Reconciling Your Payment: The Ultimate Guide for 2021

This guide explains how you go about reconciling your payment. It provides a step-by-step process of reconciling your settlements, adjustments and refunds and disputes.


Here’s a fact you might find interesting. 

The global eCommerce market will touch USD 4.89 trillion in 2021. That means there are USD 4.89 trillion of funds that will need to be reconciled. But what is payment reconciliation and how can you achieve an error-free process? 

Reconciling Your Payment Meaning/What is Payment Reconciliation

Let us assume that you own an eCommerce shop that sells cosmetics. You will need to know your cash flow as well as your expenditure to understand how much profit you are making. Moreover, this information will help you chalk out a business plan for the future. This is exactly what payment reconciliation means.

In simple terms, reconciling your payment is just cross-checking the business income and expenses. Most companies use ERPs and established systems to reconcile payments. These systems have detailed sub-ledgers under the main general ledger. 

However, nowadays, companies using payment gateways (PG) often use their in-built dashboards for payment reconciliation. Moreover, these dashboards help them get detailed payment analytics. For instance, they can analyze the most popular payment mode amongst their customers or net transaction amounts.  Consequently, this information can be used to optimize their sales and marketing initiatives to boost sales. 

Related Read: Third Party Payment Processors: Detailed Guide

But we are getting ahead of ourselves. First, we need to understand the difference between settlement and reconciling your payment.

Difference between Reconciling Your Payment and Settlement

Every payment gateway has a settlement cycle. Simply put, a settlement is a payment gateway crediting funds in a company’s merchant account. A settlement cycle is a time between the customer making the payment and the payment gateway crediting the funds to the merchant’s account. On the other hand, reconciling your payment is reviewing all your business transactions like total expenditure and income.

Reconciling Your Payment

Now, payment gateway settlements can of two types: Standard and Instant.

Standard settlements are dependent on bank working days and are usually T+2 to 4 days. Here, ‘T’ signifies the date that the customer made the payment. In the case of Instant settlements, the payment gateway credits the fund in the merchant account within 15 minutes. Interestingly, instant settlements can be processed on bank working holidays as well! 

Naturally, the nature of settlement affects the reconciliation process. Some payment gateways (like Cashfree) provide real time reconciliation. (more on this later) In the case of instant settlements, reconciliation is much faster and efficient. 

We will be discussing more on this topic but first, let’s have a look at how payment reconciliation works. 

Reconciling Your Payment: Step by Step Process

To understand the payment reconciliation process, we need to understand payment settlement. Thankfully, both of these tasks are effortless with payment gateway dashboards. 

That being said, here is a step by step guide on reconciling your payment:

1) Customer selects a product and heads to checkout. They enter their card/payment details.

2) The customer authenticates the transaction and the payment gateway securely communicates the information to Acquirer and back.

3) The payment gateways (PG) receive the money from their acquiring bank. Thereafter, the payment gateways credit funds in the business’s merchant account. This is known as the settlement.

4) If the settlement is instant, the transactions are instantly and automatically updated. You can track settlements for all the transactions in one place: The Dashboard. All the settlements can be sorted by date and the merchants can check the standard and instant settlements. 

5) Next, you can apply filters to get customized reports of transactions/settlements done within a specific period of time. If the transaction is ongoing, the settlement status will be reflected as well. 

6) You can also check the settlement status for any specific transaction. Every transaction has a unique order ID. The settlement status can be processed or pending.

Pro Tip: Difference between payment gateway and merchant account

Reconciling Settlement with Transactions

Now, most payment gateways offer a report model. Essentially, this means that you can download weekly or monthly reports and reconcile them. Each “settlement report” contains the list of transactions carried out within that settlement cycle. Now, each “settlement report” gives you insights into each transaction. For instance:

1) Date and time of the transaction

2) Transaction amount

3) Order ID which is unique to each and every transaction

4) Merchant Discount Rate charges on each transaction

5) Net Settlement Amount i.e. the actual amount settled into the merchant’s account

6) Date and time of settlement

Reconciling Adjustments in Settlement Cycles

Furthermore,  the settlement reports include the adjustment made in each settlement cycle. Adjustment is basically accommodation done in the next settlement cycle by the payment gateway. 

For instance, let’s assume that you sold two products of Rs. 100 each on February 1. So, after the payment processing, the payment gateway credits Rs. 200 in your merchant account. 

However, two weeks later, one of the customers returns the product. In that case, the payment gateway will refund Rs. 100 to the customer. Simultaneously, it will adjust these Rs.100 in the next settlement cycle and deduct it in that cycle. So, if the payment gateway is supposed to credit Rs. 1000 in your merchant account, it will only credit Rs. 900.

So, what are the kinds of adjustments done in a payment settlement cycle? Here’s what you need to know.

1) Fund Sweep- Amount which is settled in the business’s merchant account.

2) Settlement Compute- The Total (Summation) of all transactions in the present settlement cycle.

