Best Practices in eCommerce Payment Reconciliation
The biggest task for the finance and accounting teams (F&A teams) of any company is payment reconciliation specially eCommerce sector. As more and more companies are moving to become direct to consumers (D2C) and adopting an omnichannel approach, payment reconciliation is becoming more challenging. It is now necessary for the companies to have a clean and error-free reconciliation process to manage cash inflow and outflow.
- Owing to digital expansion and boom in eCommerce, customers can now shop from a company’s own website or marketplaces such as Flipkart and Amazon. Although it is great for customers to access omnichannel retailing systems and subsequent ease in shopping- it is a nightmare for the finance teams.
- Finance teams have to manually compile the data from thousands of transactions across different channels with each one having multiple modes of payment. Additionally, services like buy now pay later , different currencies, discounts, shipping fees, product returns, buy backs, third party logistics fees, margins etc.
- This tedious and error prone reconciliation process poses the biggest challenge to eCommerce and D2C companies. Many eCommerce sellers face significant loss in profits due to reconciliation errors. Some seller expenses which are included in the eCommerce payment reconciliation process include:
- Commission: If the seller is selling through Amazon, then Amazon will cut a commission for itself for marketing and selling the seller’s product.
- Payment/Closing fee: The marketplace may also have additional charges like ‘closing fee’ on each product.
- Shipping charges: Nowadays most of marketplaces provide shipping services to their sellers and deduct the shipping charges from the payment due to the seller for the sale. Often sellers experience that inadvertent errors in the recording of the product leads to the marketplace overcharging for shipping.
- Storage/Warehousing fee: If the seller chooses to avail the storage services of the marketplace, then an extra fee of ‘storage or warehousing fee’ may be applicable.
- Discounts: Discounts can either be offered by the seller directly, or by the marketplace. The marketplace is entitled to deduct the discount before making the payment to the seller. In turn, the seller must be careful to see that the marketplace does not deduct from what’s due to him, value of the discounts offered by the marketplace.
- Statutory Taxes: All applicable statutory taxes, including service tax applicable on shipping services etc., will also be deducted by the marketplace before remitting the payment to the seller.
Let’s check out the best practices in payment reconciliation process that companies can adopt to make it an easy and efficient process:
Practices to Follow in eCommerce Payment Reconciliation
1) Standardization of Process
Reconciliations occur on periodic basis- weekly, monthly or quarterly, in each company. Each time the process of payment reconciliation involves the same series of steps which can be classified into five major groups:
- Data extraction
- Compilation
- Recording
- Matching
- Reconciling.
It is very important for finance teams or one’s accountant to standardise these steps so as to ensure accuracy and non-discrepancy, and avoid errors.
Standardization can be done by documenting these steps involved throughout the reconciliation process and implementing the templates that can be easily followed by every new or existing member of the finance team.
However, these documented flow of steps and templates should also be analysed periodically to update the gaps and explore opportunities to automate the steps.
2) Establishing Internal Controls
Talking about the eCommerce payment reconciliation process, it is essential to include a sequence of internal checks that can catch and highlight any potential issues, such as clerical errors. These internal controls depend on the nature of your business and can be embedded in the overall standardized process.
These internal controls help in mitigating the risks, ensure integrity of the company and is crucial for getting consistently error-free financial statements.
It is important to brief every new member of the team about these controls. Many eCommerce sellers, also have their accountants train their eCommerce account managers or sales team on these controls.
3) Adopting Automation
After standardizing the overall process, the amount of time and focus required to actually execute the reconciliation for large volume of complex transactions makes it necessary for the companies to adopt financial transformations and automate the reconciliation process to help their F&A teams.
Most digitally advanced companies are automating their standardized process by creating a triggered based workflow to fetch data from internal and external sources in real time, compile the data and then identify discrepancies if any.
Automated payment reconciliations not only save companies a lot of time but also makes the process easy and error free. As the workflows are based on triggers and conditions, these conditions are bound to change with change in business requirements or adoption of new technologies, sales channels etc. and therefore just like standardization of process, the automated workflows should also be analysed and updated on a periodic basis.
4) Analyse Key Performance Indicators
Errors in payments reconciliations can lead to discrepancies in bank statements and can put companies at financial risk. That’s why, most eCommerce sellers & D2C brands are focusing on making the process as efficient and error free as possible.
However, the payment reconciliation process, whether it is automated or done manually, can be efficient only if it is analysed on a regular basis to check if there are any gaps in the process or to explore opportunities of improvement.
Some major key performance indicators that sellers & eCommerce managers can keenly observe are:
- Average time required to complete reconciliation process
- Quality of reconciliations (number of reconciliations done right the first time)
- No. of discrepancies identified in each reconciliation
Once you have set the benchmarks, you can re-run the process in loop till you achieve the best results. This analysis is essential as it provides complete visibility and highlights room for improvement.
5) Integrated Solutions
Data analytics is the most difficult part of the reconciliation process and most errors take place in this step only. Maximum efforts of the F&A team is spent in obtaining, cleaning and loading data rather than analysing the results and ensuring there is no error in the financial statements. However, there is an easy way out.
There are service providers in the market that can provide solutions to easily execute the payment reconciliation process. Such services include technological solutions that can automatically import and compile transactional data from sources such as ERP systems or directly from marketplaces such as Flipkart, Amazon, Myntra and many more.
Apart from data import and reconciliations, these solutions also provide features such as transactional reports at multiple levels and analysis of the reconciliation workflows and processes.
These solutions take off the pressure from F&A department by giving them access to automated, updated & detailed report of real time costs & earnings. Some software can generates accurate, simplified & detailed reports within minutes. Also, the data is updated in real time directly from the sources, thus ensuring a way to make sales & reconciling payments simple, efficient and hassle free.
eCommerce sellers & D2C brands have to simply identify the software solutions. A user simply needs to use pre-built ERP APIs that link these solutions to ERP systems and marketplaces.
6) Upskilling Teams
While we have discussed some practices that make payment reconciliation processes efficient, they can only work if the companies train and skill their employees to execute these practices successfully.
Companies these days are realizing that digital transformation in true sense is not achieved by just adopting technology platforms but also by transforming employees as well. Therefore, eCommerce sellers & D2C brands are taking up in-house upskilling and reskilling initiatives.
Members of the F&A teams especially, are required to be trained to implement these automated and integrated solutions and also to continuously assess their performance.
Conclusion
Payment reconciliation is a tedious but necessary task for any company and in case of companies that are selling products on multiple platforms, it becomes much more challenging. However, the above six practices can tremendously help the finance and accounting teams to perform the reconciliation effectively and efficiently.
An optimized payment reconciliation process can help companies to prevent overdrafts, pay obscure fees to marketplaces, reduce risk, prepare financial statements smoothly and analyse financial trends in cash inflows & outflows.
Also, by automating the reconciliation process or by adopting a fully integrated solution, the F&A team can save a lot of time and use their energies in analysing and correcting newer inconsistencies.
However, it is extremely important to make continuous improvements in the workflows and automations because despite new systems and internal financial transformations, there will always be a need to update these workflows. To know more about reconciliation you can check out this video.
