How e-commerce finance teams can solve growing reconciliation complexity

The advent of e-commerce has fundamentally shifted retailers’ operations – from fulfilment, to product listing, to marketing. Reconciliation is no exception. While the focus on front-end optimisation and conversion has contributed to accelerated growth, it has also led to multiplied complexity in reconciliation and revenue recognition. Without optimising their reconciliation and allocation processes, businesses face increasing operational costs, revenue leakage write-offs, and financial and reputational risk. 

In this article, we unpack how reconciliation has changed in the e-commerce era and how retailers can optimise their financial operations to streamline this escalating complexity. 

Like payments, reconciliation complexity is multiplying

The South African online retail market grew to R71 billion in turnover in 2023, representing a 29% increase from 2022, and 6% of the total retail sector. In the battle to increase sales and conversion, merchants have invested in multiple online payment options, such as digital wallets (e.g. Apple Pay), instant EFT, vouchers, and Buy Now Pay Later (BNPL) options. Many online businesses now rely on multiple payment gateways, acquirers, and methods to support their operations across multiple channels. 

Customer optionality creates significant challenges for back-end processes such as reconciliation. For an e-commerce business to gain an accurate picture of their cash flow, they need to match every online sale and transaction with their bank records. With growing complexity in payments, this process is becoming increasingly time-consuming, costly, and prone to error. 

Finance teams must sift through thousands of transactions across channels, payment providers, and systems, while factoring in multiple order tracking and fulfilment partners, customer returns and exchanges, and payment disputes. 

The consequence is more than increased effort – accurate reconciliation has a direct impact on the bottom line. Without optimised processes, online retailers are unable to accurately assess cash flow and detect revenue leakage. Non-standardised or manual reconciliation increases operational costs and risk of human error, eating into internal resources and eroding profit margins. 

These inefficiencies can also impact customer experience – inaccurate allocation of payments can result in delays in goods being delivered to customers, which erodes trust and leads to reputational damage. 

How must businesses adapt for e-commerce reconciliation needs? 

Based on our engagements with leading online retailers, there are five important considerations for finance teams to address reconciliation complexity and future-proof their financial operations. 

1. Standardised file formats
   To meet diverse customer payment preferences and uptime requirements, online businesses typically work with multiple payment methods, providers, and acquirers. Each of these methods and partners have different settlement times, fee structures, and result file formats indicating what is due to the merchant. In addition, merchants selling across multiple channels may have to load these different file formats in different systems and locations.
   
   To ensure that these payments can be accurately reconciled against bank statements, merchants need a consistent file format that can be consumed by their internal allocated systems. This data collation should be consistent, with automatic pattern checking to identify any changes or anomalies.
   
   
2. End-to-end transaction traceability
   For online businesses, a significant part of customer satisfaction lies in the ability to maintain an effective and smart returns management process. Speed, visibility, and control are the main pillars of the process and payments have a large role to play. 
   
   What are the steps of a return? When an online retailer takes a payment, it is a promise to deliver. The order flows from the sale into fulfilment. Any number of scenarios can play out from this point:
   
   _{Let’s use a national online retailer as an example: A customer purchases a product on sale. Due to a disconnect between the website platform and the fulfilment warehouse system, the sold product is actually out of stock. The warehouse needs to initiate a refund because it cannot fulfil the order, but they need to ensure the right amount is refunded. This means ensuring that the sale value is refunded, as opposed to the standard price. The business may have also taken a delivery fee with the purchase. This would usually not be refunded if the customer had received the item, but in this case it should be. Additionally, the customer could have purchased multiple products requiring only a partial refund. Once the amount is calculated, the business needs to deal with where the money is refunded to. Many online retailers resolve this step through the use of a wallet which leads to increased internal compliance and customer dissatisfaction. Can the transaction be reversed or does it need to be repaid to the customer’s account? Each step of this process results in an update to the order and allocation, and often the biggest challenge is detecting where in the process something has gone wrong.}
   
   In order to uphold a smart returns management process, online retailers need a payment system that offers full traceability of transactions and errors. This enables internal teams and external providers to detect and reconcile transactions as they flow from and back to customers in the process of a refund.
   
   In the case of a return or exchange, the process becomes more complex as it involves a delivery integration or price adjustment, sometimes occurring across channels (i.e. a customer may purchase a product online but choose to return it in store). In order to properly reconcile many variables, online retailers need a payment provider with the capability to map payments backwards and forwards, without inhibiting the business’ ability to offer diverse options for payments, fulfilment, and delivery.
   
   

3. Omnichannel attribution and unification
   70% of retailers in the WWW Online Retail Report said that in-store payments were critical for driving sales as customers often “window shop” online but want to engage with the product before they buy. Similarly, a customer may purchase a product online but want to return it to a store.
   
