The Quick Guide to Credit Card Reconciliation Alternatives

The traditional corporate card has long been viewed as a necessary evil in doing business. It allows employees to serve their needs, especially in categories like travel and expensing. But the corporate card isn’t always the best way to add purchasing power to your organization, and managing credit card spend comes with a lot of baggage.

Today we’ll address the basic process and pitfalls of credit card reconciliation. This article offers ways to make credit card purchasing less risky and burdensome and suggests alternatives to take the manual labor and detective work out of corporate spending. We’ll cover:

What is credit card reconciliation?
Types of credit card reconciliation
Why credit card reconciliation is important
The challenges of reconciling credit card purchases
Steps in the credit card reconciliation process
Alternatives to credit card reconciliation

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What is credit card reconciliation?

Credit card reconciliation matches and verifies a company's internal records against its credit card statements. This process confirms that all transactions on the credit card are accurate and coincide with the general ledger (GL). Matching helps to detect any discrepancies or fraudulent activity. Reconciling credit cards aims to determine if transactions need adjustment or correction before financial close.

Reconciliation is an essential element of bookkeeping as it maintains the accuracy of financial records while helping to prevent fraud. It also ensures a business’s spending and revenues are properly accounted for.

Types of credit card reconciliation

Like any other spending category, credit card activity affects the income statement and balance sheet. For this reason, accounting must reconcile transactions appearing on the monthly statement and incoming payments from card-based purchases of its products and services.

Expenses for the company’s goods and services appear on credit card statements at the end of every month. Every card must be reconciled to ensure all transactions match approved company spending. This includes incidental expenses like travel and catering, as well as subscriptions and recurring payments.

Payments for services show up on the merchant services report. These are transactions by buyers who use a credit card to order your products or subscribe to services. Other activities, like chargebacks, will also appear in this report.

Why is credit card reconciliation important?

An ounce of prevention is worth a pound of cure. When it comes to credit card spending, prevention can be worth thousands of dollars in revenue.

Reconciling credit card transactions prevents several costly issues that would otherwise fly under the radar. Companies that stay ahead of their credit card reconciliation see the following benefits:

Error detection: Although electronic transactions are usually accurate, mistakes happen. Reconciling credit card transactions verifies that the company only pays for its own purchases and avoids errors like double charges or other unintentional issues.

Accurate financials: Indirect spend is often a company’s biggest expense category, and a significant portion of indirect spend may occur on a corporate card. Reconciliation ensures that finance accurately reports spending that originates on a credit card.

Fraud prevention: Credit cards are a playground for fraudsters, especially when stakeholders use a physical card at a vulnerable terminal or make digital purchases through unsecured means (like using unsecured public wifi). According to JP Morgan, commercial card fraud has increased 10 percentage points since 2021. And in 65 percent of transactions with stolen card data, the physical card isn’t present for the purchase. Reconciliation validates that no fraudulent charges occur on your account. If charges appear, they’re easier to track and remedy as they occur.

Clean audits: Financial auditing is a detailed process ensuring the company follows all generally accepted accounting principles (GAAP) and regulatory requirements. Missed transactions lurking on a credit card can be hard to track down. They make an audit more time-consuming and may lead to adverse findings.

Spend visibility: Predicting and controlling spend requires granular knowledge of expenses, many of which might originate on a credit card. Reconciliation allows the accounting team to capture every transaction for later reporting, spending analysis, budget allocation, and analysis.

What makes credit card reconciliation challenging?

Chasing credit card transactions is no one’s favorite accounting task. The nature of credit card spending and reporting makes it tricky to match expenses to reported transactions in the GL. Certain factors make maintaining accurate expense reporting in credit card spending especially difficult. Some factors are avoidable, so if the accounting department struggles with one or more of these issues, consider changing the company’s card policies.

Shared corporate cards

Sharing corporate cards between multiple stakeholders can make it difficult to ensure that all transactions are properly categorized and accounted for. Since each user makes independent purchases, tracking the source of each charge becomes more complex.

The same issue applies if a single department-wide card has no designated owner or individual responsible for reconciling its expenses. It’s easy for purchases to go unaccounted for due to a lack of clarity about the transaction or who is responsible for reporting it. As a best practice, each corporate card should have only one billing owner. Procurement cards and virtual credit cards make financial operations easier for everyone.

Paper expensing

Traditional expense reporting is mainly paper-based, making it difficult to accurately account for and capture each transaction. While digitizing receipts is a step in the right direction, the best option is to avoid paper reporting altogether.

