5 Best Practices for the Retail Financial Close

Blog post

Despite the predicted United States economic decline, consumer spending has continued to grow and the global retail industry’s sales are predicted to climb to over $30 trillion in 2024. What does this mean for your retail business? You’re on the up and up! However, growth is never without challenges; more business means more transactions, and if you’ve expanded into the e-commerce space, parsing out fees and matching those transactions has gotten a lot more complicated. After hearing from prospects and customers alike, here are five best practices that we learned.

Best Practice #1: Bring Business Processes Online

In order to optimize the financial close, start off by understanding the tools, processes, and data sources you’re working with. Legacy systems can slow your team down, and there are a lot of major benefits to implementing processes that work together to achieve a positive return on investment.

Any successful business process should include reconciling orders, whether from Amazon or Shopify; to your merchants such as PayPal, Stripe, or Square; or payment scheduling merchants like Afterpay or Affirm. From there, the next logical step is to reconcile your merchant vendor statements to your bank statements to ensure you have received the required funds. Oftentimes, this involves reconciling with a considerable amount of data.

With a purpose-built financial automation solution in place, you can effectively maximize visibility throughout the entire process.

Best Practice #2: Organize Data Sources, Load Data Frequently, and Automatically Reconcile

As we know, spending isn’t expected to slow anytime soon. This is great news for your business, but may be difficult to manage with your current processes. You may find yourself unable to keep up with the volume of manual reconciliations, causing significant time expenditures as well as potentially having to write off balances that couldn’t properly be researched.

By identifying and organizing their data more effectively, you’ll be able to switch from performing reconciliations on a monthly basis to implementing a process in which data is loaded daily, decreasing the amount of volume of each import.

An effective matching solution triggers automatic reconciliation when all sources of data are loaded.  This allows you the flexibility to drop files through an automated file transfer method and start reconciliations without even having to enter the application. Financial automation improves efficiency and effectiveness, while subsequently improving the match rate and reducing the monthly time spent reconciling.

Best Practice #3: Identify Variances for Merchant Fees

Each e-commerce service out there takes a cut of business revenue along the way. As most of you know, it isn’t the easiest to know exactly what you owe them or how much of your money they are holding back as a reserve. A lot of times, you just get an invoice from them which initiates your journals to record the expense. Taking control of these fees is much more beneficial than taking the loss on the invoice. An automated solution empowers you to stay on top of merchant fees and understand exactly how much is owed to merchants.

By automating previously manual reconciliations while creating a split (or variance) transaction for fees, you can reap significant time savings with a streamlined reconciliation process. Each day, your team can export that amount, record the daily fees for the merchant vendor, and have the backup required to make the entry. After the entry is made, retailers can load back the transactions into a matching solution and clear off the unreconciled amount.

Organizations now have a record of daily fees to quickly access should they needed to go back and view historical data. Implementing an automated matching solution solves significant financial complexities businesses face prior to working with financial automation software.

Best Practice #4: Create Custom Exports to Clear Outstanding Checks or Open Items from ERP

Of all of the frustrating business practices many accountants face, the clearing of open items and outstanding checks may top them all. Scouring through statements and manually checking off and clearing the items in your ERP slows down your month-end processes, causing potential errors in your reconciliations.

Processing both cash-based and online payments creates significant, additional volumes of transactions for retailers. After implementing a financial automation solution, organizations can further improve their processes by configuring an export of matched items, specifically those from the bank with a check number. By isolating those transactions, exporting them from Microsoft Excel, and loading them directly into the ERP to clear the outstanding checks, retailers can close their books faster than ever before.

Best Practice #5: Perform 3-Way Matching to Identify Variances

Delivery services have expanded beyond restaurants to include all kinds of goods, and partnering with services such as DoorDash, Uber Eats, Instacart, Grubhub, Postmates, and more face a unique set of complexities when closing their books. Before delivery services, reconciliations consisted of comparing POS to credit card statements to bank statements. With these third-party delivery services, reconciliations between the POS and the delivery services became vitally important. Down the line, reconciling the delivery service transactions with your bank statement becomes another complexity.

By implementing a three-way match scenario that enables businesses to reconcile their POS sales to their credit card and delivery service vendors in the same reconciliation, organizations can effectively streamline this previously complex process. After transactions match, the matched transactions are taken and summed to match the daily bank deposit, regardless of source. Empowering businesses to identify any variances and take control of the matching process enables them to drastically optimize their close and stay on top of their finances.

Every retailer has different challenges; while no set of best practices can be implemented altogether, these may provide some insight into common challenges faced by other businesses. Most of these best practices take a change in process or training or software in order to be successful. Discover the benefits that Trintech can bring to your retail Office of Finance.

Written by: Jon Sykora