Reconciliation Automation: A Game-Changer for Ecommerce

This is some text inside of a div block.

As ecommerce businesses face increasing transaction volumes and financial complexity, automated reconciliation emerges as a critical tool for maintaining accuracy and efficiency

Key Takeaways for Ecommerce Brands:
  1. Automated reconciliation significantly reduces the time and resources required for financial processes, allowing ecommerce businesses to complete complex reconciliations in minutes rather than hours or days.
  1. By eliminating human error and leveraging AI and machine learning, automated systems ensure higher accuracy in financial records while effortlessly scaling with business growth.
  1. Advanced reconciliation tools provide a complete financial picture by integrating multiple data sources, supporting various accounting methods, and offering features like 3-way sales reconciliation.

In the fast-paced world of ecommerce, reconciliation plays a crucial role in ensuring financial accuracy and transparency. A fundamental aspect of ecommerce accounting, reconciliation is the process of verifying that a business's financial records match transactions (such as sales, payments, and refunds) that have occurred. This typically involves comparing internal records with external sources, like bank statements, payment gateways, and accounting systems.

Many ecommerce businesses rely on manual reconciliation to manage their financial data. However, as these businesses scale, they face significant challenges in handling the growing volume of transactions across various payment methods and sales channels. At this stage, manual reconciliation becomes increasingly time-consuming and prone to errors, often resulting in discrepancies, delayed financial reporting, and potential revenue loss.

This is where automated reconciliation is a game-changer. By using technology to compare transactions across systems automatically, ecommerce businesses can eliminate the risk of human error, significantly reduce the time spent on account reconciliation, and ensure real-time accuracy. Automated reconciliation tools streamline the entire process, making it easier for businesses to maintain financial clarity while focusing on growth and customer satisfaction.

What is Automated Reconciliation?

Automated reconciliation relies on advanced technology to match financial transactions across different systems and accounts, ensuring that all records are accurate and consistent without manual intervention. 

This process involves retrieving data from various sources – including bank accounts, payment gateways, and accounting systems – and comparing it with internal transaction records. The goal is to identify any discrepancies, such as missing, duplicated, or incorrect entries, and either resolve them automatically or flag them for further review.

Key features of automated reconciliation include:

  • Data integration: automated reconciliation systems can integrate with multiple data sources such as sales channels, payment processors, banks, and ecommerce bookkeeping services. This allows the system to pull transaction data in real-time.
  • Matching algorithms: automated reconciliation software uses advanced matching algorithms to compare transactions between different records. It checks whether the amounts, dates, transaction IDs, and other key details match across various sources.
  • Discrepancy detection: automated reconciliation tools quickly flag discrepancies in transactions. They can also categorize issues, such as missing payments, overpayments, or underpayments, for further investigation.
  • Reporting and auditing: automated systems often generate detailed reports, providing insights into the reconciliation process. These reports can be used for auditing, helping businesses maintain transparent financial records.
  • Scalability: automated reconciliation is capable of handling large volumes of transactions. Whether a business processes a few transactions daily or thousands, the system can manage the workload efficiently.

In the ecommerce world, automated reconciliation is particularly valuable due to the high volume of transactions and the need to deal with multiple payment methods, channels, and currencies. By automating the reconciliation process, ecommerce businesses can save time, reduce errors, increase efficiency, and gain visibility into financial information. 

Examples of Automated Reconciliation Processes

1. Bank Reconciliation

Bank reconciliation ensures that a company’s internal financial records align with its bank statements. The goal is to identify and resolve any discrepancies between the two.

When done manually, bank reconciliation includes the following steps:

  • Collecting the relevant bank statement and the company's general ledger or cash book for the same period.
  • Matching each transaction on the bank statement with those in the company's records, line by line.
  • Identifying discrepancies such as bank fees, interest, unrecorded checks, or deposits in transit.
  • Investigating differences and determining if they were errors, timing issues, or omissions.
  • Correcting any errors in the ledger or noting timing differences for future reconciliation.
  • Ensuring the adjusted balance matches the bank statement.

In automated bank reconciliation, the software seamlessly imports bank statements and internal records from the company’s ledger. It uses advanced algorithms to automatically match transactions between the two sets of data, significantly reducing the time it takes to reconcile. Any discrepancies, such as missing or unmatched transactions, are flagged for the user to review. The software allows users to quickly make adjustments and provides instant confirmation when the accounts are fully reconciled.

2. Direct payments

Direct payments such as ACH transfers and wire transfers are reconciled to ensure they match internal records of outgoing or incoming payments.

