Ecommerce Reconciliation Best Practices

In the fast-paced world of Ecommerce, where transactions are happening around the clock, reconciliation is a critical aspect of financial management. Ecommerce reconciliation involves matching various data sources to ensure that financial records are accurate and in sync.

If you're looking for more in-depth insights on financial reconciliation, we highly recommend checking out our comprehensive blog on the topic.

Proper reconciliation can save your business from costly mistakes and ensure that your financial statements are reliable. In this blog, we will explore the best practices in Ecommerce reconciliation to help you streamline your financial processes and make informed decisions.

Regular and Automated Reconciliation

One of the fundamental best practices in Ecommerce reconciliation is to make it a regular and automated process. Regular and automated reconciliation serves several crucial purposes that ensure the accuracy, transparency, and health of your financial records. Here's why regular reconciliation is vital:

Ecommerce businesses deal with a high volume of transactions daily. Regular reconciliation helps identify discrepancies, errors, or anomalies in your financial data promptly.

Regular reconciliation acts as a deterrent to internal and external fraud. When employees or third parties know that financial records are regularly scrutinized and discrepancies are detected, they are less likely to engage in fraudulent activities.

Whether it's assessing your company's financial health, planning for future growth, or complying with tax obligations, your decisions rely on the integrity of your financial data which is assured by regular reconciliation.

Regular reconciliation fosters transparency and accountability within your organisation. It ensures that every financial transaction is properly recorded, audited, and documented.

Regular reconciliation simplifies the process in preparation for internal and external audits. It provides a well-documented history of financial activities, which auditors can review to assess compliance and accuracy.

With the volume of transactions that Ecommerce businesses handle, manual reconciliation is prone to errors and is time-consuming. By automating the reconciliation process through Ecommerce payment reconciliation software, you can ensure that it happens regularly without manual intervention. Generally, businesses may consider performing automated reconciliation activities at the following intervals:

Daily Reconciliation: Ecommerce companies with high transaction volumes often opt for daily reconciliation. This frequency helps detect and address issues in real time, reducing the chances of discrepancies accumulating and becoming more challenging to resolve.

Weekly Reconciliation: Smaller businesses with moderate transaction volumes often perform weekly reconciliation. This cadence provides a balance between prompt error detection and resource allocation.

Monthly Reconciliation: Monthly reconciliation is suitable for businesses with lower transaction volumes. While it may not catch discrepancies as quickly as daily or weekly reconciliation, it is still crucial for maintaining the integrity of your financial data.

Quarterly and Annual Reconciliation: In addition to frequent reconciliation, it's advisable to conduct comprehensive quarterly and annual reconciliation for a more in-depth review of your financial records. These reviews ensure long-term accuracy and compliance.

There are Ecommerce reconciliation software tools available like our very own AI-powered platform - FinanzOS, that can help you automate reconciliation. These tools can match your financial data from various sources, such as Ecommerce platforms, payment gateways, shipment partners, bank statements, and inventory management system, to help you identify cost leakages & fix them before they impact your business. Automating the process not only saves time but also reduces the chances of human error.

Reconcile All Data Sources

Ecommerce businesses are complex as they deal with multiple data-sources, including accounting software, marketplaces, own Ecommerce websites, payment gateways, shipping partners, order management system, warehouse/inventory management system, banks, and more. These data sources provide Ecommerce businesses with financial data like orders, settlements, returns, shipments, refunds, and inventory among others. It is crucial to ensure that all these data points across the data sources are in sync by leveraging reconciliation to identify inaccuracies & fix them quickly, ensuring accurate financial records at all times. This means matching your sales transactions with the corresponding payments and refunds, checking that your inventory levels align with your purchases, sales & returns, and verifying that your shipping costs match with the rates contracted with your shipping partners.

Neglecting any of these data sources can result in discrepancies that might be challenging to spot later. A holistic approach to reconciliation ensures that your financial statements are comprehensive and reliable.

