Financial reconciliation explained: What you need to know

Financial reconciliation is an accounting process where businesses compare two sets of financial data.

The main goal is to ensure the information is correct, identify discrepancies, and quickly resolve them.

The financial reconciliation process

Financial reconciliation involves checking and matching internal records with external documents, such as invoices, receipts, and bank statements.

Businesses like retailers or hotels regularly do reconciliation to maintain the integrity of their financial records.

Financial reconciliation verifies the reliability of a business’s financial statement.

Businesses do this to confirm:

• They’re accurately credited for incoming revenue

• The outflow of funds aligns correctly with documented and acknowledged payments

"Adyen's settlement features help HUGO BOSS establish rock solid and lean accounting processes, regardless of the payment method or channel the transaction happened."

Boris Griesinger

Head of Finance Operations, HUGO BOSS

There are multiple reasons why financial reconciliation is beneficial for businesses. Here are the top four:

1. Accurate financial records: When a business processes or records financial transactions, discrepancies and errors may happen. Reconciliation serves as a method to find these disparities and solve them.

2. Fraud detection: Financial reconciliation helps with risk management. By comparing records, businesses can find discrepancies that suggest a fraudulent transaction.

3. Compliance with regulatory standards: Reconciliation helps businesses meet compliance and regulatory requirements, maintain auditing standards, and produce financial statements that follow regulations.

4. Decision making: Financial reconciliation helps businesses make informed and strategic decisions based on accurate insights; not guesswork.

The types of financial reconciliation varies. Here are the most common:

1. Payment reconciliation: A financial process where businesses compare the payments made (or received) to what is recorded, and ensure they match.  

2. POS reconciliation: This is similar to payment reconciliation, with the main difference being that POS reconciliation focuses on transactions from POS systems. 

3. Intercompany reconciliation: Compares and verifies financial transactions between companies owned by the same corporate group.

4. Inventory reconciliation: The process of comparing inventory data with what businesses have in stock.

5. Digital wallet reconciliation: Involves verifying digital wallet transactions to ensure that internal records align with statements from digital wallet providers.

Although financial reconciliation is essential, businesses often face challenges that make it a complex, complicated process. These challenges include:

#1: Legacy providers

Many businesses work with legacy providers who have different, disconnected systems for online and in-store operations.

Automating the process isn’t an option, as these providers often use legacy infrastructure and don’t offer the modern technology needed.

Instead, businesses do it manually, which can take days or weeks.

This often requires specific teams consisting of more than four FTEs focusing on financial reconciliation. The end result? High operating expenses and wasted time.

#2: Fragmented processes

An enterprise business often operates across regions, in multiple locations and with multiple payment service providers.

The different acquiring banks and fragmented systems make consolidating the data and reconciling payments a challenging task.

If the central finance team needs to pull out a report for a specific region, they need to manually download reports from each country and combine them.

#3: High overhead and errors

As reconciliation is mostly manual, there’s a higher risk of human errors, leading to teams spending time troubleshooting and fixing issues.

Human errors in reconciliation may also result in non-compliance, leading to penalties or legal consequences.

Over 30% of organisations see errors from manual processes as a primary financial reconciliation challenge.

The most efficient way to do financial reconciliation is to automate the process.

That way, businesses can spend more time on other high priority tasks. With automation, businesses can:

• Streamline the process: Data from all operations and channels are consolidated in one system, minimising overhead and time invested.

• Centralise the view: Comprehensive reconciliation services are provided in one central location in one single format.

• Minimise human errors: Implement automated reconciliation to eliminate human errors and get more timely and accurate reporting.

As new technology emerges, increasing financial reconciliation efficiency becomes easier.

With our unified reporting portal, Adyen can help you reconcile and settle transactions seamlessly across payment methods and channels — all in one platform.

Want to reduce your financial reconciliation from days to hours? Get in touch with our team.

Improving financial reconciliation efficiency in retail 

For large or omnichannel retailers, financial reconciliation can be a complex and time-consuming task, especially when data is fragmented across multiple systems.

Finance teams often spend significant time matching each line item from the point-of-sale (POS) system to settlement data and resolving any discrepancies that arise. Whether due to failed payments, refunds, or chargebacks, these discrepancies must be flagged and investigated. This ensures accuracy, but it involves a great deal of manual work.

Manual reconciliation also increases the risk of errors. To solve this, retailers are turning to unified payment platforms, where processing, acquiring, and reporting all happen in one place. 

With end-to-end visibility and automated reporting, reconciliation becomes faster, more accurate, and far less stressful.

Simplifying night audit for hospitality 

When it comes to financial reconciliation, hospitality businesses often face fragmented processes, managing payments across multiple systems such as PMS, POS, and booking engines, each with different providers, reports, and timelines.

With this setup, a hotel management group operating multiple brands under one umbrella may struggle to consolidate reporting across properties.

Similarly, a franchise hotel might use different PSP for different locations, making settlement more complex. This leads to manual work, delayed reporting, and mismatches in guest billing.

Hospitality businesses also often struggle to align the sales day closing time with the night audit. For example, a hotel restaurant might close at 12 a.m. on Thursdays but at 2 a.m. on Fridays. However, due to lack of flexibility, hotels may be unable to adjust the sales day closing time accordingly. As a result, purchases made after midnight on Friday appear on Saturday’s receipts, causing reporting inconsistencies.

The ideal scenario for hospitality is a unified view of all payments, by guest, brand, or property, with automated reconciliation and centralized reporting. This allows hospitality businesses to simplify processes like night audit by using dynamic sales day to define when their sales day should end on different days. Hospitality businesses that work with Adyen have decreased time spent on night audit from 40 minutes to 10-20 minutes.

With our unified reporting portal, Adyen enables businesses to reconcile and settle transactions seamlessly across diverse payment methods and channels, all in one place and in a standardized format.

For hotels this means all payment touchpoints across the hotel experience are connected through a single platform—streamlining operations, simplifying night audit, supporting dynamic sales days, and providing finance teams with a single source of truth.

For retailers, this reduces the burden on finance teams. With Adyen, they can automate the reconciliation process, increasing accuracy, reducing risk of errors and freeing up employee resources.

"Adyen's settlement features help HUGO BOSS establish rock solid and lean accounting processes, regardless of the payment method or channel the transaction happened."

Boris Griesinger

Head of Finance Operations, HUGO BOSS

Discover more about how HUGO BOSS enhanced operational efficiency. 

With Adyen, you get a single platform to streamline operations and ensure all reconciliation is managed in one place. This includes:

• Real-time, automated reconciliation

• Consolidated reconciliation

• Resource-efficient reconciliation

Merchants have reduced the FTEs working on reconciliation from four to one after adopting Adyen's modern solution. Your team saves days on financial reconciliation and can instead focus on enhancing customer experiences and driving business growth. 

Want to take the next step in your journey to reducing financial reconciliation from days to hours? Get in touch.