When done manually, direct payments reconciliation includes the following steps:

  • Gathering internal records of direct payments made or received (payment confirmations, invoices, etc.).
  • Matching each direct payment in the company's records with the corresponding transaction in the bank statement.
  • Confirming the amounts, dates, and payees are correct.
  • Investigating discrepancies in payments with banks, vendors, or internal departments.
  • Adjusting internal records or marking the discrepancies as timing issues (e.g., pending payments).
  • Ensuring all payments have been properly accounted for.

For direct payments, reconciliation software retrieves payment records and compares them with corresponding entries in the company’s bank statements. Discrepancies are automatically highlighted for further investigation. The software can even suggest corrective actions, allowing users to quickly resolve issues and ensure that all payments are properly recorded.

3. Foreign currency accounts

Reconciliation of foreign currency accounts ensures accurate recording of transactions that occur in multiple currencies, factoring in exchange rates.

When done manually, foreign currency accounts reconciliation includes the following steps:

  • Obtaining records of all transactions in foreign currencies.
  • Manually convert foreign currency transactions to the base currency using appropriate exchange rates.
  • Match transactions in foreign accounts with internal records, ensuring both are correctly converted.
  • Finding and investigating differences in exchange rates or transaction amounts.
  • Adjusting for exchange rate fluctuations
  • Ensuring balances and transactions match after adjustments.

When dealing with foreign currency accounts, automated reconciliation software manages multiple currencies with ease. It automatically converts foreign transactions into the company’s base currency using up-to-date exchange rates, matches the converted amounts with internal records, and flags any discrepancies that may arise. The software continuously updates exchange rates and adjusts for minor fluctuations, allowing the company to maintain accurate foreign currency records effortlessly.

4. Balance sheet substantiations

This process ensures that all entries on the balance sheet (assets, liabilities, equity) are backed by accurate, verifiable documentation.

When done manually, balance sheet substantiations include the following steps:

  • Compiling documentation (e.g., invoices, loan agreements, receipts) for each balance sheet item.
  • Comparing the amounts on the balance sheet with the supporting documents.
  • Investigating any missing or incorrect documentation.
  • Adjusting the balance sheet if any errors or discrepancies are found.
  • Documenting all corrections made and ensuring they align with accounting policies.
  • Confirming each item on the balance sheet is properly substantiated.

Automating balance sheet substantiations streamlines the process by automatically linking each balance sheet item to its supporting documentation. The software verifies that all entries are backed by appropriate records and highlights any inconsistencies or missing documentation. Once all discrepancies are resolved, the software generates a final report that confirms the substantiation of all balance sheet entries.

The Benefits of Automated Reconciliation

1. Time savings

Manual reconciliation can be a labor-intensive process, especially when dealing with thousands of daily transactions across multiple payment methods and platforms. According to a SAP report, 82% of finance professionals view manual processing as a primary cause of inefficiencies in financial processes.

Automation streamlines the reconciliation process by using algorithms to match transactions, allowing businesses to complete what would otherwise take hours or days in a matter of minutes. To wit: 85% of finance & accounting professionals save time with financial automation, with most respondents noting that account reconciliation benefits significantly from automation.

2. Improved accuracy

Human error is a common risk in manual reconciliation. Recent research revealed that nearly a third (28%) of financial services organizations say mistakes from manual processes are their biggest data reconciliation pain points. 

Automated reconciliation virtually eliminates these errors by using predefined rules and algorithms to cross-check and match data with high precision. This ensures cleaner, more reliable financial records, minimizing the chance of errors in financial reports, tax filings, or audits.

3. Scalability

As ecommerce businesses grow, transaction volumes increase, sometimes exponentially. Handling more orders, payments, refunds, and fees can quickly overwhelm manual reconciliation processes. Automated reconciliation systems are designed to scale effortlessly with the business, handling increased transaction volumes without requiring additional manpower or resources. 

4. Real-time insights

Account reconciliation automation provides a real-time view of financial performance, including cash flow, outstanding payments, and potential discrepancies. This allows businesses to make informed decisions quickly, respond to financial issues before they escalate, and maintain tight control over their financial health.

5. Cost efficiency

Manual reconciliation requires significant resources, as it involves dedicating staff to perform repetitive tasks over long periods. This can be particularly costly for ecommerce businesses that handle high transaction volumes. By automating reconciliation, businesses can reduce the need for additional staff or overtime work, lowering operational costs. 

6. Audit Trail 

Automated reconciliation systems generate detailed reports and audit trails of all transactions. Having a clear, organized history of financial transactions helps businesses prepare for tax filings, external audits, and investor reviews, ensuring that all processes are transparent and verifiable. 

New Technologies in Finance Automation

In recent years, finance automation has seen remarkable growth, with new technologies transforming how businesses handle their financial operations. 

From cloud-based accounting systems to blockchain for enhanced transparency, the landscape is evolving rapidly. For e-commerce businesses, which often deal with high volumes of transactions, these advancements are particularly valuable, as automation tools now not only streamline day-to-day bookkeeping but also simplify complex processes like account reconciliation.

