eCommerce Payment Reconciliation: What is it and Why Does it Matter for Your Business?

Today’s customers expect a consistent experience and exemplary quality standards in their transactions even if their journey is fragmented and inconsistent. Although omnichannel eCommerce opens up the floor for sales opportunities, it also brings with it the concern of managing eCommerce payment reconciliations, given the multiple payment modes in existence.

eCommerce payment reconciliation is a crucial financial process that unifies disparate payments and verifies transactions recorded against the payment data available.  Without automation, it can be a nightmare for finance teams to comb through voluminous transactions. And by the time they find the discrepancy, your business has already suffered from revenue leaks. This is why eCommerce enablement platforms with inbuilt reconciliation systems are so sought after.  

In this post, we’ll explain what eCommerce payment reconciliation entails and elaborate on specific use cases that support why sellers should upgrade to an automated payment reconciliation system.

Defining eCommerce Payment Reconciliation

eCommerce payment reconciliation is a multi-purpose tool which supports all efforts to plug profitability leaks. It offers an overview of all transactions and ensures sellers are given what they’re owed from different marketplaces after all applicable charges, while ensuring there are no overcharges. It accounts for various fees that are fixed and variable before calculating settlements, pending dues etc.  The advantage of automating payment reconciliation over manual reconciliation is the time saved on large volumes of data. The granularity makes it easier for finance teams to tally settlements and provide updated and detailed reports into inventory costs. 

By design, marketplaces accept multiple payment modes from different channels spanning cards, digital wallets, netbanking, mobile banking etc. When the right data is available, sellers gain insights into factors impacting their bottom line- including precise knowledge of the profits they make per hour, and which channels are making them the most and least money. They can also keep track of refunds, replacements and exchanges initiated at a channel-level and ensure that the information on actual charges on hand matches the estimates for expected charges. 

If a seller operates both offline storefronts and digital stores, then Point Of Sale transactions come in as an additional payment mode,,which is why payment reconciliation has multilayered complexity. 

The Inner Workings of eCommerce Payment Reconciliation 

eCommerce payment reconciliation is a multi-step process, comprising;‍

Data collection

The system collects all transaction data including dates, payment modes and transaction value. It proceeds to tally these figures against financial statements of payment gateways and bank statements. The date range should match the transaction data pulled from sales channels.

Compare Records

Each transaction recorded is matched to entries in payment processing statements by the amount, date and other pertinent details after account for applicable charges.

Identifying and resolve discrepancies

Values that do not add up get flagged and separated from the list for further investigation. The seller has to factor in delays in figures reflecting in bank statements before determining if discrepancy needs checking.

The finance team identifies causes behind discrepancies such as chargebacks, duplicate charges and returns fraud in order to resolve them.‍

Reporting

The reconciliation reports summarize matched, mismatched transactions and corrective adjustments made which are then shared with stakeholders. All documentation of the reconciliation trail should be secured and tamper-proof. 

Process improvement

Improvements should be iteratively introduced to refine discrepancy identification such that high occurrences are minimized for the next reconciliation. 

It's crucial that eCommerce payment reconciliation isn't left for the last minute because that's when errors multiply and become irreconciliable. Standardizing reconciliation in terms of team, time and business goals helps you to comply with legal and tax requirements. In the next section, we will explore a few use cases where automated reconciliation systems come in handy.

eCommerce payment reconciliation use cases

There are specific use cases that necessitate sellers to use payment reconciliation, which are as below,

Order-level payment reconciliation

In B2C, order-level payment reconciliation typically sees high order volume and transactions that run into lakhs. Marketplaces impose forward and reverse charges(aka penalties on returns) on enterprises, along with its commission. Depending on the category, nearly 10-30% return to origin, complicating the payment structure. Naturally, manual reconciliation is out of the question because of the time the accounting team will need to set aside. That too, without guaranteed accuracy!

Automating the process through integrated payment reconciliation platforms like EasyReco help merchants with order-level charges and payments, enabling the correct identification of delivered orders and returned items with a comparison of expected and actual charges. If there are any discrepancies in the records, those disputed transactions are highlighted for review, ensuring sellers can resolve and bring them down.