   This requires that businesses can gain a unified view of online and in-store orders, and reconcile data consistently across the different selling platforms and payment channels. This comprehensive view can also help merchandising teams to gain a clearer picture of sales cycles and attribution, and ensure a seamless experience for customers transitioning between online and offline channels.
   
   
4. Dynamic pricing and currency conversion
   As businesses strive to sell to the right customer at the right time for the right price, responsive payment processing and reconciliation become critical. Poor planning and management in pricing and promotions can lead to significant financial losses and customer dissatisfaction.
   
   _{What is dynamic pricing? Also known as demand or time-based pricing, this refers to product pricing based on various external factors, including current market demand, the season, supply changes and price bounding.}
   
   A dynamic pricing platform offers online retailers the ability to design advanced business rules based on strategic objectives to determine the optimum price that will satisfy customers and maximise sales and profits. This discount or promotion is then accurately tracked and applied. In order to reconcile these transactions, discounts need to be accurately tracked. As the business grows, manual reconciliation will become impossible – even with an internal team of analysts. This is further complicated when merchants sell into multiple markets, as actual settlement values may vary based on exchange rate fluctuations from the time of the sale. 
   
   
5. Thick versus Thin Ledger
   Thick versus Thin Ledger refers to the amount of data populated and analysis performed in a company’s general ledger. Traditionally, retailers have used a thin general ledger, where the amount of data stored in the general ledger is minimised in favour of an enterprise resource planning (ERP) platform. A thick general ledger contains channel, segment and product level data; details for cost of goods sold; and inventory balances. Transactions are typically recorded at the individual level with daily posting. While robust, these systems can become clunky and costly to manage, putting technical and operational strain on the business.
   
   In the transition from in-store to online commerce, the historic one-to-one mapping of payment to allocation has been disintermediated and has been replaced with multiple mapping requirements. Finance teams will either need to invest in ERP tools that can cater for multiple payment mappings, extend their general ledgers to cater for these new complexities, or create sub-ledgers specifically designed to support omnichannel reconciliation. 
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How to detect reconciliation inefficiencies

‍Part of the challenge with the growing complexity in reconciliation is that issues can be harder to detect. Given the impact on financial control and customer trust, how can Finance leaders tell if their business is being impacted by suboptimal reconciliation processes?

Here are four signs to look out for: 

• High operational costs and manual work, including significant time and resources spent on data entry, cross-checking, and error correction. 
• Growing customer complaints, disputes, and churn due to payment issues and allocation. 
• Regular revenue discrepancies and / or write-offs in financial statements due to revenue leakage. 
• Rising costs associated with customer support and financial operations.  
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With the right payment partner and reconciliation tools, such as Precium’s automated reconciliation engine, businesses can consolidate and automate financial operations and perform multi-method reconciliation across sales channels. 

Payment platforms that include omnichannel reconciliation enable merchants to consolidate disparate data sources and create end-to-end transaction traceability throughout the order to cash lifecycle. This in turn enables finance teams to automate complex processes for greater accuracy, efficiency, and control, and enable early detection of revenue leakage or allocation errors that could impact customer experience. 

While reconciliation may be “invisible” to the customer, it does not mean it is not critical to a successful e-commerce operation. Merchants that invest in financial operations alongside customer experience levers will see significant returns in their ability to serve customers at scale.

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How Precium can help

Precium offers e-commerce enterprises the ability to streamline their financial operations with automated multi-method reconciliation, configured to bespoke business needs.

This includes:

A unified dashboard for all payment methods and providers, streamlining financial operations and customer support 

1. Real-time feed of transaction data and payment statuses, which can be filtered by product, date, segment, brand, and other parameters
2. Custom webhooks to update merchants’ internal systems in real-time 
3. Full traceability of transactions and errors 

Consolidated mark-off file, with automated bank statement reconciliation

1. Consistent mark-off file containing transaction statuses and their fees reconciled to merchants’ bank statements for successful and unsuccessful transactions
2. Exception reports for transaction-level investigation where bank records do not align to expected settlement values
3. Pattern validation of external mark-off files (e.g. alternative payment method files) to detect format inconsistencies, duplicates, or field changes

Real-time insight into disputes, with best-in class operational support

1. Automated dispute notifications and alerts, to ensure timely notice of a potential dispute to supply evidence
2. Centralised data repository of transactions and customer interactions, and transaction metadata that can be useful in disputes
3. Analysis of past dispute outcomes to gather insight and predict the best response strategies for future disputes
4. Standardised, compliant dispute response templates for common dispute types
    

Get in touch to explore how your business can optimise reconciliation and save hours of manual effort.

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