• North America
    • United Kingdom
    • Europe
  • Solutions
    • Accounts Payable AutomationEnd-to-end, invoice-based payments designed for growing companies
      • Supplier Management IconSupplier Management
      • Invoice IconInvoice Management
      • PO Matching IconPurchase Order Matching
      • Global Payouts IconPayment Remittance
      • Payment Reconciliation IconPayment Reconciliation
    • Purchase Order ManagementControl and visibility over corporate spend
    • Global Partner PaymentsScalable payment solutions for creator, ad tech, sharing and marketplaces economy
      • Supplier Management IconPartner Management
      • Global Payouts IconGlobal Payments
      • Fraud Detection IconFraud Detection
      • Self Billing IconSelf-Billing Module
      • Tax Compliant IconTax and VAT Compliance
    • Tipalti CardManage and reconcile spend, gain visibility, and receive cash-back
  • Technology
    • Overview
      • The Tipalti PlatformGlobal, scalable, and fully automated
    • Features
      • Multi Entity IconMulti-Entity Architecture
      • Financial Controls IconFinancial Controls
      • Payment API IconPayment API
      • Secure Cloud IconSecure Cloud
      • MSB IconMoney Services Business
      • AI IconPi Payables Intelligence
    • Integrations
      • ERP & Accounting
      • Oracle NetSuite
      • Sage Intacct
      • QuickBooks
      • Microsoft Dynamics
      • Sage Accounting
      • Xero Accounting
      • Performance Marketing
      • Custom Integrations
  • Why Tipalti
    • Overview
      • Why TipaltiA modern, holistic, powerful payables solution that scales with your changing business needs
      • Customer StoriesSee how we transform finance operations
    • Benefits
      • Accolades
      • Invoice-Based Workflow
      • Performance-Based Workflow
      • Benefits by Role
    • Additional Services
      • Currency Management
      • FX Hedging
      • Implementation Services
      • Supplier Enablement Program
    • Industries
      • Advertising Technology
      • Affiliate and Influencer Networks
      • Business Services
      • Ecommerce and Retail
      • Education
      • Financial Services
      • Healthcare
      • Manufacturing and Wholesale
      • Marketplaces and Gig Economy
      • Online Services
      • Software and Technology
      • Video and Digital Media
      • Video Gaming
  • Resources
    • Blog
      • The FinTalk BlogStrategy and trends in payments
    • Tools
      • Cost Per Invoice Calculator
      • Payment Error Calculator
    • Guides
      • What is AP Automation?
      • Compare Payment Methods
      • Future of Finance
      • Destination IPO
      • Payments Across Borders
      • The Total Guide to ERP Integration
  • Company
    • About Us
      • About Tipalti
      • Careers
      • Partnerships
      • Contact Us
    • Help
      • Support
      • FAQs
    • News & Events
      • Events
      • Newsroom
  • Login
  • Get Started
Get Started

What is Payment Reconciliation & How Does it Work?


We've paired this article with a comprehensive guide to accounts payable. Get your copy of the Accounts Payable Survival Guide!
Get the FREE guide
Home / Accounts Payable Hub / Payment Reconciliation
Aug 5, 2021

What is Payment Reconciliation?

Payment reconciliation is an accounting process that verifies bank account balances by comparing bank statements to your accounting records. Payment reconciliation helps validate that bank records are accurate and up-to-date. Account reconciliation can be done on a daily, weekly or monthly basis. 

Payment reconciliation may be a time-consuming process for accounting teams that slows down the monthly financial close. As businesses grow, the time required to reconcile payments and perform bookkeeping expands unless your business automates the payment reconciliation process with a real-time software solution.  

Payment methods include ACH bank transfers in the U.S., global ACH eChecks, wire transfers, debit cards or credit cards, PayPal, digital wallets, or other options offered by payment processing companies with payment gateways. 

Payment reconciliation for global mass payments involves numerous bank accounts and payment methods in various countries and currencies, making the task demanding and complex unless the reconciliation process is automated. 

Small businesses with few bank accounts and a low volume of transactions may find reconciling payments easier to handle with standard accounting software. Rapidly growing companies should plan to find the right automated payment and payment reconciliation solution for their business. 

How Does Payment Reconciliation Work?

The payment reconciliation process works by agreeing the total of payment transactions to bank statements or other accounts and the general ledger for accounting and bookkeeping purposes. Payment reconciliation is an internal control process that improves financial statement accuracy and deters fraud. Steps for payment reconciliation vary, depending on the type of payment. 

Core accounting modules in ERP systems provide simple integrated bank feeds of payment transactions for recording in the accounting records. Bank reconciliations are automated in the accounting software, allowing the user to specify cleared vs outstanding bank deposits and checks to tie the bank statement to the general ledger cash account for each bank account. 

AP automation software automates payment reconciliation and provides drill-down payment reconciliation reports. Payment reports include total and detailed amounts and payment status by currency, payment method, subsidiary, workflow stage including approvals, disbursement results and errors, included rejected payments, and related tax report information. Global mass payments reconciliation integrates with the connected business management ERP system, reconciling cash and other payment accounts, general ledger, and balance sheet totals.

What are the Types of Payment Reconciliation?

Payment reconciliation meaning or definition and account reconciliation process steps may change for your circumstances, depending on the complexity of your business and the types of payment transactions it makes.

Types of payment reconciliation include:

  • Bank account reconciliation
    • Disbursement transactions
    • Deposits
      • Accounts receivable proceeds
      • Cash,  and debit card, and credit card sales proceeds
        • eCommerce
        • Brick and mortar stores
    • Account service and transaction fees
  • Credit card and debit card reconciliation
  • Digital wallet reconciliation
  • Global currencies reconciliation
  • Real-time automatic payment reconciliation.

