Credit and debit acceptance at merchants, wholesalers, contractors, and manufacturers is at a record high volume. Recording and keeping track of the credit cards is challenging. Businesses need to ensure the credit card receipts are reconciled, just like they should reconcile cash and check receipts. Reconciliations are key to mitigating and preventing employee theft.
|Sales Receipts||=||Deposits Prepared||=||Bank Statements|
See SDC’s article for basics on reconciliation: https://sdccpa.com/hot-topics/non-profits-easy-targets-for-fraudsters/
The same is true for credit cards. If your business accepts credit cards as a payment option, you’ll need to reconcile credit card statements to your company’s financial records. Each month, the bank that handles the credit card sales for your company will send you a statement listing the following:
- All of your company’s transactions for the month.
- The total amount your company sold through credit card sales.
- The total fees charged to your account.
If you discover a discrepancy between what the bank reports was sold on credit cards and what the company’s books show regarding credit card sales, it’s time to investigate. Company’s need to play detective and find the reason behind the difference.
To make reconciling credit card receipts simpler, consider having credit card receipts from the processor (bank) deposited into a separate bank account from which accounts receivable, cash, and other receipts are deposited. The lack of commingling monies will help business owners, controllers, and bookkeepers recognize the subtle, or alarming, trends, more quickly. Alarming trends can include, but aren’t limited to, an increase or decrease in credit card receipts, an increase in credit card transaction fees, and an increase in chargebacks.
The reconciliation of credit card receipts is challenging. The time that it takes for a merchant who accepts a credit card as payment until the time the monies are deposited into the merchant’s bank account can vary, depending on the type of merchant account the business owner uses. Typically, a payment can take anywhere from 24 hours up to 3 days to process the payment. The reason for this time is because the transaction process undergoes a number of steps to get from one bank account to another.
To better understand credit card processing, it is important to know the steps the occur from the point of sale to the final deposit into the merchant’s account. When a credit card is used at the point of sale in a business, the payment is then authorized through the acquiring bank. The acquiring bank is the bank where the merchant has an account. The acquiring bank will then issue an authorization request to the card-issuing bank.
When authorization is confirmed, the approval code is sent back to the point of sale. For most transactions, this happens within seconds, so the payment can be taken for goods and services. After an approved payment, a similar process occurs again, although instead of requesting authorization through the merchant’s bank to the card-issuing bank, the authorization code and draft of sales are sent first to the acquiring bank, then to the card-issuing bank. Many merchants will provide daily or weekly batches of sales, instead of completing one transaction at a time.
When the card-issuing bank receives the authorization code, the card-issuing bank will subtract an interchange fee from the total owed. It is then sent back to the acquiring bank where the money is then deposited into the merchant’s account, less a previously agreed upon discount percentage (which is a requirement of having that type of account). While it may seem like a complicated process, it can be very efficient for collecting credit card payments for any business, big or small.
The reconciling challenges include, but are not limited to:
- Time consuming process
- Time delays
- Commingling with other receipts
- Batching multiple transactions or dates
- Batching of chargebacks
- Batching fees
The aforementioned challenges tend to present opportunities for fraudsters and dishonest employees to steal monies. Learn how in our related post . . . Opportunities for Fraudsters: Is Your Credit Card Safe?