E-commerce accounting: What is a clearing account and why do you need one?
Kaci Carson
September 26, 2023
If you’re an e-commerce business owner, you may be familiar with clearing accounts. The clearing account reduces accounting errors and can even prevent fraud in some cases. When you separate funds into a dedicated account, you gain control over your business’ transactions. This enables you to make well-informed choices concerning strategies for business growth.
By comprehending clearing accounts, as well as learning how to establish and manage it efficiently, you’ll be set up for success. That’s why in this article we’ll take you through everything you need to know about clearing accounts for your e-commerce accounting.
What is a clearing account?
The definition of a clearing account is a temporary holding place for undeposited funds made before they get transferred to the correct accounts. The clearing account exists in your accounting software as an account for these funds that have yet to be deposited. The funds from a transaction don’t typically get deposited into your business bank account immediately. This is because your e-commerce platform won’t deposit these funds until they are processed.
The clearing account reduces errors by matching each payment with its corresponding invoice. It acts as a buffer where money from customers and payments to vendors sit until transactions are verified. Without a clearing account, there is a risk of overpaying vendors or undercharging customers due to payments being mismatched or mishandled.
Why do you need a clearing account for your e-commerce business?
Having a clearing account for your business has many benefits. If you’re a new business owner, you may be wondering what the term clearing account means. When you have a transaction, a clearing account will assist in keeping track of all payments and refunds that will need to be reconciled. By acting as a temporary location, the clearing account helps ensure all transactions are accounted for and mapped to the right customer or vendor bill before money is moved to where it needs to go.
Because you already have the transactions synced in your accounting software and you don’t have to wait until payouts are deposited into your bank account for your financial data to be updated which gives you real-time and up-to-date data. This process helps prevent costly accounting errors and provides a clear audit trail.
How a clearing account works
A clearing account works by temporarily holding funds from various transactions before they are reconciled and moved to the correct accounts. In order for funds to get cleared as a transaction, you have the option of manually matching them or to get them automatically matched through an accounting integration. Once the payout is deposited in your account, which typically takes a couple of days, transactions can be matched and verified. This process will also need to be done manually unless you have an accounting integration which will automate this process. The types of e-commerce transactions that pass through a clearing account include credits, debits, chargebacks, refunds, and more.
Best practices for managing an e-commerce clearing account
It’s important to keep best practices when utilizing your e-commerce clearing account to ensure you’re maintaining integrity in your financial processes. Reconciling transactions on a frequent basis, either daily or weekly, allows you to spot any present issues and resolve them to keep your records as accurate as possible. Having this consistent process is key in managing your e-commerce clearing account effectively.
Why you should integrate accounting software to your store
Through Amaka’s integrations, you’re able to seamlessly connect your e-commerce platform to your accounting software. Through integration, you’re able to automate the transfer of data to your clearing account and from the clearing account. For example, if you use Shopify and QuickBooks Online, the financial data from your Shopify transactions get synced among other financial data. Once the payment is received it then gets assigned to the Shopify Payments Balance account, which happens automatically through the integration.
How Amaka accounting integrations handle clearing accounts
Once the payment is approved the transaction then appears in your business bank account, the Shopify + QuickBooks integration will automatically match it to the data synced from Shopify. There’s no need to manually match up transactions. In QuickBooks Online, select Banking and then For Review. Select the Recognised filter from the dropdown and find the transaction. From the Action column, select Match to confirm matches.
The integration will automatically offset the clearing accounts by removing the temporary balance and posting it to a permanent account.
Key takeaways on clearing accounts for e-commerce accounting
It is crucial for e-commerce businesses to have an understanding of their clearing account and its significance in maintaining good financial processes. Adhering to best practices in accounting can yield substantial benefits, enabling businesses to mitigate risks, and enhance overall operational efficiency.