The myth of bankcard deposit reconciliation

I am often asked on how to reconcile bankcard settlements (batches) to the money coming into a bank account. While a seemingly simple theory, as most accountants and anyone who has tried to match up settlements to deposits know, it’s far from easy.

In a perfect world we would see our settlement report at the end of the day, and a day or two later would see the exact same amount deposited into our bank account. In reality, we see our settlement report at the end of the day, and then we see absolutely no resemblance of it in our bank account, at any point, ever! The exception may be if you run a single transaction per day. The more transactions you process, the less your deposits will reconcile.

Why reconciling is often difficult…

Issuers don’t settle together

This is becoming less of a problem as Discover and Amex are starting to settle with Visa and MasterCard, but it still exists with many accounts, probably still the majority. Since Amex and Discover historically operated on completely different networks, and completely different financial systems, they would never settle directly with Visa and MasterCard. While one shouldn’t expect an Amex deposit to be labeled the same as Visa/MC deposits, it’s still difficult to add the correct deposits together. This is mainly because Amex and Discover often take longer to be settled and deposited than Visa/MC. Your Visa/MC transaction may be in your bank in 48 hours, but your Amex may take a week. When your business’s bank account has hundreds of deposits and withdrawals like most do, it’s extremely difficult to match the correct deposits with the corresponding settlements.

You accept PIN-debit, fleet and/or other proprietary cards

The more types of cards you accept, the more unlikely your batches are to reconcile with your deposits. Everything from PIN debit, fleet and gas cards, JCB, Diners, EBT cards, to gift cards and anything other than a typical Visa or Master credit card requires different processing systems and networks to handle the transaction settlement. It’s rare that any of these follow the same protocols as Visa/MC which means the deposits don’t come in same deposit or even at the same time.

Settlement times

When you accept a credit card it must be settled at the end of the day. The method that your transaction are settled depends on how you are processing cards. You may be manually batching your terminal, you may have a terminal with auto-batch, or you may have a gateway that batches for you, and each of these methods can present different opportunities for something to get messed up or out of sync when settling. Once batched, these transactions are queued up to be settled and paid with the card issuer.

The problem, is that it’s fairly easy to end up with settlement time mismatches. You could batch at 3PM, and your platform could batch at 2:30, this would add a day to your deposit time. You may have some complicated setup on the back-end that involves multiple systems settling your transactions, and again if there is some mismatch, transactions can get pushed back. Some systems settle multiple times per day but give you a single report at the end of it. It’s even possible that some transactions get split between batches if there are time-mismatches somewhere in on the back-end. This is a nightmare to try and identify, let alone understand what is happening.

Since very few systems have been built from the ground up, many of these systems, which neither you nor your processor have any control over, are complicated and antiquated. Processing networks are often many layers of systems tied together to provide the functionality needed. This complexity can create virtual bottlenecks which can make a mess of settlement times.

Your pricing may be the real reason

There are several types of pricing structures, in reference to how and when your fees are taken out at the end of the month that are commonly used with merchant accounts. The primary 2 are daily and monthly discounting. If you are on daily discounting, your qualified percentage and transaction fee are subtracted from your deposits every day. At the end of the month, your surcharges (mid and non qualified transaction) are billed to your account. This makes the end of month bill substantially easier to swallow, but guarantees that deposits will never match settlement reports. Monthly discounting on the other hand, is where all of your fees are withdrawn at the end of the month. If you want any chance of reconciling to the dollar, you must be on monthly discounting. However, many businesses will not qualify for monthly discounting as your processor is taking a gamble in the event you do not have the money available at the end of the month. This has become much more common over the past 2 years. If you are a new business or if you have ever had an ACH reject or NSF when your processor tried to collect your fees, you should expect to be on daily discounting, at least until you can establish better processing history. If you are an existing business without ACH rejects or any major risk factor, you should be able to get your processor to put your account on monthly discounting. Keep in mind, if your account does not have the available funds in it at the end of the month, you will be quickly switched to daily discounting.

Is there any fix?

Reconciling can be expected to become easier as issuers and different card types begin to settle with Visa and MasterCard, but it’s going to be a lengthy migration. If you accept fleet cards, or some of the non-bankcard types, it’s unlikely that these will ever be deposited with your normal transactions.

If you understand the type of transactions you are accepting, whether your Discover and/or Amex transactions settle with your Visa/MC ones, the amount of time that it takes for your batches to hit your bank, and you are processing on monthly discounting, it is possible to get your transactions to reconcile, or mostly reconcile. If you end up running into a situation where back-end systems are causing the problems, it’s unlikely you will be able to easily remedy the situation. Depending on what type of terminal, POS system or software you are using, there may be no other option than to continue processing without an easy ability to reconcile your transactions