E-commerce accounting: Payment reconciliation best practices
Kaci Carson
September 23, 2024
For e-commerce businesses, payment reconciliation is essential in ensuring there are no discrepancies in your accounting. Although e-commerce payment reconciliations can be both tedious and time consuming, especially for businesses with high volumes of transactions, we’ll provide an overview of best practices to simplify and streamline payment reconciliation.
This article will go through automating the reconciliation process, utilizing accounting software, and clearing accounts. These practices will help e-commerce businesses to improve accuracy, reduce the risk of financial errors or fraud, and make informed decisions based on real-time data.
Understanding payment settlements and payment reconciliations
Payment settlements
To understand payment reconciliation to the fullest, it’s also important to understand payment settlements, as it’s the first step in the payment process. Payment settlements involve the act of transferring money between accounts to complete a transaction while payment reconciliation is the process of ensuring that the payment details are correct and agreed on by all parties involved.
In the payment settlement process, the payment details are first sent to your payment processor or bank, which debits the payer’s account and keeps the funds in a holding account. The payment processor or bank then verifies all necessary payment details. After it’s been verified, the bank then sends the payment to your account to complete the payment settlement process.
For example, you may use a payment gateway such as Shopify Payments. Once a transaction has settled, you’ll get a payout from Shopify deposited into your business’s bank account.
Payment reconciliation
Next, the payment reconciliation can begin. Payment reconciliation is the process of verifying and correcting accounting mistakes in financial records and statements. It starts with verifying that the payment details match the actual payment made. This involves comparing the payment details recorded in the accounting system with the payment transactions recorded in the bank statement.
For example, comparing the Shopify payout transaction from your bank to what’s recorded in your accounting software. In other words, the reconciliation is an act of auditing, ensuring that the all presented information matches.
When going through the payment reconciliation process, it’s important to be aware of common issues that can create inaccuracies. For example, human errors when entering data into your accounting system. Other issues that can occur include chargebacks, refunds, disputes and fraud.
- Chargebacks happen when a charge is disputed by the other party, and the bank reverses the payment.
- Refunds are issued when a customer returns a product in exchange for their money back.
- Disputes are made when discrepancies occur in payments and charges.
- Fraud can be committed by cybercriminals, suppliers or even employees.
Having these in mind and a process in place of can help reduce errors in your reconciliation. Getting your reconciliations done in a timely manner is also important for ensuring your data is not only recent but is also reliable. That way, you can have peace of mind that there are no errors. More importantly, you’ll be able to keep financial losses from occurring.
Best practices for e-commerce payment reconciliation
For error-free payment reconciliations, e-commerce businesses should follow best practices for an easy process. This includes automating the reconciliation process. A great place to start is with accounting software which enables you to have all the data from your bank and e-commerce platform all in one place.
Automating the reconciliation process helps to minimize errors and reduces the manual efforts that are typically involved. In order to get all your data synced to your accounting software, you’ll first need to be registered for online banking to then set up a bank feed through your accounting software. For example, to add a bank feed to Xero, all you have to do is add a bank account by going to Accounting > Bank accounts > Add Bank Account.
E-commerce payment reconciliation software features
Reconciliation software will automatically match transactions from your e-commerce platform’s bank deposit to your accounting software. To start, it syncs all transactions from your e-commerce platform to your accounting software. Through Amaka’s integration data including sales, payments, refunds, gift cards and more get synced from your e-commerce platform to your accounting software. Choose from 2-Minute Express, Guided or Advanced setup options.
Since your e-commerce data is now connected through the accounting integration, and your bank transactions are connected through a bank feed, it’s now easier than ever to reconcile payments. Through Amaka’s integration, the payment and bank transactions get matched with each other, making the overall process simpler. For example, if you’re using Xero, head to the tab titled Reconcile to verify the transactions have been matched accurately, then press the OK button and you’re all done! This should be done in bulk at least on a monthly basis.
Maintaining e-commerce payment reconciliation best practices can provide key people in your organization an accurate picture of your financial situation so each team member or stakeholder can continue to make informed decisions based on the data. By following these best practices, businesses can improve accuracy, and reduce the risk of financial errors or fraud.
What is a clearing account and why do I need it?
Clearing accounts are accounts used temporarily to record transactions that are in transit between two other accounts in a timely manner. These accounts are used for the purpose of simplifying the process of reconciling transactions and keeping track of them, and are used also where there’s multiple transactions between the same parties.
When keeping track of transactions that haven’t yet been paid out by your e-commerce platform, Amaka’s accounting integration will sync the payments received and assign it to a clearing account automatically. For example, with Shopify accounting integrations, the uncleared funds will be put in the default Shopify clearing account created by the integration. When the payout is made into your bank account, the integration will remove the temporary balance and post it to a permanent account.
Overall, clearing accounts help to simplify the accounting process and improve the accuracy of financial reporting. They enable businesses to more efficiently track and reconcile transactions and provide a useful tool for managing complex accounting situations.
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Key takeaways on e-commerce payment reconciliation
Payment reconciliations remain a critical aspect of e-commerce accounting that aids businesses in financial reporting, fraud prevention, and error detection. Keeping up with payment reconciliations will also help businesses maintain healthy cash flow and build trust with customers by ensuring accurate and timely payments. By implementing these best practices, e-commerce businesses can improve their financial operations ultimately contributing to their long-term success.