What is Reconciliation?
When you're working on payment systems, most of the time, you're not managing the money yourself. You depend on an external financial institution to manage the money for you. The reason for this is that managing money is a complex, highly regulated, and risky business. Most companies prefer to outsource this to a financial institution who are sepcialized in managing money.
In the meantime, you need to keep track of the money that you're managing within your IT systems. You need to know how much money you have, how much money you owe, and how much money you're owed. This parts depends on your business model. In the Formance ecosystem, you model your money flows using the Formance Ledger or the Formance Wallets.
Reconciliation is the process of putting side by side the money managed by the Formance platform and the money managed by the external financial institution and making sure that they match.
In Formance Reconciation, we provide two types of reconciliation:
- account based reconciliation
- transaction based reconciliation (coming soon)
Regardless of the reconcilation type, the produced artifact is a reconciliation report that shows the differences between the Formance Ledger and the external financial institution, if any. This report is then used by CFOs and finance teams to identify and fix the discrepancies.
Account based reconciliation
Account based reconciliation is the process of comparing the balances of a set of account in the Formance Ledger with the balances of the another set of accounts in an external financial institution and making sure that they match.
For the account based reconciliation to be successful, the sum of the balances of the reconciled account set in the Formance Ledger must match the sum of the balances of the reconciled accounts set in the external financial institution.
Transaction based reconciliation
Transaction based reconciliation is not yet available. We are working on it and it will be available soon.