Overcharged orders

Overcharged orders refer to those orders that have a variation between expected (calculated) charges and actual charges.  

We’ll explain this with an example.

 Let’s say that Flipkart and a seller have agreed for a 10% commission on their selling price with a shipping fee of INR 50. If the selling price levied by the merchant is INR 1000, the marketplace should charge the seller INR 150 (10% of 1000 + the shipping fee). The actual charge can however vary between INR 180-200, creating an overcharge of INR 30-50 per order. With a reconciliation platform, sellers can find out the source of the variance and raise a dispute with the marketplace to reclaim the extra deduction.

Unpaid orders

Orders that are left unpaid are filed into the reconciliation software under the status of “payment pending” to remind sellers to collect it before the window passes.  

Overcharged returns

Depending on the marketplace, the effort to coordinate and collect returns are charged to sellers based on quantities. In some cases, overcharges occur similar to overcharged orders. With a reconciliation platform, sellers can check the actual charges against their estimated return charges to catch deviations. 

Profitability

The primary purpose of any reconciliation system is to protect profitability. Here’s an example of a threat to potential margins;

A seller incurred a cost of INR 100 for an order (manufacturing and assembly) and sold it for INR 200. After paying the commission of INR 50-80/-, the seller makes a profit of ~INR 20 which is the gross margin. Multiply this by a factor of 100, and the seller makes a profit of INR 2000. 

The trouble is if some of those orders are returned, which means the seller hasn't made the sale.  If the seller ships 100 such units and 30 makes its way back, the profit is reduced to INR 1400 (30 (qty)*20(profit per order))=600 which is subtracted from the original 2000). The profitability is further impacted by the returns penalties. If the marketplace imposes a fee of INR 50 for every return, you’re paying 1500 which creates a -100 difference i.e a negative settlement. This particular use case impacts small to medium sellers and results in them suffering from heavy losses. 

ERP integration

ERP integration raises invoices that are knocked off as and when payment hits the seller’s accounts. This particular use case affects larger brands. If you’re a seller with active listings on more than one marketplace, your enablement arm would integrate with ERP to simplify raising invoices. The system shows which invoices are outstanding and how many are paid as a bulk settlement by date and invoice..

Promotion and rebate reconciliation

Promotion reconciliation refers to payments that hit the seller’s account during an event or festive sale.  During a festive block, category heads of different marketplaces  approach the seller community belonging to large brands and try to make a deal with them. They incentivize a price drop by offering to reimburse them the difference. The marketplace and seller will thus reach an agreement on the discount percentage to drive more footfall and purchases. The marketplace will run the sale and wait for an additional 30 days before settling payments in a lump sum with the seller against the number of sales made. 

We’ll explain this with an example. A leading footwear brand’s sandals will sell for INR 2000/- per pair. The marketplace will ask for a price reduction of INR 500/- to encourage an order influx. Out of this INR 500, half will be paid to the seller while charging them platform usage commission of 10% and shipping fees. This means that the seller will make INR 1250 per sale from the originally agreed price of INR 1500/-, under the condition that the balance 250/- will be paid out in a lump sum after the returns window passes.

The question is, how can the seller be sure that they received their correct dues from the marketplace after a sufficient length of time has passed? 

With the help of an eCommerce payments reconciliation solution the seller can plug missing information and reconcile promotion data to ensure all marketplaces with which they had an agreement have kept their end of the deal. 

Why Payment Reconciliation Matters for Businesses

While we touched upon what outcomes can a seller expect from  automating the eCommerce payment reconciliation process, these are the areas where it is advantageous;

Financial literacy

Sellers gain more insight into disruptions to the financial workflow and protect their bottom line from revenue leaks. It updates records and ensures flagged transactions aren’t missed or overlooked. It curbs suspicious activity and helps finance teams to make well-informed decisions. 

‍Managing Cash flow

It is important for a business to monitor and optimize cash flow. Reconciliation aids in accounting for inflow and outflow and helps companies to recover a percentage of their Gross Merchandise Value (GMV) which would have been lost in the sea of deductions and hidden charges. Consequently, the business knows their fund balance and can allot it for working capital, improving financial planning. 

