How Payment and ERP Integration Changes Reconciliation

What does payment reconciliation involve?

Bank reconciliation compares the entries in your books with the transactions on your bank statement. Microsoft's documentation (opens in a new tab) for its Business Central ERP describes it as a way to make sure your books match the bank and to find missing payments and bookkeeping errors.

For card payments there is a second layer. Your ERP holds open invoices, and your processor holds the payment records. Each payment must be applied to its invoice so the customer's balance is correct. Then the processor's deposits must be tied to those payments.

The same documents that support a reconciliation also support your tax records. IRS Publication 583 (opens in a new tab) lists invoices, bank deposit slips and credit card charge slips among the documents that support gross receipts.

Why is it hard to do by hand?

The difficulty is that payments, deposits and fees rarely line up one to one.

• Deposits are batches. A processor usually deposits one amount per batch, covering many customers' payments, so one bank line has to be tied to many invoice payments. ERP matching tools are built for this. Business Central, for example, lets you match one bank line to several ledger entries, or several bank lines to one entry (opens in a new tab).
• Fees reduce the deposit. If fees are taken daily, each deposit is smaller than the sales inside it. If they are billed monthly, they arrive as a separate debit. Either way the fees need their own journal entry (a posting to the ledger that records an amount against specific accounts). In Business Central, bank lines for fees cannot be matched (opens in a new tab) until you post a journal line for them.
• Refunds and chargebacks. A refund or dispute reduces a later deposit, sometimes in a different month from the original sale. How chargebacks work covers the dispute timeline.
• Timing. Card money arrives after the sale, so month-end cutoffs can split payments from their deposits. Card settlement and funding times explains why.

By hand, that means exporting a processor report, entering each payment against its invoice, then working out what makes up each deposit.

What does an integration automate?

Integrations differ, but these are the four jobs they commonly target.

1. Posting payments to invoices. When a customer pays, the payment is recorded against the open invoice in the ERP, so you don't have to look it up and enter it.
2. Recording fees and net deposits. Processing fees post to an expense account, and each deposit is recorded as gross sales minus fees, refunds and chargebacks.
3. Matching settlements to bank lines. With the deposit already recorded, the ERP's bank matching can pair it with the bank statement line. Business Central, for example, can apply imported bank payments to open invoices automatically (opens in a new tab) using matching rules, and lets you review the matches before posting.
4. Passing invoice detail to the processor. For B2B card payments, some integrations send invoice details such as tax and line items, known as Level 2 and Level 3 data. See Level 2 vs Level 3 processing.

The table shows the difference using made-up numbers.

Example (illustrative numbers): one day's card deposit of $9,640.00, covering 12 invoice payments totaling $10,000.00, less $300.00 in fees and one $60.00 refund.

What should I look for in an integration?

Ask each provider these questions, and get the answers in writing or in a demo with your own data.

• Which records sync, and in which direction? Customers, invoices, payments, refunds, credits and chargebacks may not all be included. Check whether data flows both ways or only from the processor into the ERP.
• How do fees post? Ask whether fees are recorded per transaction, per deposit or monthly, and to which accounts.
• How do refunds and chargebacks post? These are the entries most likely to need manual work.
• Settlement-level or transaction-level data? Settlement-level data gives one line per deposit. Transaction-level data shows every payment inside it. Matching deposits to invoices usually needs both.
• How often does it sync? Real-time sync keeps invoice balances current. Batch sync runs on a schedule.
• What happens when something fails? Ask how errors are reported and how a failed sync is retried.
• Who supports it? Find out whether the processor, the ERP vendor or a third party fixes problems, and whether it requires a particular processor.

As one example, TouchSuite offers an integration platform called TouchSuite Connect. Its product page describes it as middleware (software that sits between two systems and passes data between them) with real-time and batch sync, lists integration pages for Microsoft Dynamics 365, Sage, Epicor, Infor, Oracle NetSuite, Salesforce and HubSpot, and notes that it requires card processing through the company's own merchant account. The questions above apply to any provider, including this one. The site's integrations page lists other supported software.

Disclosure: the author works at TouchSuite.

Does integration remove the need to reconcile?

No. It changes the work from data entry to review. Someone still needs to check the bank reconciliation each period and resolve differences. In Business Central, unmatched lines stay open as discrepancies (opens in a new tab) that must be resolved before the reconciliation is complete. An integration makes those exceptions easier to find, but it does not decide how to fix them.