One of the best alternatives to paper-based expense reporting is implementing a software solution to capture and report expenses in real time. Leveraging digital technology, companies automatically capture each card transaction and assign it to a designated owner. It bears mentioning that digitalization still relies on stakeholder input. Even app-based “snap a picture” reporting is open to human error or delays.

Another alternative is to introduce virtual credit cards instead of physical corporate cards. Virtual credit cards are single-use numbers that allow businesses to set spending limits and track every transaction in real time without requiring manual paperwork. They also reduce the risk of fraudulent charges since they cannot be used more than once.

Complex chart of accounts

Intricate GL structures make it difficult to track credit card transactions accurately, especially when multiple departments are involved. With many different accounts, departments, and locations, it can take time to determine which account or code the transaction should be credited to. Furthermore, reconciling and verifying transactions can become increasingly challenging if several cards are associated with each account. Additionally, manual reconciliation processes can be time-consuming and error-prone when multiple accounts and funds are in play.

Delays in transaction reporting

End-of-month statements are fine for small businesses with a handful of transactions. However, as the volume of credit card-based transactions increases, the delay of end-of-month credit card statements becomes a significant liability for organizations. In many cases, the damage is done when fraud occurs on a credit card statement, and it takes extra effort and research to unwind the erroneous transaction and return the funds. This creates more work for the accounting team and has implications for expense and income reporting due to refunds or chargeback activity.

Real-time credit card monitoring is the preferred method of handling high-volume corporate credit card transactions. Another useful tool to avoid fraud or errors is to institute reasonable monthly spending limits or single transaction limits for every card.

Incorrectly coded GLs

Inaccurate GL codes make tracking and reconciling credit card transactions a challenge. If a GL code is not correctly assigned to a purchase, it creates issues when trying to identify the source of a transaction later on. This creates inaccuracies in reports, delaying month-end close and demanding more effort by accounting and finance to tie back transactions.

Steps in the credit card reconciliation process

Corporate and personal card reconciliation follows the same basic process: transaction, matching, error resolution, and reporting. While the process seems simple, matching transactions in a company of even a couple hundred employees adds significant time and complexity to the financial close process.

In general, card reconciliation proceeds in this way:

A stakeholder makes purchases using a corporate or personal credit card. They record the purchases on a purchase requisition or an expense report and submit associated paperwork or receipts according to company policy.
The finance team matches transactions to available data during the pre-reporting process and receipts during the financial close process. They check to ensure each transaction falls under the correct GL code. For any missing information or unfamiliar charges, the team researches the reason for the discrepancy.
Finance contacts the credit card company to resolve outstanding charges, potentially fraudulent transactions, or discrepancies. They work with the creditor to resolve these issues, then report any refund, chargeback, or resolution activity on the finance report.

How to make credit card reconciliation easier

The best credit card reconciliation system is the one you never have to think about. Procurement cards and virtual card systems make it easier to track, control, and approve spending for every member of an organization at the transaction level.

Procurement cards and virtual spending card systems allow for budgetary control in a few ways:

P-card administrators can set limits for individual users, departments, transactions, transaction categories, or vendors. This makes it easier to track spending and ensure that everyone is staying within their allocated budgets.
Procurement card systems often have built-in approval workflows that verify all expenses have manager review and approval before the transaction is completed. This helps to avoid any potential overspending or misuse of funds.
P-cards can issue aliased account numbers that are good for single-use transactions. This means even if bad actors manage to skim financial information, the stolen data is useless.

Leave credit card reconciliation behind with Order.co

Indirect procurement is a significant portion of total spending in most companies, so making the procurement process easier and cleaner should be a top priority for companies of all sizes. A procurement management solution like Order.co centralizes spending for supplies, inventory, and non-physical purchases like licenses and subscriptions. It allows buyers to get necessary goods without reaching for a corporate card.

The Order.co platform offers a range of other benefits that help finance manage purchasing and cash flow more easily, including:

Curated supply purchasing with preferred vendors
Purchase approval processing and automation
Dynamic spending limited by role, department, level, or location.
Financial options, like Capital Advances, that work like a business line of credit (only better!)
Virtual cards to empower users with self-service buying that maintains budget controls

If your team wants to spend less time chasing receipts, Order.co can stem the flow of credit card purchases, improve budgetary controls, and simplify payment all in one place. Schedule a demo of Order.co today.

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