Sign up for our newsletter
Stay informed with the latest trends and best practices in finance and procurement.
Corporate credit cards are increasingly being used by companies to better control spending, provide improved real-time visibility, and, most importantly, offer employees a smooth and seamless way to make the payments they need without complex internal processes.
With credit card usage comes credit card reconciliation. In this Guide, we’ll look at the different aspects of credit card reconciliation, including where to start, what to look out for, best practices, and more.
What Is Credit Card Reconciliation? A Primer
Credit card reconciliation is a critical financial process that involves verifying and matching transactions on a credit card statement with corresponding receipts and records.
This process is essential for maintaining accurate financial records and ensuring all charges are legitimate and accounted for. Credit card reconciliation is incredibly important for several reasons, including:
- Accuracy in financial records: It ensures the accuracy of financial records by matching credit card statements with receipts and invoices. This process verifies that all charges on the credit card are accounted for and correctly reported.
- Fraud detection and prevention: Reconciliation helps detect unauthorized or fraudulent transactions early.
- Streamlining financial processes: Credit card reconciliation software can streamline the reconciliation process. This automation reduces the time and effort required for reconciliation, minimizes human error, and can lead to improved internal controls and reduced fraud.
- Financial integrity and transparency: Reconciliation helps maintain the integrity of a company’s financial records. It ensures that all transactions are properly accounted for and helps in identifying discrepancies that could indicate deeper issues within the financial processes of the business.
- Improved decision making: Accurate financial records, ensured through credit card reconciliation, provide reliable data for business decision-making.
While credit card reconciliation itself is not a legal requirement, maintaining accurate financial records is. Reconciliation is a recommended best practice to ensure the accuracy of these records, thereby fulfilling legal obligations related to financial reporting and management. Moreover, auditors generally expect to see such reconciliations.
The Process of Reconciling Corporate Cards
Reconciling corporate credit cards is a multi-step process that typically involves:
- Collecting statements and receipts: The first step is gathering all the credit card statements and corresponding receipts or invoices. This includes all transactions made within a specific period, usually a month.
- Reviewing statements: Next, the finance team reviews the credit card statements to ensure all the transactions listed are legitimate and business-related.
- Matching transactions: Each transaction on the statement is matched with internal records, such as receipts, invoices, or purchase orders.
- Identifying discrepancies: If there are discrepancies, such as unrecorded transactions or differences in amounts, these are investigated.
- Recording transactions in accounting software: After verification, transactions are recorded in the business's accounting software.
- Reconciling balances: The balance on the credit card statement is compared with the total of the matched transactions in the accounting records. The two should align. Any discrepancies need to be investigated and resolved.
- Continuous monitoring: Regular monitoring of credit card transactions, even before the monthly reconciliation, can help identify fraudulent activities or errors early on.
This process can be exceptionally time-consuming and error-prone when performed manually. In some cases, especially with larger businesses or where there are numerous credit cards, it is almost impossible.
This is why many companies today leverage intelligent solutions built for smart credit card usage, which automatically carry out the reconciliation process.
The 4 Main Challenges in Credit Card Reconciliation
The major challenges when it comes to credit card reconciliation are most often:
- Mismatched records: Discrepancies between statements and receipts
- Fraudulent transactions: Identifying and addressing unauthorized or fraudulent charges
- Lost receipts: Dealing with missing documentation for transactions
- Time-consuming process: The reconciliation process can be time-intensive, particularly for businesses with a high volume of transactions
Many leading businesses implement purpose-built solutions for credit card management and reconciliation to address these challenges.
Tips and Best Practices
Here are some best practices and tips to ensure an effective and efficient reconciliation process:
- Regular reconciliation: Perform reconciliations regularly, typically monthly, to keep track of expenses and quickly identify any discrepancies.
- Use of automated tools: Implement accounting software or reconciliation tools that can automate the process, reducing the likelihood of human error and saving time.
- Maintain organized records: Organize all receipts, invoices, and related documentation. This can involve digital record-keeping for easier matching with credit card statements.
- Clear expense policies: Establish and communicate clear policies regarding business expenses and the use of company credit cards.
- Employee training: Train employees who use business credit cards on proper usage and reporting procedures. Regular training updates can also be helpful.
- Segregation of duties: Ensure that the person responsible for making credit card purchases is different from the one who does the reconciliation.
- Immediate discrepancy resolution: Address any discrepancies immediately upon detection. This might involve querying unrecognized transactions or correcting entry errors.
- Regularly review credit limits and access: Regularly review who has access to company credit cards and the credit limits assigned to each card, adjusting as necessary based on usage and needs.
- Implement reconciliation checklists: Use checklists to ensure that all steps in the reconciliation process are completed thoroughly and consistently.
- Audit trails: Maintain an audit trail that records who performed the reconciliation, along with any notes or comments about discrepancies and resolutions.
- Secure storage of sensitive information: Ensure sensitive credit card information is stored securely and access is controlled to prevent unauthorized use or data breaches. Better yet, use one-time cards for increased security.
- Periodic review of reconciliation process: Periodically review and update the reconciliation process to incorporate new technologies, address any recurring issues, and improve efficiency.
By adhering to these best practices, businesses can improve the accuracy of their financial reporting, prevent fraud, and maintain good financial health.
How PayEm Transforms the Credit Card Reconciliation Process
PayEm’s smart corporate credit cards are physical and virtual cards that can be perfectly aligned with employees’ needs and company policies. PayEm allows you to instantly issue cards, set limits, enjoy the highest levels of security, and get full visibility into expenses.
PayEm’s powerful solution enables you to:
- Liberate yourself from manual expense tracking
- Easily capture receipts with snapshots or uploads
- Get real-time reports and valuable insights
- Perform effortless credit card reconciliations with NetSuite
- Access a full audit trail
With PayEm’s built-in flexibility and control, credit card reconciliations become seamless and efficient; not to mention providing huge amounts of added value.
Conclusion: Credit Card Reconciliation Is Key
Credit card reconciliation is a vital process in maintaining accurate and reliable financial records. While it can present challenges, the advantages of a well-managed and streamlined reconciliation process are significant. We also saw how, by implementing the PayEm solution, you can access all of the benefits without the traditional drawbacks.
Organizations can better manage their finances and prevent fraudulent activities and nasty surprises by understanding the types, processes, and benefits of credit card reconciliation.
To learn more about how PayEm can immediately add value to your business, get in touch with the team today.