraudulent activity, or if there were any data entry mistakes.
Accurate bookkeeping entries for financial statements: A general ledger in the accounting system records every transaction that occurred in a given period. Accountants use it to prepare various statements. Altogether these statements reflect how financially sound a company is.
Audit ready: The banks have an audit-ready ledger as the audit process involves verifying that every payment took place in a business. It helps in reconciling your payments.
Avoid late fee: It enables the user, whether a company or an individual, to ensure that there is no. It makes tracking spending easy and helps avoid paying late fees by paying bills on time.
Keep a check on employee’s spending: Businesses using credit cards to pay for employees' purchases or those who reimburse their employees can keep a check on how and where the money has been spent.

Credit Card Reconciliation Process

Collecting and organising receipts: The first step is gathering all receipts and invoices related to credit card, as these are proof of expenses incurred. Companies prefer a centralised way to collect, store, and manage data in an accounting system instead of chasing employees individually. Digitisation facilitates effortless organising and searching through financial information.
Matching or cross-checking expenses with the general ledger: Organisations need to record each transaction, including credit card fees and interest amounts, in the general ledger. These steps involve matching each transaction with the recorded expenses in credit card statements.
Investigating discrepancies: Discrepancies may be found in transactions for purchases that were returned. It may be due to failed transactions also. Companies need to raise a complaint with their banks for disputed transactions.

Also Read: Buy Laptop at no cost emi with credit card

Potential Credit Card Reconciliation Challenges

Financial leaks

Many companies provide cards to their staff to check on spending. In most companies, they are passed around among the employees, which can lead to issues. It makes it hard to identify who paid for what. In case, during the process of reconciling your payment, the accountant finds any discrepancies in the ledger, tracking the source of the transactions can be challenging.

Diverse data sources

Credit cards are used for numerous corporate purposes, and those expenses via cards are supported by several documents. Suppose a company paid its vendor and supplier using a credit card. The expense proof includes the purchase orders as the accounts payable department needs to process them first and then collect a payment receipt to complete the transaction. Such separate data sources make it more complicated for accountants to look at to identify issues, if any.

Mismatched and unclear statement dates

Typically, companies close their books at the end of a given period; it may be a month for many accounts. Often, card statement dates do not match as they are issued after the end of each month, pushing the whole reconciliation process back. Also, the statements do not contain details for just a month; they may include some days or weeks from a different month as well.

Paper-based receipts

Relying on physical receipts and invoices for credit card expenses may be an inefficient way to process all of them. Also, it is easy to lose those extra, but essential documents for credit card reconciliation. It can be a big mess to submit them to finance and then match the card statement.

The Solution to Ease The Reconciliation Process

As the credit card transactions ramp up, manual reconciliation will become increasingly challenging. To ease the process of credit card reconciliation, companies consider one card per user, digital receipts, and automated reconciliation solutions. Leading banks help their corporate clients with e-collections offering using advanced technologies to manage collection and payments.

Also Read: What is Card on File Tokenisation?

How to get a credit card

Companies can initiate the corporate card application process online with a bank of their choosing. Considering the companies' financial needs, banks offer several credit card options to manage employee expenses.

Primarily, these options can be categorized as:

Individual payment cards
Company payment cards

Most of these corporate cards are offered with the feature of worldwide acceptance which helps ease employee’s transactions abroad and with emergency cash assistance. The credit card statement is generated in the name of your organization. Banks can offer various cards with benefits like high rewards points, cash back, frequent flyers, or many others.

Apply for corporate credit cards that benefit both employees and employers. Keep a distance between personal finances and corporate finances.