Why Cash Matters in Payment Reconciliation and How to Manage It

Even though credit cards and digital wallets are the preferred form of payment for many, cash isn’t going away anytime soon. In fact, according to the Diary of Consumer Payment Choice, cash was the third-most-used payment instrument in 2023 with consumers making approximately seven cash payments per month. The use of cash is even making national news with the introduction of the Payment Choice Act of 2023, which requires retail businesses to accept cash on-site for sales of $500 or less. 

In this guide, we’ll examine how cash fits into the payment reconciliation process, identify common challenges you might face, and provide strategies to help you avoid potential issues and prevent revenue loss.

What Is Payment Reconciliation?

Payment reconciliation is the process of comparing two sets of financial records to ensure they match. This involves verifying that transaction records — such as point-of-sale (POS) transactions, credit card transactions, and cash collections — are accurate and consistent with the amounts recorded in financial statements or bank accounts.

For businesses that handle cash, devices such as cash recyclers, smart safes, and cash counters can streamline cash counting, sorting and storage, and ultimately the data can be used to automate reconciliation. 

Why Payment Reconciliation Matters More Than You Think

Reconciliation is a standard accounting practice in any business, and failing to perform it can not only harm your cash flow and bottom line but also lead to tax and compliance issues, as well as operational inefficiencies and inaccurate reporting. 

Payment reconciliation also plays a key role in shaping your business as a brand. Financial issues can escalate, leading to reputational damage and customer dissatisfaction, which can have an even greater impact on your business as a whole. 

Common Challenges in Reconciling Cash Payments

Although there’s been a significant shift toward a cashless society, cash is here to stay, which means it remains part of the reconciliation process. However, several factors can affect cash payment reconciliation, including:

• Human error. Manual reconciliation carries the risk of human error, which can not only add extra time and frustration but also lead to financial discrepancies if not caught in time.

• Theft and fraud. Manually reconciling cash payments often lacks proper oversight, increasing the likelihood of fraud or theft. 

• Incomplete records. Inadequate or inconsistent documents can lead to problems in the reconciliation process. 

• Mismanagement of cash drawers. Failure to track opening and closing balances or regularly count and reconcile cash can become a major challenge. It’s also important to limit the number of employees who have access to the drawer. 

• Time-consuming processes. Manually tracking and balancing is often a lengthy, inefficient process. 

• Integration with other systems. If POS systems, accounting software, and bank systems don’t integrate, you have the potential for more complications and possibly more errors. 

• Lack of real-time data. Without real-time data, cash payment information may not be updated promptly, which can delay the entire reconciliation process. 

Effective Strategies for Managing Cash in Payment Reconciliation

It’s important to address and execute proper payment reconciliation through the following strategies:

• Perform reconciliation daily. Reconcile cash against the POS each day and manage over/shorts to increase cash accountability.

• Manage over/shorts. By reconciling daily, any discrepancies between cash dropped and cash tendered can be immediately investigated.

• Implement automation. Leverage automation to accurately and quickly reconcile so your staff can spend time managing exceptions versus manually matching transactions. Cash recyclers, for example, automate the process of counting, sorting, and dispensing cash. These systems also provide real-time data on transactions and drawer balances. 

• Reconcile cash deposits, POS, and bank deposits. Not only is it important to reconcile cash deposits against the POS, but it’s also critical to ensure that daily deposits reconcile against the business bank deposits to close the cash payment loop. In many cases, cash might only be deposited once or twice a week so those deposits need to be reconciled across multiple days.

• Increase cash accountability. With accurate over/short data, the variance can be tracked to the till or employee level so that individuals can be held accountable, which increases overall accountability.

• Conduct regular employee training. Ensure that employees are trained in proper transaction handling.

• Ensure clear documentation. Maintain organized and detailed records of all cash transactions, which is essential for both reconciliation and audits.  

• Limit cash handling and ensure there’s a clear segregation of duties. Reducing the number of people who handle cash minimizes the risk of theft and errors. It’s also important to divide reconciliation responsibilities among several individuals so that one single person doesn’t have complete control, which adds an additional layer of oversight.   

• Secure all cash. Make sure you have safes or locked drawers that can help protect cash from loss or theft. 

• Integrate cash management systems with POS systems. This helps streamline the reconciliation process by automatically syncing transaction data. 

Discover How a Fully Automated Solution Can Help 

While debit and credit cards offer advantages that cash does not, most people do not plan to stop using cash in the near future. If you’re looking to update or enhance your payment reconciliation process and have specific questions about integrating cash, check out our eBook: Your Complete Guide to a Better Cash & Credit Card Reconciliation Process.

FAQs

How does cash reconciliation differ from other forms of payment reconciliation?

Credit card and digital wallet transactions are typically much more common, and while cash isn’t used as frequently, it requires physical handling, storing, and counting. Cash also carries a higher physical security risk.

What are some common challenges in cash reconciliation?

Common challenges in cash reconciliation include the risk of human error, theft, and fraud; lack of real-time data and possible mismanagement of cash drawers. 

How can businesses effectively manage cash reconciliation? 

Some of the most effective strategies include reconciling on a daily basis, implementing an automated system to reduce human error and speed up the process, limiting cash handling, and securing cash in either a safe or locked drawer. 

What tools or software can assist in cash reconciliation? 

There are many available tools that can help with the process. Accounting software, cash management systems, cash recyclers, point of sale systems, spreadsheets, and custom-built solutions are all viable options. If you’re looking for a one-stop-shop, consider Evention’s Total Recon, which allows you to reconcile both cash and credit cards in one connected system. 

How often should cash reconciliation be performed? 

Ideally, cash reconciliation should be performed daily or two-to-three times per week at a minimum.