3) Refund- Refund initiated by the merchant.

4) Dispute- Dispute against a transaction.

5) Risk- Any transaction that is identified as a risk transaction.

Reconciling Refunds and Disputes

Did you know that 92% of shoppers choose to shop again if the refunds process is easy? Evidently, a quick and reliable refunds policy is central to customer retention. However, reconciling refunds can be quite a task.

However, processing refunds through a payment gateway can make the task a whole lot easier. Moreover, reconciling refunds is a breeze. All you have to do is click on Transactions > Refunds. 

Thereafter, you can reconcile refunds on the basis of their date and time, order ID and status. It will also give you details about the refund amount and payment method. 

Reconciling Your Payment with Payment Gateway

According to reports, the Indian payment gateway market will grow to 1.71 billion U.S. dollars. Naturally, a lot of merchants rely on payment gateways for their payment reconciliation. But what are the advantages of reconciling your payment with a payment gateway?

Reconciling Your Payment

Real-Time Reconciliation

Online payment processing involves a lot of players. This means that any delayed response from any player can result in delayed reconciliation. For instance, it is possible that the funds are deducted from the customer’s account but they couldn’t reach the business merchant account. This can increase payment uncertainty and disrupt business forecasting. This is where real time reconciliation comes in.

Reconciling your payment in real-time will allow you to get the definite status of transaction status. This eliminates the uncertainties attached to payment delays. 

Now, real time payment reconciliation is especially important for businesses offering dynamic prices. For instance, the ticket charges for airlines can vary according to the time of booking. Now, let’s assume you are a travel agency. It is only possible for you to proceed with the booking if you get a payment confirmation. With real time reconciliation, you can get payment confirmation anytime between 10 minutes to 1 day. 

So, how do payment gateways help with real time payment reconciliation?

1. For starters, merchants get the immediate status of each transaction.

2. Payment gateway automatically refunds the money to the customer in case of failed transactions.

3. Merchants do not have to pay TDR charged for unsuccessful transactions. 

Payment Analytics

One thing is true for all established and growing businesses alike. Scalability and business growth depend on current cash flow

Now, payment gateways have detailed payment analytics and reporting capabilities. Hence, they help businesses make educated decisions. For instance payment gateway dashboards can give you the following insights.

1. Payment volume

2. Payment modes- net banking, cards, UPI, wallets etc.

3. Platforms (iOS, Android)

4. Date and time of payment

Now, these insights can also help you make marketing decisions. For instance, if UPI is the preferred payment mode of payment, you can offer special discounts on the same. This can also reduce cart abandonment.

Automation of Reconciliation

One of the biggest pros of reconciling your payment through a payment gateway is automation. There is almost no space for manual error. Moreover, merchants can filter transactions on the basis of their transaction status and many other variables. Furthermore, all the refunds and vendor payments can be easily accommodated in a single settlement cycle. 

User Friendly

Above all, payment gateways make reconciling your payment a breeze. Merchants can view every transaction with a unique reference ID. Moreover, details like time of settlement, transaction amount, MDR are easily available. Most importantly, the dashboard acts as the platform with all the consolidated information on every settlement cycle, refunds, vendor payments, payment link transactions, etc. 

Lastly, payment gateways might have dedicated account managers and features like live chat. They can help you with your payment reconciliation in case of doubts or errors. 

FAQS on Reconciling Your Payment

What are the 3 types of reconciliation?

Here are the three main types of reconciliation:

1) Bank reconciliation– Cross-checking the business book of accounts to the bank account statements. Regular bank reconciliation helps ensure that there are no missed payments, theft or mistakes due to human errors affecting the transactions.

2) Vendor Reconciliation- Matching the vendor’s statements with the account payable to the vendor. 

3) Custom Reconciliation– Cross-checking the customer’s outstanding balance to account receivables to ensure there are no inaccuracies. It also helps identify any fraud related to account receivables. 

What is high risk reconciliation?

High risk reconciliation is associated with high risk merchants. Basically, high risk transactions have higher chances of dispute or chargebacks. Banks or the payment gateway can mark a transaction as high risk. Consequently, the settlement to such a merchant is put on hold until the issue is resolved. Naturally, this leads to a delay in the payment reconciliation process and hence, they are termed as high risk reconciliation.

A merchant can be high risk because of its industry or the low financial credibility of its past transactions.

What is a POS reconciliation?

POS reconciliation is basically cross-checking accounts to ensure that the money spent is equal to the money leaving the POS account. It helps eliminate accounting errors and help identify any unauthorized transactions.

What is General Ledger in banking?

A general ledger is a way for business to track their financial accounts. The ledger may include all their income, expenses or revenues. Usually, large businesses combine the payment analytics provided by payment gateway with sophisticated ERP systems for accounting. 

What are the 5 types of accounts?

The five major categories of accounts included in the general ledger are liabilities, assets, revenue, expenses and equity.