Overcoming the challenges of payments reconciliation

A poor payments reconciliation process can cost the average business 120 wasted hours every month - or more. It can also lead to cash that might go uncollected.

But as finance operators grapple with inefficiencies in their reconciliation processes, many forward-thinking businesses are investing in optimisations that can set them apart from the competition.

Optimising the payments reconciliation process leads to bottom-line revenue, allowing staff to focus on value-adding tasks while removing the cumbersome nature of inefficient payment-chasing. Here’s how enterprise businesses in South Africa can overcome the operational challenges associated with payments reconciliation at an enterprise scale and remain future-proof against the competition.  

Why is payments reconciliation so important?

Reconciliation is the process of ensuring payment records are accurate. It involves matching internally recorded expected payments with actual payments recorded in the bank. This process is executed in order to ensure that all expected payments settled and that there weren’t any unexpected payments.

Accountants and finance operators are familiar with the fundamentals of payment reconciliation because it’s always been an integral part of business systems.  

Getting payments reconciliation right has a direct impact on the bottom line, access to cash flow and often the ability to get products or services to customers on time. Any discrepancy can affect balance sheets and available cash flow. It can also signify how attractive an organisation is for investors.

But performing reconciliation well can affect even more. For example, optimising this process can mean the difference between hiring full-time staff to manually oversee reconciliation vs automating this process to reduce things like admin head count, developer resources necessary to maintain complex integrations and instances of human error. 

Classic challenges with payments reconciliation: BigBag E-commerce Business

Take BigBag, an example of a thriving e-commerce business with hundreds of thousands of customers and vendors across South Africa. BigBag’s finance operations are managed by a significant accounting team. However, they’re not fully automated and optimised. As a result, it can take upwards of eight hours per day for their accounting team to manage payments reconciliation.

This is largely due to inefficiency - beginning with the fact that the company has recently scaled up the number of payment methods it offers its customers in order to improve the customer experience and conversion rate. BigBag opted to partner with three separate payment providers to enable redundancy, which means three separate integrations. They also need to manage direct integrations with all major banks. As a result, the payments team receives multiple different transaction reports, in different formats and at different frequencies, and must attempt to compile the insights themselves, often manually.

As well, maintaining a proper ledger system can be a challenge. For example, if a customer opts to pay using Manual EFT, there may not be an automated platform they can use to maintain internal records, and frequently, payments are made without proper references. This makes attribution particularly challenging and might delay disbursement of goods purchased, the ability to initiate a refund if needed and of course internal audits.

Chasing up these missing payments at the end of the month contributes further to the eight hours per day that the BigBag team is spending on payments reconciliation. 

Stages of payments reconciliation

Here is the payments reconciliation process, broken down into four familiar steps:

1. Make a sale
2. Record expected payment internally
3. Receive actual payment externally
4. Verify matches, reconcile and approve changes

Step 1: Make a sale

The first phase of reconciliation begins with the payment itself; the transaction that comes from making a sale.

Challenge: Managing integrations across multiple payment methods

Today, customers expect to see multiple payment methods at checkout. For enterprise businesses, offering all local methods and ensuring there’s redundancy via multiple providers in the case of downtime has become essential.

However, managing multiple payment methods requires more developer time and resources - and regular data collection across providers. This could mean the need to manage several different APIs for each payment service and institution, which presents a massive hurdle for organisations looking to grow at a fast pace.  

A business that offers three different payment methods - for example card, bank transfer and cash - might rely on separate reconciliation processes and reporting formats for each method. Without a centralised and integrated structure, staff can waste time by manually noting transactions and attempting to compile the data themselves.

Moreover, keeping the payment methods (and therefore transactions) separate can lead to mistakes, or create a disconnect in sales data, obscuring analyst insights and leading to inaccurate reporting. 

Solution: a single source of truth to manage payments across methods

For enterprise businesses managing payments across providers, methods and even geographies, a comprehensive payment orchestration platform can significantly improve financial operations and enable businesses to easily add additional payment methods or redundant providers without the need to start a new integration from scratch.