Standardize the process

The Ecommerce reconciliation process comprises several steps incl. transaction data gathering, data aggregation, gathering financial statements, transaction matching, reconciling & identifying discrepancies, and resolution. For a repeatable & predictable reconciliation process, it is important for companies to standardize the steps and data templates with the help of documentation as much as possible in order to prevent manual errors and ensure continuity in case there’s churn in the team. It is important to keep revisiting these standardized steps & templates to continuously improve the performance of your reconciliation process.

Use Reconciliation Reports

Reconciliation reports are an essential tool for tracking and documenting the reconciliation process. These reports detail the steps taken in the reconciliation process, any discrepancies found, and the corrective actions taken to resolve them. Reconciliation reports provide transparency and accountability in your financial management, which is crucial for internal and external audits.

Additionally, reconciliation reports generated by Ecommerce reconciliation software can serve as a historical record of your financial activities, helping you identify trends and potential issues over time.

Reconcile Your Payment Gateways

Payment gateways are at the heart of Ecommerce transactions. Reconciling your payment gateways is crucial to ensure that the payments you receive match the orders you process through your website. This involves matching the transactions recorded on your Ecommerce website with the transactions processed through your payment gateway.

In addition, you should regularly reconcile your payment gateway statements with your bank statements. This step helps ensure that the funds deposited into your bank account match the sales made through your Ecommerce website and processed by your payment gateway.

Monitor Chargebacks and Refunds

Chargebacks and refunds are part and parcel of the Ecommerce business. Properly reconciling these transactions is essential to maintain accurate financial records. Failing to account for chargebacks and refunds can lead to overstatements of revenue and inaccuracies in your financial statements.

You should reconcile chargebacks and refunds with the corresponding sales transactions and ensure that they are properly documented. This not only helps in financial accuracy but also in identifying trends or issues that may require your attention.

Implement a Three-Way Match for Inventory

Inventory reconciliation is a critical aspect of Ecommerce, especially for businesses that sell physical products. A best practice for inventory reconciliation is to implement a three-way match system. This system involves comparing the data from three sources: purchase orders, receiving reports, and invoices.

By matching these three sources, you can ensure that the inventory you have on hand accurately reflects your purchases and sales. Any discrepancies can be identified and fixed right away. A well-managed inventory reconciliation system helps prevent stockouts, overstocking, financial inaccuracies, and inventory leakages/write-offs.

Keep a Reconciliation Log

Maintaining a reconciliation log is a helpful practice for Ecommerce businesses. This log documents all the reconciliation activities performed, including the date, the responsible person, the data sources reconciled, and any discrepancies found. It's an excellent way to track your reconciliation efforts and demonstrate compliance with best practices.

The reconciliation log can also serve as a reference for historical data and support for any internal or external audits. It's a valuable tool for maintaining transparency and accountability in your financial management.

Build internal controls & conduct periodic audits

Even with the most experienced & skilled team at the helm of managing reconciliation processes, manual errors tend to creep in. It is, therefore, imperative that companies build internal checks or controls to identify any errors. Additionally, periodic audits are also needed by companies as part of ensuring financial accuracy. Audits should be conducted by internal or external auditors who can review your reconciliation processes, financial data, and documentation for compliance and accuracy.

Audits can uncover discrepancies or areas for improvement that may have been missed during regular reconciliation processes. They help maintain the integrity of your financial records and provide assurance to stakeholders that your financial management is reliable.

Upskill your teams

In order for companies to implement some of the above best practices in order to ensure their reconciliation processes are foolproof allowing zero leakages in the form of excess charges by marketplaces, missing or damaged returns, shipment charges etc, their teams need continuous upskilling to keep pace with the growing complexities of business.

Moreover, Ecommerce companies are also increasingly acknowledging the need for technology adoption to transform some of their key yet error-prone processes that could have a significant impact on their business & bottom line. Therefore, as more & more Ecommerce companies adopt Finance Transformation platforms like FinanzOS that are purpose-built to address some of their most complex challenges incl. Reconciliations, they would need to upskill their teams to deliver the most impact.