Do you feel like your company is losing more money than you can make sense of?
For retail businesses, having a firm grasp on your finances is essential for success. You must have a thorough understanding of how money is being spent to make effective decisions about your budget.
To stay on top of things, you should make reconciliation accounting a regular habit. By analyzing the transactions at the point-of-sale (POS), you can get deeper insights into your company’s finances.
In this article, we’ll explore reconciliation accounting to see how it benefits retail businesses, and how you can use it to explain discrepancies in your accounts.
What Is POS Reconciliation?
POS reconciliation is hands-down, one of the “must-do” jobs that every retailer should stay on top of.
Known as the accounting task of comparing two sets of records to see if the figures all match up, reconciliation ensures that your financial activity is properly recorded and the amounts are all accounted for. And as Investopedia puts it, this action “confirms whether the amount leaving an account is the same amount that is spent.”
Typically, people will keep internal records for their finances, and then compare those against the monthly statements from their financial institutions, such as those from their bank or credit card company.
This allows you to confirm that the amount of money that has left your account matches the amounts that have been spent. By conducting POS reconciliation, retail businesses can achieve a measure of consistency and greater accuracy in their financial records.
5 big benefits of POS reconciliation
As a retail business owner, you may not have a lot of time on your hands to carry out a full financial analysis. And even if you have the time, you might not have the head for numbers.
Regardless, you should never brush this task under the carpet – it’s crucial that you, or someone you can trust, is keeping tabs on the money going in and out of the business.
Here are five reasons to start doing POS reconciliation.
1. It eliminates any accounting errors
Even the best accountants can make mistakes. When your business scales, the activity on your bank accounts will grow, and it’s easy to overlook some transactions.
With a solid POS reconciliation process, you can catch any errors before they spiral out of control. Even if an error is an infrequent, honest mistake, it’s important to be vigilant so that it doesn’t continue to disrupt your records.
2. It ensures business deposits are always secure
Unchecked human errors can soon run you into trouble when it’s time to make deposits.
You may have regular direct debit payments set up to pay your suppliers. Imagine if the payments fail because there isn’t enough cash to cover it – that’s not going to impress your supplier or your bank. If you reconcile your accounts regularly, you’ll safeguard your business against such nasty surprises.
3. It simplifies the process of paying bills
We know that the life of a business owner can get pretty hectic. Having a few bills slip your mind can happen. So, why not make the bill paying process a little easier?
By automating bills to debit your account on a set schedule, you can gain some stability with your cash flow. However, as we’ve mentioned, it’s possible to miss payments or go overdrawn if you don’t have enough money in the account at the right time.
With reconciliation, you protect yourself against this problem and ensure you can always pay your bills on time.
4. It saves your business money
It’s easy to shrug off a late payment fee once or twice, but if you’re not careful about bookkeeping, those charges can quickly add up.
You may think you can do without an accountant, but 89% of small businesses believe they are more successful with one. With the help of a professional to look over your books, you may be surprised just how much of a difference reconciliation makes at the end of the year.
5. It helps you identify unauthorized transactions
Sometimes a questionable transaction or miscalculation in the books isn’t an honest mistake. Or, it may be a sign of something underhanded.
Employee theft costs businesses in the U.S. an astonishing $50 million per year. If you’re not vigilant about your accounts, some people may take notice and look to exploit that.
By performing reconciliation, you can quickly identify any unwanted transactions and challenge unauthorized actions with the full facts in hand.
How to do POS reconciliation
Now that the benefits of reconciliation accounting are clear, it’s time we explain how to do it.
As you may expect, it can get a little confusing to account for everything: money in the cash register, card payments, and any credit agreements or payment plans you have with customers.
We’ll lay out the fundamental steps first, then give you some bonus tips to ensure you get the full picture.
Step 1: Compare internal records with statements
To start, make sure you gather everything you need together. Look through your bank statements and internal account register, comparing transactions and marking them off as you find each match.
Step 2: Identify transactions that you can’t cross-reference
Take note of any bank deposits or payments that you can’t back up with other evidence. These may include uncleared checks, ATM charges, overdraft fees, or automated payments that have not yet been cleared by your bank.
Similarly, review your internal account records and highlight any payments that don’t show up on the bank statements. Subtract the subtotal of these items from the total balance on the bank statement.
Step 3: Verify incoming funds on both documents
Go through your internal records to check for credits and deposits, and then cross-reference them with your bank statement.
Make a note of any that are not yet confirmed by your bank, then add them to the balance on the statement.
The bank statement may display deposits that are not reflected in your own records. In these instances, add the entries to bring your own records up-to-date with the bank.
Step 4: Contact the bank for suspected errors
It doesn’t happen often, but the bank may have made a mistake. If you have conducted a thorough examination of the statements and your internal records and find anomalies that you can’t explain, contact your bank.
They can investigate and confirm if there has been an error. If so, it shouldn’t be hard for them to add or subtract the amount from your balance to correct the problem.
Step 5: Maintain a balanced set of books
With the reconciliation, your internal records and bank statements should now be aligned. Meaning, the balances on both are now the same.
It’s a smart move to make notes of any discrepancies or differences between your records and your bank account. This will be helpful for the next POS reconciliation.
Added tips for reconciliation accounting
If you’ve never done this before, it may seem a little daunting. Here are a few tips to ensure that you avoid making mistakes and don’t spend all day pulling your hair out over this.
Consider delays in transactions
Some payment may take a few days to process, and therefore, they may not show up on the monthly statement.
Don’t forget about interest
If you are conducting POS reconciliation a few weeks after your statement date, it’s important to consider any interest that may apply.
Like everything else these days, there are plenty of apps and accounting software to help you. They can help you automate a lot of your financial tracking, ultimately giving you more control to carry out more efficient, effective analysis.
You should also consider adopting integrated payments. Integrating your POS and payments solution means you’ll free yourself from the time-consuming process of entering and reconciling transaction information.
Since payments flow smoothly from your POS to your payment processor, you can eliminate human error caused by manual end-of-day reconciliation.
When is the best time to perform POS reconciliations?
Ideally, you should review your business accounts at least once a month. As the majority of financial institutions issue monthly statements, the best time to sit down and take stock of your finances is right after you receive all the necessary statements.
However, you can do it more often if you want. If your retail business has a lot of activity, it may make more sense to check POS transactions every day.
This ensures you keep a firm grasp on things, and no error or potential fraud escapes your attention. By keeping a close watch on your balances, you can maintain a healthy cash flow and prevent bigger problems down the line.
Monitor your accounts to avoid major financial problems
As a business grows, there is a greater chance of errors or unexplained discrepancies cropping up in the records. Quite often, these anomalies can be innocent mistakes, or simply a result of miscalculated interest rates or payment timing. But sometimes, they may be a sign of theft or evidence that fraud is happening.
Whatever the case may be, there is a lot to be gained from regular reconciliation. By doing so, you not only safeguard your business against bigger problems in the future, but you will have a much clearer understanding of the financial health of your business.
Ultimately, this knowledge facilitates smarter decisions about how to allocate your money and grow your company.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.