The Challenges of Reconciling Across Multiple Channels

Article 4 of 6: Unlocking the Value Payment Reconciliation in Retail

In our previous articles, we explored the importance of understanding leakage in the Order to Cash (O2C) process and provided tools to help evaluate its financial impact. As we continue our series, it’s important to understand why leakage is a common issue in retail, particularly for large retailers managing multiple sales channels. In this article, we will explore the complexities of reconciling across various sales channels and explain why manual processes are no longer sufficient to manage today’s complex retail landscape.

The Complexity of Multi-Channel Retailing

Modern retail is no longer a one-channel operation. Today, large retailers are omnichannel—selling through physical stores, online platforms, mobile apps, and even third-party marketplaces. Each channel comes with its own unique set of data flows, payment processors, customer interactions, and settlement processes. Here’s what makes reconciling across multiple channels so complex:

1. Multiple Payment Methods and Processors

Retailers today offer customers a variety of payment options, including credit cards, debit cards, digital wallets, buy-now-pay-later services, and gift cards. Each payment method follows a different path, involving distinct payment processors and settlement timelines. Managing the reconciliation for each of these payment flows becomes extremely challenging, as different acquirers and intermediaries are involved, each with their own specific fees, rules, and schedules.

2. Aggregated and Fee-Deducted Settlements

When dealing with card payments, acquiring banks or payment processors often aggregate multiple customer transactions into a single deposit. On top of that, they deduct processing fees and commissions before settling funds into the retailer’s account. Reconciling each individual sale with these aggregated, net deposits is a highly complex and time-consuming task. The mismatch between gross sales and net settlements often results in unreconciled discrepancies, contributing to leakage if not properly addressed.

3. Cross-Channel Transactions

Many retailers offer customers a seamless shopping experience across channels—for example, a customer might buy online and return in-store, or use a mobile app to place an order for in-store pickup. These cross-channel transactions add another layer of complexity to reconciliation. Sales data, inventory records, and payment details must all be aligned across systems, which is a difficult task when each channel is managed by different systems or lacks proper integration.

4. International Operations

For retailers with an international presence, the complexity of reconciliation grows exponentially. Cross-border transactions come with their own unique set of challenges: multiple currencies, country-specific payment processors, varied regulations, and different settlement timelines. The more countries a retailer operates in, the more complex it becomes to manage reconciliation across borders, increasing the risk of financial leakage.

5. Data Fragmentation Across Systems

Many retailers use different systems for managing sales, payments, inventory, and accounting. Often, these systems are not fully integrated, which results in fragmented data silos. Fragmented data leads to inconsistencies, making it difficult to obtain a unified view of sales and payments. Without a consolidated view, discrepancies can easily go unnoticed, making 100% reconciliation impossible to achieve without significant manual intervention.

The Limitations of Manual Reconciliation

Many large retailers still rely on manual reconciliation processes, which involve matching sales records with bank statements, acquirer reports, and payment processor data using spreadsheets. Given the complexity of managing multiple channels and the sheer volume of transactions, manual reconciliation is fraught with challenges:

1. Time-Consuming and Labor-Intensive

Manually reconciling transactions across multiple sales channels and payment processors requires a significant amount of time and effort. Finance teams often need to spend countless hours matching individual transactions with bank deposits, handling exceptions, and identifying discrepancies. The time spent on these repetitive tasks could be better used for more strategic financial activities.

2. Prone to Human Errors

The sheer volume of transactions and complexity of data from different sales channels means that errors are inevitable when reconciliation is done manually. Human errors, such as missed transactions, incorrect data entry, or failure to match aggregated payments, can all lead to unreconciled discrepancies that contribute to leakage.

3. Slow Financial Close

Manual reconciliation slows down the monthly and yearly financial close processes. The delays in reconciling transactions mean that discrepancies accumulate, creating bottlenecks when finance teams try to finalize accounts. This delay not only affects timely financial reporting but can also lead to rushed and inaccurate closes, impacting decision-making.

4. Difficulty in Handling Exceptions

When exceptions arise—such as a transaction that doesn’t match between sales and settlement data—manual reconciliation makes it difficult to identify the root cause. Handling exceptions becomes a time-consuming task, requiring investigation across different systems and payment providers. Without a systematic approach to manage exceptions, these discrepancies are often left unresolved, adding to financial leakage.

The Case for Automation in Multi-Channel Reconciliation

To effectively manage reconciliation across multiple channels, large retailers need to move beyond manual processes and invest in automated reconciliation solutions. Automation addresses the complexities of modern retail by providing real-time matching, efficient exception management, and complete transparency. Here’s how automation can help solve the challenges of multi-channel reconciliation:

1. Real-Time Reconciliation

Automated reconciliation systems can reconcile transactions in real-time, matching sales with payment data as they occur. Real-time reconciliation reduces the time lag between when a sale is recorded and when payment is received, ensuring that any discrepancies are identified and resolved immediately. This significantly reduces the risk of discrepancies accumulating over time.

2. Handling Aggregated Payments with Ease

Automation simplifies the process of reconciling aggregated payments and fee deductions. Automated systems can deconstruct aggregated settlements and match each individual sale to the net amount received, accounting for processing fees and commissions. This eliminates the guesswork involved in manual reconciliation and ensures that all sales are accounted for accurately.

3. Seamless Integration Across Systems

Automated reconciliation solutions integrate seamlessly with various systems, including sales platforms, payment processors and accounting software. This integration allows for a consolidated view of all data, ensuring that sales, payments, and inventory records are aligned across channels. A unified data flow reduces data fragmentation, minimizes inconsistencies, and ensures that discrepancies are identified quickly.

4. Efficient Exception Management

Automated reconciliation tools are designed with robust exception management capabilities. They automatically flag transactions that do not match, providing detailed insights into the discrepancies. By offering a systematic approach to resolving exceptions, automated tools enable finance teams to quickly investigate and address discrepancies, preventing them from contributing to financial leakage.

5. Reduced Manual Workload and Costs

By automating reconciliation, finance teams can significantly reduce the hours spent on manual tasks, which in turn reduces labor costs. Instead of focusing on repetitive tasks, finance professionals can allocate their time to strategic financial planning, analysis, and decision-making. Additionally, automation minimizes human errors, further reducing the risk of leakage.

Conclusion: Moving Beyond Manual Reconciliation

Reconciling transactions across multiple sales channels is one of the most challenging aspects of managing the O2C process for large retailers. The complexities of managing different payment methods, cross-channel transactions, international operations, and fragmented systems make manual reconciliation impractical and unsustainable. Without automation, achieving 100% reconciliation is nearly impossible, leading to financial leakage that impacts profitability, compliance, and cash flow.

By investing in automated reconciliation solutions, large retailers can overcome the challenges of multi-channel reconciliation, reduce discrepancies, and eliminate leakage. In the next article, we’ll explore how automation can revolutionize reconciliation for large retailers and why it’s essential for staying competitive in today’s retail environment. Stay tuned as we continue to help you strengthen your financial controls and protect your bottom line.