The Importance of Settlement Report Reconciliation for Ecommerce Businesses

Ecommerce settlement report reconciliation is a key process for multi-channel merchants to verify that financial data from your selling channels matches with the data in your financial source of truth, typically an ERP. In this blog, we will delve into the significance of settlement report reconciliation in ensuring accuracy, identifying discrepancies, and streamlining financial processes for ecommerce businesses.

Introduction

In the fast-paced world of ecommerce, maintaining financial accuracy is crucial for ensuring smooth operations and customer satisfaction. While inventory management often gets the spotlight, settlement report reconciliation is equally important. This process involves verifying transaction records against bank deposits or payment gateways to ensure that every dollar is accounted for. For ecommerce businesses dealing with numerous transactions across various channels, regular and thorough reconciliation is a necessity to prevent potential fraud and financial discrepancies.

Understanding Settlement Report Reconciliation

What is a Settlement Report?

A settlement report is a financial document provided by a selling platform or payment processor that details the transactions processed by that platform or payment processor over a specific period of time. Other common names for a settlement report are payout report, transaction report, sales report, disbursement report, and settlement statement. A settlement report provides information about sales, refunds, fees, and other financial activities including:

• Sales Transactions: Details of all sales transactions processed, including the amount, date, and order reference.
• Refunds and Returns: Information on any refunds or returns processed, including the amounts and associated transactions.
• Fees and Charges: Breakdown of any fees charged by the platform or payment processor, such as transaction fees, service fees, and any other applicable charges.
• Payouts: Information on the amounts transferred to the merchant’s bank account, including the dates and amounts of these payouts.
• Adjustments: Any adjustments made to the account, such as chargebacks or disputes.

Definition of Settlement Report Reconciliation

Settlement report reconciliation is the process of verifying and matching financial records between various channels and applications. Ecommerce platforms like Shopify, Amazon, and TikTok Shop, and payment processors like ShopPay, PayPal, and Stripe generate settlement reports. These reports must match the financial data in your ERP system (e.g., NetSuite, Acumatica) or accounting software (e.g., QuickBooks, Xero). The goal of settlement report reconciliation is to ensure that transactions recorded in your company’s ledgers are accurate and match those reported by the ecommerce platforms, marketplaces, or payment processors. This reconciliation helps confirm that all payments processed are accounted for and correctly posted to the appropriate financial accounts.

Importance of Settlement Reconciliation on Cash Flow

Accurate reconciliations are critical for an ecommerce business to manage cash flow. They ensure businesses understand their actual financial position, which is essential for liquidity, budget planning, and forecasting future cash needs. Settlement report reconciliation prevents financial mishaps by confirming all incoming cash is accounted for and addressing any discrepancies promptly. This process includes handling unprocessed payments, returns, or chargebacks. Reconciliation provides visibility into cash flow, so businesses can make better informed decisions to protect their financial health against unforeseen disruptions. It can also help ecommerce businesses determine unit economics and optimize margins (i.e. are we actually making money on each order or if not, what orders are actually profitable).

Benefits of Settlement Report Reconciliation for Ecommerce Businesses

Settlement report reconciliation is not just a routine accounting practice, but a critical operation that directly impacts the financial and operational efficacy of an ecommerce business.

Ensuring Financial Accuracy

The primary benefit of diligent settlement report reconciliation is financial accuracy. By systematically comparing transaction details from various sources, ecommerce businesses can minimize the risk of financial discrepancies that lead to losses, errors in financial reporting, and cash flow issues. Accurate financial reports are essential for internal reviews, audits, securing loans, attracting investors, and public market disclosures. Additionally, maintaining financial accuracy will only improve your business’s credibility with vendors, stakeholders, and customers.

Identifying Discrepancies and Resolving Issues Effectively

Settlement report reconciliation helps identify discrepancies or anomalies in transaction reports. These might include unexpected chargebacks, duplicate transactions, or incorrect amounts charged. Early detection allows businesses to address and resolve these issues before they escalate into larger problems, saving money and safeguarding the company’s financial position and operational integrity.

Closing the Books Quicker

Enhanced efficiency in the reconciliation process contributes to faster financial book closures at the end of a period. Automating settlement report reconciliation reduces the manual effort required from finance and operations teams to close the books. Quicker financial book closure means that reports are ready sooner, enabling swift decision-making and better business agility.