Examples of Payment Reconciliation

Accounting software like QuickBooks and ERP systems provide simple automated bank reconciliations for each bank account and cash account. 

QuickBooks Online lets users import transactions from bank feeds using the Banking tab menu. However, QuickBooks Online support doesn’t guarantee that the bank’s API connection provides all of the payment transactions data via bank feeds to the QuickBooks user. Businesses may use Excel spreadsheets to reconcile payment runs. 

Mid-market companies and large enterprises use AP automation software like Tipalti to streamline business workflow relating to vendors, procurement, supply chain management, accounts payable, and payments. AP automation software automates online payment reconciliation for many bank accounts and other payment sources in multiple countries and currencies. Tipalti payment reconciliation software lets users export results to Excel spreadsheets if businesses want more analysis or customized data visualization. 

Benefits of Payment Reconciliation

Payment reconciliation provides benefits whether performed separately for each bank account and payment method or automated for all payment methods in a mass global batch payment run using a payment reconciliation system. 

The benefits of automated payment reconciliation include:

  • Time savings 
  • Real-time results
  • Quicker month-end financial close
  • Error reduction 
  • Fraud reduction
    • Vendor verification
    • Global regulation screening
    • Tax ID screening
  • Identification of payments rejected by a financial institution 
  • Tax report information 
  • Payment insights. 

Risks of Payment Reconciliation

  1. Delays and loss of accuracy in payment reconciliation

Risks of payment reconciliation include not handling the payment reconciliation for multiple payment accounts on time (or accurately) when the reconciliation of mass payments or other accounts payable disbursements aren’t handled through an automated system like AP automation software. Improper or fraudulent payments may not be detected on a timely basis. 

  1. Delays in mass payments to payees and missed payment discounts

The result may be delays in payment date for mass payments made to suppliers and payouts to independent contractors like freelancers, publishers, and affiliates. These payment delays can weaken relationships and result in early payment discounts being forfeited. 

  1. Decreased cash management visibility and lost payment discounts

When payments aren’t timely reconciled, the cash flow management process becomes more difficult.

  1. Delays in issuing month-end and year-end  financial statements

When businesses don’t reconcile payments quickly enough, the month-end and year-end close to generate financial statements could be delayed. If payments reconciliation is out of control, financial records and financial reporting could be erroneous. 

Conclusion – Payment Reconciliation

Automated payment reconciliation, also known as accounting reconciliation for payments, can save time, reduce errors, speed up the month-end accounting close, and improve cash flow management. An automated payment reconciliation report provides essential business insights.

About the Author

Barbara Cook

Barbara is currently a financial writer working with successful B2B businesses, including SaaS companies. She is a former CFO for fast-growing tech companies and has Deloitte audit experience. Barbara has an MBA degree from The University of Texas and an active CPA license. When she’s not writing, Barbara likes to research public companies and play social games including Texas hold ‘em poker, bridge, and Mah Jongg.


RELATED ARTICLES

Tipalti vs. Airbase: Which Solution Fits You in 2023?The Top Airbase Alternatives in 2023 Best Ways to Pay Your Overseas Suppliers and Vendors A Guide to Streamlining Invoice Management in 2023 Pros & Cons of Accounts Payable Outsourcing vs AP Automation Business Process Automation: Meaning, Examples & Top Processes A Guide to Full Cycle Accounts Payable Process Guide To International Accounts Payable Ultimate 2023 Accounts Payable (AP) Guide: Meaning, Process & Examples What is an Expense Report & How Do You Fill One Out? Accounts Payable Days: What is AP Days & How Is It Calculated? Tipalti vs. Coupa: Which Product Is the Best Fit for You?10 Real-World Accounts Payable Automation Case Studies to Learn From Best Practices for Adopting & Using Accounts Payable Automation Healthcare Accounts Payable Automation: Everything You Need to Know

Footer

Solutions

  • Accounts Payable Automation
  • Global Partner Payments
  • PO Management
  • Tipalti Card

Capabilities

  • Overview
  • Supplier Management
  • Invoice Management
  • PO Matching
  • Self-Billing Module
  • Payment Reconciliation
  • Global Payments
  • Fraud Detection
  • Tax and VAT Compliance

Why Tipalti

  • Why Tipalti
  • Customer Stories
  • Invoice-Based Workflow
  • Performance-Based Workflow
  • Benefits by Role
  • Benefits by Industry
  • Bill.com Alternative

Technology

  • The Tipalti Platform
  • Multi-Entity Architecture
  • Financial Controls
  • Payment API
  • Secure Cloud
  • Money Services Business
  • Pi Payables Intelligence

Resources

  • The FinTalk Blog
  • What is AP Automation?
  • Compare Payment Methods
  • Future of Finance
  • Destination IPO
  • Payments Across Borders
  • The Total Guide to ERP Integration
  • Cost Per Invoice Calculator
  • Payment Error Calculator

Company

  • About Tipalti
  • Careers
  • Partnerships
  • Events
  • Press
  • In The News
  • Media Kit
  • Support
  • FAQs
  • North America
    • United Kingdom
    • Europe
Contact Us
LinkedIn Instagram Facebook Twitter YouTube
We Handled It.
Legal Agreements
|
Cookies Declaration
|
Privacy Policy
|
Payer / Sender Rights
|
Customer Assistance Policy
© 2010–2023 Tipalti Inc.