Stitch developed PayOS to allow businesses to easily plug in any existing payment methods and providers and see all transactions in a single dashboard. Businesses can also set rules and toggle methods on or off based on preset factors.

Step 2: Record expected payment internally

Once a sale occurs, it should trigger the creation of a record that details the expected amount, date of sale, payee, payment method and reason for payment. This is primarily for internal use.

Challenge: Inefficient financial operations

Internal payment records are incredibly important, as the rest of the payment reconciliation process hinges on getting these right. However, this is often a critical point where errors tend to occur.

For example, it’s possible that payments might be missed, or duplicates recorded - often caused by inefficient or manual operations. Many finance department heads could be running multiple divisions, and are required to prioritise tasks with a larger upfront financial impact.  

As such, payments are often left for staff to record as they go, while managing numerous other tasks during daily duties. This type of approach leads to rushing, which can cause mistakes and missed payments, and therefore puts extra pressure on the team.

Missing records also create a huge challenge for finance teams because it drains resources. That’s hours wasted scouring different spreadsheets and platforms, and chasing the banks, which could be avoided with more automated processes.

Solution: Streamline divisions and departments

71% of South African businesses are currently using semi or fully automated payment reconciliation systems. Relying on a software platform means that businesses can automatically record transactions, preventing manual errors.

Streamlining actions across each finance division helps to reduce admin errors and prevent internal fraud. One way to manage this, while also optimising the efficiency of finance and accounting, is by introducing new internal controls.

Enforcing rules around standard operations enables greater accountability and can highlight any inefficiencies within departments.

For example, an outgoing payment request at BigBag might require two senior approvers if the amount is above R150,000. This would prevent ‘money going missing’ if an employee decides to send a payment to themselves in an act of merchant fraud, while also clarifying who is responsible for recording the transaction.  

Step 3: Receive actual payment externally

An accountant performing regular audits is required to print a bank statement and check which payments actually entered or left the company bank account. This requires verifying the payee, the reason for payment and the date.

Challenge: Managing payments from thousands of customers, vendors, banks and providers

At an enterprise level, operating with thousands of customers and vendors is not uncommon.

However, attempting to track and validate all incoming and outgoing payments from the bank account through manual reconciliation would not only be impractical, it would cost far too much in wages. Those wages could be better spent adding value to the business, through sales or efficiency optimisation, for example.

One nuance to actual payments is that they are often processed later than the day the payment was made. This factor must be taken into consideration by the accounting software as it’s likely to create a disconnect in the payment gateway between the expected and actual payment settlement times.  

Solution: Integrate with one platform for all providers

In order to track the high volume of payments coming in and going out, all payment processing systems must work in tandem. An automated reconciliation platform for all-in-one management can make a significant difference.

For example, Stitch PayOS can integrate multiple external payment providers into one platform and full visibility into all transactions, as well as standardised reporting.

Step 4: Verify matches, reconcile and approve changes

After both internal and external records have been located, teams need to compare them. The goal is to find matching records, but missing payments must be investigated and reconciled.

Challenge: Receiving reports in various formats

A common issue associated with working with multiple payment platforms, processors and banks is that each often sends reports in different formats, and on various timelines.

As well, often the reports coming from banks will not match internal records due to challenges like batched payments, varied or delayed clearing times, insufficient data fields in various bank records and more.

Just like the payment methods challenge above, it requires extra work to connect and compare this information. For example, balancing the general ledger books would require verification of each report (and investigation into missing payments).

Moreover, accountants are required to make each bank statement clear for external auditors to understand. This means that all of the separated financial records must be combined and analysed, leading to even more frustrating and manual account reconciliation.

Solution: Collate data automatically and access templated reports

Stitch collates data automatically from each of the different payment providers, and presents this in a standardised, enriched format. This can significantly reduce the workload for an internal finance team, allowing them to spend the majority of time elsewhere. Having all information in one place also makes it easier to spot errors or chase late payments. 

Payments reconciliation challenges and solutions