I feel that the word reconciliation can mean many things. In a personal sense, it’s to repair or restore a relationship. In accounting, it’s more of consistency and accuracy. In both situations, I think the words “harmony” or “alignment” best illustrate what reconciliation truly is.
I am probably indicating my age with my first example of reconciliation. My first bank account came with a small printed account ‘book’ which appeared very much like a checkbook. It wasn’t a checking account but I think the bank wanted to have the document appear more grown-up and to also instill good practices for its future customers. This booklet showed my balances and transactions, and it was on me to ensure that the transactions matched to what I believe occurred. Looking back, I think it was an excellent habit to establish. My financial institution was essentially suggesting that I, to a small degree, monitor and audit the transactions that they posted in my account.
And this behavior of validating or reconciling two sets of data carries on into other financial transactions sometimes as second nature. When I receive my restaurant bill, I review the line items in a quick scan to see what I am being billed for, is what I actually ate. Or in the grocery store, to double check the bill but not to determine if it made its way to my grocery bag but to validate that the price I am paying is the price I expected to pay.
This reconciliation behavior is different from balancing. The difference lies in the line item details. Balancing simply compares totals where reconciliation dives deeper into the set of records to compare individual items and not just the totals. This accounting process is to confirm that the entries between the two sets of records are matching in content and values.
Reconciliation in Business
Reconciliations happen often in business. Why? It could be to avoid accounting errors or fraud but also to keep the integrity of the accounting system: to maintain clean books. It’s a means to compare your financial records to the businesses you work with like banks and credit card companies. Businesses cannot always count on the bank to uncover fraud or errors in their account. And this process can help identify inefficiencies as well as keep a pulse on cash flow.
Reconciliations can be done with bank statements, donations for nonprofits, credit card statements, and
specific to travel: ARC/BSP statements.
And while a very basic reconciliation like a quick glance of a restaurant or grocery bill is often pain free, other reconciliations can cause misery for finance teams. The reason for that pain is when there are anomalies, it’s a problem that may not easily be solved. If a line item doesn’t match or if records are missing or mysterious records are showing, it can be incredibly time consuming for the finance person to chase after this data. And time can be against the accounting person as often they are trying to close entries for a period so they can move on to the next period. Having unreconciled transactions can cause delays for them from closing out their period. And this can also add costs in that they may need additional resources to research the issues either internally or externally.
When Does Travel and Credit Card Data Post?
Causes of the inconsistencies could also be a result of timing issues and not just errors. When something ‘posts’, it is really dependent on the underlying system whether it is instant, at a cutoff time during the day, overnight, or days later. When comparing two sets of records, it is possible that the posting between the two systems could be out of sync in which case the transactions might be accurate in description and amount but not posting in the same period.
How often should one reconcile? Most do reconciliations monthly partially for the reason above. In an ideal world, reconciliation could be instantaneous but that is not the world we live in. Daily would also be helpful because the longer an issue exists without awareness, the more problematic it will be to correct.
Credit Card Reconciliation
One of the reconciliation types mentioned earlier, credit card reconciliation, is often done because credit cards are the standard form of payment for most businesses. One might assume that unlike cash or other types of reconciliation, that credit card recs would be easy to do because the transactions are fully digital. Unfortunately, that is not the case.
One of the reasons for that is that the information can be surprisingly limited. On a credit card statement, one might have a brief description and a dollar amount. That doesn’t provide a lot of information to reconcile to. A line item could look like this:
|Apr 1, 2022||Hotel San J||$172.15|
The above doesn’t provide much to go on. There isn’t any traveler or employee attached to it let alone a cost center, GL code, or project #. And even the vendor is a mystery, I’m assuming it is going to say ‘San Jose’ but which San Jose is it and which hotel? Or could it be San Juan?
Some processes try to address this shortcoming. Level II (level 2) or III (level 3) data, for instance, refer to providing specific line item details at the time of a purchasing card or government card transaction beyond what is required for consumer card transactions. This works well at providing more data for reconciliation.
Airlines are generally pretty good at providing data, hotels are on the other end of the spectrum. Why would some merchants or travel suppliers be more likely to provide data than others? It could be a result of a variety of factors which we will get into in another article.
How much can be Automated and how much is Manual?
It really depends. When there is lots of data as in the case with Level III data, very simple logic can be applied to match and reconcile the data. In other cases, the data needs to be cleansed and normalized to make sense of what is being matched. Fuzzy logic can be used to try to automate many of those wildcard transactions but there could still be some that defy logic or matching.
Single-use virtual credit cards are a wonderful option for reconciliation. In fact, reconciliation can be 100% automated - even if there is little data provided. The magic in the virtual card process which makes it 100% reconciled because the credit card is single-use, it could only ever be matched to one particular transaction. A virtual card ending in XXXX1234 created and charged on April 2 will only ever match to the same card number on that same day so even if the merchant description is limited, it is possible to reconcile and match the transactions. The magic is that the single-use card number becomes the unique identifier between the two sets of records.
Other Benefits of Reconciliation
A final reason to do credit card reconciliation is not just as an accounting best practice or to ensure accounting integrity but to have more data! Comparing to another set of data can enrich your credit card statement. If you have a card statement with only merchant, date, and amount but you are able to match against travel data, then you are actually enriching your credit card data with information that exists on the travel side like cost center, GL codes, department names, and projects.
Tell us your challenges around credit card reconciliation. Do you know your match rate?
About Grasp Technologies
Founded in 1996, Grasp Technologies is the leading provider of travel data management, visualization and payment solutions in the T&E industry. Initially founded to address the critical need for customized reporting and data management in the travel industry, we’ve held to our belief in helping our customers thrive and to succeed by transforming data into useful intelligence.
Throughout our years in business, we’ve engineered cutting-edge travel data management, integration, intelligence and consolidation solutions for client companies of all sizes – sometimes even outside of the travel industry. Our growing suite of products and service tailor to specific business needs. We are obsessed with solving complex problems in aggregating, consolidating, normalizing, translating, cleaning and visualizing data for travel agencies/TMCs, corporations, governments, and other technology providers around the world. Our state-of-the-art solutions have been implemented in more than 100 countries to improve business intelligence and process efficiency. All leading to more profitable clients who can focus on top-line growth. We have grown in excess of 50% year over year for the last decade with back-to-back positions on Inc Magazine’s List of 5000 Fastest Growing Companies.
We have defined many of the industry’s best practices in travel data management, global data consolidation and data bridging in T&E and serve many of the global leading financial institutions and corporations. That’s why many travel management companies, corporations and corporate travel departments turn to Grasp Technologies to manage their complicated data. We believe that with happy customers and happy employees, everyone wins.