Fraud detection and prevention

Returns can wreak havoc in the eCommerce plane especially if some purchases are bracketed or are carried out under fraud. A reconciliation platform can separate the wheat from the chaff by detecting such transactions by their cause and source, ensuring the seller launches a full investigation to prevent future occurrences. 

Compliance and auditing

eCommerce companies have to be SLA-positive and comply with accounting and audit compliance. eCommerce payment reconciliation software ratifies records and ensures businesses are paid and in turn pay what they owe to fulfillment providers, marketplaces etc.

Customer trust and satisfaction

Failed or duplicate transactions that need to be reversed back can be verified by matching bank statements and payment gateway information, ensuring any debit is credited back for the customer to retry purchasing. Streamlining this process quickens corrections and ensures customers do not experience frequent payment failures that risks them losing confidence in the process.

Streamlined operations

‍Essentially, payment reconciliation platforms are a diagnostic tool that finds faults and tests the security, efficiency and robustness of paywalls for different modes. By correctly recognizing successful transactions and separating failures to remedy, the business benefits from visibility into the financial aspects of their operations, reducing errors and saving time. 

Vendor and partner relationships

‍Maintain agreements between sellers, suppliers and manufacturers by ensuring all parties are given their fair share per order. Remember to review contracts to continue fostering healthy business relationships. That's when you'll come to know if the fees schedule or conditions will be revised and can renegotiate your terms before coming to a consensus.

Businesses can remain profitable only so long as they can base their decisions on the strength, accuracy and availability of financial data. Through reconciliation, businesses can control expenditure and simplify the payment and settlement structure.  In other words, eCommerce payment reconciliation isn’t just about the seller following procedure; it’s about setting a practice that protects the business's financial interests, customer and supplier relationships.

How to Choose the Right eCommerce Payment Reconciliation Tool

Time equals money, so saving both in one shot is how you know your reconciliation system is working the way it is supposed to. The right solution should seamlessly interface and allow data interactions between systems for a uniform information spread and provides a breakdown by transaction, date, marketplace commission, return volume, taxes etc. 

The reconciliation engine should

1. Capture and handle large volumes of transactions.
2. Generate results according to rules configured to matching criteria (i.e. date, SKU code, invoice number).
3. Highlight discrepancies and allow sellers to raise disputes against unsettled or overcharged payments.
4. Create an audit trail to simplify follow-ups and allow members belonging to the same team to know the status and movement. 

The Best eCommerce Payment Reconciliation Practices

Following these housekeeping rules can help you get the most value out of your eCommerce payment reconciliation platform;

Regularize reconciliation

Perform the reconciliation scan regularly and spread it across a week or a month to find discrepancies quicker. Your findings can be matched as a whole against a longer date range to segment them by cause, product and channel, auto-updating your financial records.

‍Tap into the power of automation

‍Automation can handle large and complex transactions per second. With EasyEcom’s reconciliation capabilities, you can sync paywalls, invoice, credit notes, refund statuses and banking systems to ensure your transactions data streams are centralized

Policy formulation

Your reconciliation process should outline procedures indicating steps in reconciliation for going through transactions, matching them, identifying and addressing discrepancies. This information should be compiled to guide members of the finance team, ensuring uniformity in understanding and following the procedure. While optional and subject to team size, it is a good idea to have different members work on different aspects of the reconciliation. For instance, the person working on documenting transactions should differ from the person resolving discrepancies which divides and delegates by experience and expertise. 

Reconciliation reports

‍Generate detailed reconciliation reports that include the status of matched transactions, any discrepancies that you identified and any adjustments that you made. Management or supervisory personnel should review these reports for oversight.

Upskilling teams

Conduct regular training sessions to keep your team’s knowledge up to date and in line with technological system advancements. You can arrange for your solution provider to host these sessions as part of the subscription and benefit from the experts passing on their in depth expertise to make it easier to navigate the system. 

Monitor, Review, Repeat

‍Review the reconciliation practices routinely and encourage your accounts team to revert with improvement suggestions that can save time without compromising on accuracy and quality.

Looking to strike gold? Hit your stride with a live demonstration of EasyEcom.

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