Account reconciliation, in particular, is being transformed by two key advancements: the use of artificial intelligence (AI) and machine learning (ML) in automated reconciliation. These innovations bring new levels of accuracy, speed, and efficiency to the reconciliation process, helping businesses reduce manual workloads and improve financial accuracy.

AI in reconciliations

Artificial intelligence is playing a transformative role in reconciliations by automating what used to be highly manual, time-consuming processes. In automated reconciliation systems, AI is used to compare transactions from different sources, such as bank statements and internal financial records, and automatically identify discrepancies. 

Unlike traditional rule-based systems, AI algorithms can adapt and learn from data patterns, improving over time as they handle more complex data sets. This means that businesses can resolve differences quickly and accurately without requiring human intervention.

AI's ability to process vast amounts of data in real time also allows it to identify irregularities that might be missed in manual processes, such as duplicate entries or suspicious transactions. By learning from historical data, AI can predict recurring errors, automatically flagging transactions that need attention. This leads to faster, more accurate reconciliations, allowing ecommerce businesses to stay on top of their finances.

Machine learning in transaction matching

A subset of AI, machine learning takes transaction matching to the next level by learning and adapting from previous reconciliations. 

Traditionally, matching transactions between two systems – such as invoices and bank statements – required strict rule sets, which often left a significant number of transactions unmatched if there were slight discrepancies in amounts, dates, or descriptions. Machine learning algorithms, however, can learn to recognize patterns in transaction data and match items that would otherwise have been overlooked by rigid rules.

For example, ML can identify that an invoice with a minor typo or a small currency conversion difference still matches a corresponding payment. This greatly enhances the speed and accuracy of transaction matching, reducing the backlog of unmatched items and cutting down on manual reviews. 

Automated reconciliation with Finaloop 

Automated reconciliation offers significant benefits for ecommerce businesses. By automating what was once a time-consuming manual process, businesses can complete reconciliations in minutes rather than hours or days, ensuring reliable financial records. 

Additionally, as businesses grow and transaction volumes increase, automated reconciliation scales effortlessly without requiring more resources. The potential return on investment is clear: reduced operational costs, improved financial accuracy, and the ability to focus on strategic growth rather than time-consuming manual processes.

Finaloop's automated reconciliation features offer comprehensive solutions tailored for ecommerce businesses. Our technology delivers real-time reconciled financials, including P&L statements, balance sheets, and cash flow statements. Plus, Finaloop's ability to integrate with unlimited apps and banks ensures that all financial data is reconciled seamlessly. 

The flexibility to switch between cash and accrual accounting methods allows businesses to adapt their financial reporting as needed. The 3-way sales reconciliation is particularly valuable for ecommerce brands, ensuring that orders, payouts, and bank transactions are all properly matched and accounted for. Combined with invoice and bills reconciliation, this provides a complete picture of a company's financial health.

FAQs

What is automated reconciliation?

Automated reconciliation is the process of using software to automatically compare and match data from different sources, such as financial records or transactions, to ensure accuracy and consistency. It reduces the need for manual intervention, speeds up the reconciliation process, and helps identify discrepancies more efficiently. 

What are the four types of reconciliation?

The four types of reconciliation are:

  • Bank reconciliation: compares a company's internal financial records to its bank statements to ensure all transactions are accounted for and any discrepancies, such as outstanding checks or deposits, are resolved.
  • Direct payments reconciliation: matches payments made or received by the company to ensure they are recorded correctly in the financial system and correspond to valid transactions.
  • Foreign currency accounts reconciliation: verifies transactions and balances in foreign currency accounts, ensuring the accurate conversion of exchange rates and alignment with local currency records.
  • Balance sheet substantiation: confirms the accuracy of all balance sheet entries by ensuring they are backed by accurate, verifiable documentation.

What is reconciliation technology?

Reconciliation technology refers to software solutions that automate the process of comparing and matching data from different sources, such as bank transactions or financial records. It enhances accuracy, efficiency, and speed in identifying discrepancies and ensuring data consistency.

What are the 5 R's of reconciliation?

The five R’s of account reconciliation are:

  • Recording transactions in a timely manner
  • Reviewing your records and transactions regularly
  • Reporting your financial data accurately
  • Retaining your information and records securely
  • Reconciling your accounts
Excited to do your bookkeeping? Didn't think so.

That’s what we’re here for.
Accurate ecommerce books, done for you.

No items found.

FAQs

No items found.
More FAQs ->

Excited to do your bookkeeping? Didn't think so.

Get Started Free

Offload your books to us and get 100% real-time financials. Now you can focus on everything else.

Get started
14 days free
No credit card required

Check out our recent posts

See all