POS reconciliation is the process of manually checking your POS sales records against your cash on hand and credit card processing statements to ensure there are no discrepancies. POS reconciliation can be done anytime, but more frequent audits ensure any disparities are identified and fixed right away. For most businesses, the best practice is often to audit cash and credit card transactions at the end of each business day.
As someone who spent several years managing day-to-day operations in a retail spa, I found POS reconciliation to be one of the more mundane regular tasks. However, it was essential for spotting cash mishandling and incorrectly entered credit card charges (in a spa, a mismatched credit card charge usually meant a tip for an employee was charged to the customer, but mistakenly not applied to the employee’s account — which is something you definitely want to fix!).
How to Do POS Reconciliation
- Gather your POS sales transactions, cash-on-hand from the register, and credit card processing batch statements.
- Compare each POS transaction with its batch statement.
- Take note of any discrepancy and identify any transaction that doesn’t have a corresponding entry.
- Retrieve all the physical cash in your register drawers.
- Add all cash transactions made during the day/shift. Then compare that amount to the actual cash that you have in your registers.
- Note discrepancies between the cash you should have on hand, and the actual amount in the drawers.
- Keep a log of each reconciliation session for further accounting purposes.
- Make logs available to appropriate accounting and tax professionals.
- Repeat the reconciliation process as often as necessary to ensure the good financial health of your company.
Benefits of Performing POS Reconciliation
Although many POS systems automatically produce analytics and reports, provide inventory tracking tools, have powerful employee management and accounting features, manually reviewing and cross-referencing each transaction with your POS system logs provides greater insight into the details of your business and can prevent long-term accounting errors.
Performing POS reconciliation:
- Reduces accounting errors: Regularly performing POS reconciliation helps keep your books accurate, identifies discrepancies, and allows you to correct them before they become a bigger problem.
- Secures cash deposits: Knowing exactly how much cash you’re depositing every day is essential. Once you deposit a cash amount into the bank, it’s difficult to identify where a mistake may have been made.
- Saves money in the long run: Regular reconciliation means that problems can be caught and managed. Inaccurate bookkeeping can cause big headaches and extra expenses down the road.
- Helps you make more informed business decisions: In addition to catching errors and unauthorized transactions, regular reconciliation gives you a much more complete idea than a monthly report about which products are selling well, which are losing money, and gives you an overall more in-depth knowledge of your business and its health.
- Can identify employee performance: This is another side benefit of reconciliation. By manually examining each transaction, you can see which employees are making the most sales, which are making mistakes with cash, and possibly identify sneaks and thieves in your workforce.
- Helps you track inventory: Although many POS systems have built-in inventory tracking and management tools, reconciling your POS on a regular basis can help you have a better understanding of what’s in your backroom, what needs to be reordered, and how fast particular items are selling.
The main benefit of POS reconciliation is that you have the peace of mind knowing that all your accounts, ledgers, and transactions are accurate. With the added benefit of having a far more intimate knowledge of your business than you otherwise would have.
POS Reconciliation Best Practices
Perform Regular Checks
If you’re running a retail business, especially one that takes cash payments, you should do a POS reconciliation every day – at the end of every shift if you have a high-volume business. This ensures that your books are accurate and you’re not losing money to cashier errors or theft. However, if this is impossible, you should at least try to reconcile your POS logs weekly or monthly.
Use Integrated Credit Card Processing
Errors and discrepancies are less common with the right POS hardware setup. When your payment processing terminals are integrated with the POS software, employees don’t have to manually type in a sale amount, which can significantly reduce errors.
Limit One Employee Per Register
When possible, limit the number of people responsible for each cash drawer and reconcile the cash-on-hand against transaction data at the end of each shift. This makes it easier to identify any cash mishandlings. If you only have one or two registers, and more employees working at a time, you can also have employees punch in a code or sign-in for each register transaction. This is so that every transaction still has a specific employee associated with it if you need to ask any questions.
Have a Manager Conduct the Audits
A person in authority should be doing the reconciliation. While it may be tempting to delegate the often boring and monotonous work of comparing transaction logs, a new or entry-level employee may not be the best choice. The business owner is not the only one who can complete this task, but it should be entrusted to someone who is invested in the fiduciary health of the company such as a shift manager, department head, or accountant.
Open With The Same Amount of Cash Each Day
A basic step in making sure your POS reports line up with your cash-on-hand is opening each register with the same amount of cash every day. Set a baseline for how much money every register should have at the start of the day to make change (some smaller businesses keep around $200).
Every morning, whoever is opening the register should count the cash to make sure there is exactly the baseline amount.
Be thorough, don’t rush through the process. Pouring over an ocean of numbers may become mind-numbing after a while, and you may want to skip over portions that you think you know are accurate. However, mistakes, fraud, and inconsistencies are often hiding among a big batch of correct records. Vigilance in this often-boring task is the key to identifying potential problems before they become issues that need emergency action.
Keep Reconciliation Records
Having a log can be invaluable in solving problems when they arrive. At the end of reconciliation sessions, write down that it was done, if any discrepancies were found, what was done to address them, and who did the reconciliation. This way if an issue arrives in the future, you can look back to find patterns, and indicators much easier.
Comparing your expected sales (those in your POS software) with the actual numbers from your credit card processor and cash drawers regularly can protect you and your business against accounting mistakes, theft, fraud, and other financial hardships. It’s one of the more mundane aspects of operating a small business. However, it yields many benefits beyond simple accounting.
Regular POS reconciliation can provide you and your managers with an in-depth understanding of your business, what’s happening, who is doing what, when, and how often. By regularly absorbing all the transaction data, you’ll be able to make more informed and better decisions regarding your business.