Steps in Settlement Report Reconciliation

1. Gather and Review Settlement Reports. Collect settlement reports from ecommerce platforms, sales channels, and payment processors. Ensure these reports are complete and cover the same accounting period for accurate comparison.
2. Generate ERP Reports. Generate a corresponding report from your ERP system to match each settlement reports’ time frame and order source. Accuracy at this stage is vital as the ERP report is the foundation for effective reconciliation across different platforms and accounts.
3. Match Orders and Amounts. Compare order details and payment information from selling channel settlement reports to the sales, cash records, and bank deposits documented in your ERP reports. Depending on the channel, you may have to reconcile multiple settlement reports / statements for a single order source (i.e. if you take PayPal on your Shopify storefront you’d need to reconcile both a ShopPay statement and PayPal settlement report with your ERP).
4. Investigate Variances. Identify and examine any discrepancies between ERP reports and settlement reports. Investigate issues like unrecorded sales, payment amount discrepancies, mismatched product discounts, and timing differences between recorded sales and actual cash receipts. Thorough investigation helps uncover the root causes, which could range from simple clerical errors to complex systemic issues within your ecommerce setup.
5. Reconcile Financial Data. Make necessary adjustments to financial records to ensure they accurately reflect transactions. Once all settlement reports for a given period are reconciled, formally close the books for that period.

Channels and Applications Involved in Settlement Report Reconciliation

Order Sources and Payment Processors

Managing data from various selling channels is crucial for accurate financial reconciliation. Ecommerce platforms like Shopify, DTC marketplaces like Amazon, social marketplaces like TikTok Shop, and payment processors like PayPal and ShopPay differ in how they report sales and handle transactions. When multiple settlement report formats are generated, integrated tools consolidate data from these sources with your ERP like NetSuite or accounting software like Quickbooks are essential for streamlined operations.

Record Keeping and Financial Source of Truth

Your ERP system is the source of truth, centralizing all financial data and ensuring consistency across accounting and business operations. A robust ERP system facilitates easier matching and reconciliation of reports from different selling channels. Every company will have variations in their ERP setup, and many can be complex.

Automated Settlement Report Reconciliation Solutions

Tools like Pipe17 or an iPaaS can streamline the reconciliation process by automatically matching data from multiple order source and payment processor statements with your ERP, identifying discrepancies, and suggesting corrections. These tools save time, reduce human error, and improve financial accuracy. When selecting a settlement reconciliation tool, look for features such as:

• Multi-channel integration
• Real-time data processing
• Discrepancy alerts and exception management
• Data streaming and security
• Cloud scale and flexibility

These features by themselves don’t guarantee that a tool can handle the complexities of ecommerce settlement report reconciliation, but they’re a starting point. Always ask any solution vendor if they have experience supporting your specific reconciliation needs. Some common questions you can ask are:

• How do you reconcile Shopify statements to NetSuite?
• How do you reconcile both ShopPay and PayPal statements with NetSuite?
• How do you reconcile Amazon Seller Central settlement reports to NetSuite?
• How do you reconcile TikTok Shop settlement reports with NetSuite?

Tools that are specifically designed for ecommerce businesses, like Pipe17, can offer out-of-the-box capabilities for high-volume operations while also providing easy customization to tailor the reconciliation process for your unique setup. As you’re deciding which solution is best for your business, make sure to check out how Pipe17 compares to an iPaaS to learn how to automate ecommerce settlement report reconciliations up to 10 times faster.

Best Practices for Effective Settlement Report Reconciliation

1. Regular Reconciliation Schedule. Aim to reconcile settlement reports at least monthly, if not weekly, to quickly identify and resolve discrepancies. Some businesses set aside specific days for the finance and operations teams to collaborate on settlement report reconciliation, while others opt to automate settlement report reconciliation with a solution like Pipe17.
2. Documentation and Record-Keeping. Maintain organized records of all transactions, including sales, refunds, and chargebacks. Effective documentation with detail such as the date, amount, and nature of the transaction makes reconciliation much smoother. These records will live in your ERP, but must match with your selling channels and payment processors accounts.
3. Collaboration Between Finance and Operations Teams. Regular communication between these teams ensures that operational activities align with financial records.  When both teams are informed and engaged in the reconciliation process inventory, order fulfillment, and customer return discrepancies can be resolved faster, and preventive measures can be implemented quicker.
4. Continuous Monitoring and Improvement. Settlement report reconciliation should not be a static process. Periodic reviews and continuous monitoring of reconciliation processes help identify areas for improvement, and enable swift adaptation to new opportunities and changes.

Conclusion

Settlement report reconciliation is not merely a routine check, but a strategic necessity. It ensures that every transaction is accounted for and prevents revenue leaks. By investing in a robust reconciliation process or automating it with a solution like Pipe17, ecommerce businesses can safeguard their operations against discrepancies and pave the way for sustainable growth. Embracing the right tools and techniques translates into better customer service, improved profitability, and enhanced operational health.