Reconciliation has traditionally been seen as a back-office function, but modern technology has made it a priority. Automation, real-time data, and embedded finance solutions are transforming cash flow management, risk mitigation, and operational efficiency, enabling businesses to take a more strategic approach to maintaining their books.

Penny Townsend, Chief Product Officer at Qualpay, explored the evolving landscape of reconciliation during a PaymentsJournal podcast. She spoke with Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research, about leveraging reconciliation to drive profits and the impact artificial intelligence will have on the future.

Twenty years ago, reconciliation was a straightforward, even sleepy process. An accountant or bookkeeper would check the business’s bank account, then perhaps walk into the next office to ask how many sales had been completed that day. Early software like QuickBooks or Quicken helped streamline the process, but the responsibility fell almost entirely on a single person.

Fast forward 20 years, and everything has changed. Advances in technology have dramatically improved the flow of information. Aligning cash management with sales has become a priority. Merchants now have much greater control— not just over distributing products and services in a timely fashion, but also over tracking revenue from those sales. In addition, with payments being accepted in different ways—digital wallets, crypto, ACH, credit cards—merchants need to be able to handle various transaction methods.

As a result, payment processing and reconciliation have evolved into strategic priorities.

“We as an industry have done a good job of making it easy for the merchant to accept payments, embed them into software, and integrate them with other workflows,” said Apgar. “But we’re still, for the most part, sending out statements of card transactions and leaving it up to the merchant to reconcile that to a paper bank statement that comes in the mail. The next step in the payments automation revolution is automating the rest of the workflow in the back-office, not just at the front counter.”

Many of these statements are still just pieces of paper that merchants can’t click on or interact with. While some service providers have replaced paper statements with online portals, the statement itself is often nothing more than a glorified PDF.

Viewing the information online doesn’t give the merchant any real advantage over seeing it on paper. The challenge is compounded by the need to reconcile the merchant account, the bank account, and the merchant’s internal records.

“Merchants have to log into each of those different portals to be able to see that 360-degree view,” said Townsend. “But every time you make a hop between systems, data gets lost. That little piece that matched the transaction probably disappeared somewhere along the line. By the time that you look at your bank statements, you’re like, ‘Oh my gosh, what happened?’”

Not only does the merchant have to verify that the money goes into the right account, but also that they’re being charged the correct fees and how those fees were deducted from sales. Everything must balance, and the process becomes more complex as the business grows.

Some vendors offer all-you-can-eat buffet pricing, where everything is charged at a flat 3.5%, making reconciliation straightforward. Flat-rate pricing is almost like charging merchants a premium for simplicity, but it only really works for smaller businesses.

Larger businesses must focus on minimizing costs upfront while ensuring they receive the proper amount of cash in the right amount of time. The reconciliation process isn’t just about verifying what happened—it’s also about identifying what didn’t.

“In a previous organization, when we were doing reconciliation, we fed it into the accounting package we had,” said Townsend. “And then all we had to do was to look at exceptions. We used to have an accountant spend a full day doing the reconciliation work, but we decreased it down to this accountant having only to look at exceptions.”

When merchants reach that level of efficiency, it can have a material monetary impact. While they primarily focus on fees and payment transaction costs, they also incur soft costs, such as indirect payroll expenses and employees’ time. This is where the reconciliation process can make a difference.

“The questions merchants bring to the table are usually, ‘how much is it going to cost me?’” said Townsend. “They should be asking, ‘how can I improve what I’m doing?’ ‘How can I offer newer payment types?’ It is a mind shift in how people think about it, making payments more strategic than operational.”

Data from additional sources adds complexity to the reconciliation process, but also creates opportunities, especially with the integration of artificial intelligence. As a result, there is greater flexibility in connecting sales data to bank deposits. With automated information delivery, merchants can act on real-time data rather than relying on month-end batch processing.

AI will transform both payment processing on the front end and reconciliation on the back end. It will provide faster ways to analyze discrepancies and identify mismatches.  Businesses like restaurants, with their rapid cashflow, will be able to consume data, match it to sales, account for fees, and quickly flag exceptions.

The biggest challenge for merchants will be finding a processor or acquirer that delivers the necessary data and has the backend processes to support it.

“I feel privileged to be part of a company that is thinking about these things every day and how we can improve for our merchants,” said Townsend. “When it’s done right, reconciliation can transform a business. You can focus not just on cash but cash forecasting as well. Figuring out what doesn’t work versus what’s actually working is always a good idea in a business.”