The gateway paradox of payment reconciliation

‍Jurian Van Maanen

I love how much passion we can show for a topic like bank reconciliation!

Jake Jones

I love how much passion we can show for a topic like bank reconciliation.

Yeah, I hear myself sometimes get excited about that, automated reconciliation, CSV imports!

Welcome to Finance in the Cloud. Modern finance is broken forcing finance and accounting teams to work like it's 1985, the year Excel was invented. Here we talk about the struggles finance teams face in fast growing companies and discuss how they can spend less time surviving and more time in the clouds.

I'm your host, Jake Jones, multimedia producer and brand influencer here at Zone & Co and I'm joined this week by Jurian Van Maanen, Vice President of Expansion Apps and Sales at Zone & Co. and Stephen Murray Managing Director at Scarecrow.

Thanks for joining me today guys.

Jurian

Thanks for having us. 

Stephen

Yeah thank you.

Jake

Payment reconciliation can be one of the most time consuming parts of a finance workload.

Today, we're going to discuss the modernizations, changing the payment reconciliation process and how they can unlock efficiencies and growth at your company. But before we jump into that, I do want to give a little space for Jurian and Stephen to kind of introduce yourselves. Let us get to know you guys a little bit better.

So Jurian why don't we start with you. Who are you? What's kind of your background and what do you do for us here at Zone?

Jurian

Yeah, sure. Yeah.

So first of all, Jake, thank you so much for inviting me today. Like, I've been listening quite religiously to the podcast so far, really enjoyed it. So it's exciting to, to join today for this topic.

So my name as you mentioned is, Jurian Van Maanen. I'm responsible for the sales of, what we call, expansion apps at Zone & Co. Before that, I had a similar role at Fast Four. And Fast Four was acquired by Zone & Co in January of this year. 

As a company, we started out as a NetSuite implementation partner. And while we were doing implementations, we found some areas in the system where we thought, "Hey, we could make these processes even better." And what's really great about NetSuite is that it acts as a platform, you can develop on top of it. So we developed applications for NetSuite to automate certain key financial processes around banking, around AP automation. So I think the banking one we will definitely touch on today. And we had over 800 customers using our apps at the time we, we were acquired. If you look at my own personal background, I have a financial background. So I started out as an accountant, got to work with NetSuite, figured out I actually like the software side in NetSuite a lot more even than the finance side. So I switched to implementing NetSuite.  Did that for a couple of years and then switched to a sales role. So I can use those financial experiences to help companies that are going through their own financial transformation process. 

So that's me in a nutshell. 

‍Jake

Absolutely, and thank you for properly pronouncing your name. I'm sorry I butchered it there at the beginning, but I'm still learning Dutch, so we'll get–I'll get there eventually.

Jurian

I also don't have the easiest Dutch name to pronounce, so I won't hold it against you.

Jake

There you go, thank you, thank you.

And then we also have Stephen. 

Stephen, why don't you introduce yourself? What do you do at Scarecrow? And how are you, how did you kind of get involved with Fast Four and then now Zone & Co?

Stephen

Well, thanks for having us.

Umm to echo Jurian's thoughts, really excited to be here. Having listened to the last few episodes and obviously to follow-up really cruelly. You've got a man with a Scottish accent after a man with a Dutch accent. So good luck, Jake, in terms of putting all this together and hope everyone follows it. 

Eh, I'm managing director here at Scarecrow and we are a digital marketing agency. We've been going for a little over two and a half years now, nearly three years. And I got here a little bit circuitously having studied marketing whilst at university. I then actually went out with a software provider and worked for a solution provider of NetSuite for just over ten years. After that we've actually been working quite closely due to my experience, in the NetSuite and the ERP marketplace. And we've been working with a few solution providers and SDN SuiteApp providers like yourselves. And we started working with the team at Fast Four not long after we launched the business. And have continued to do so and as their business in the app marketplace has grown, our business has grown alongside it. And it's turned out to be a really fruitful relationship. And obviously with the recent acquisition and now supporting and the sort of international development of the messaging and the positioning for the Zone apps. That's a really exciting thing.

Jake

Absolutely. Well, thank you both again for being here. I'm really excited to have both of your perspectives and experience on this topic.

And without further ado, let's just jump in. So, this actually, this topic kind of sparked from a conversation between you and I, Stephen, that we were kind of a part of about payment reconciliation. And I'm a little bit unfamiliar with the topic myself. And so you were kind of describing it to me and you kind of used this word "gateway paradox." And we all kind of chuckled about it in the moment but it was really kind of an interesting picture. And so I was wondering if you could maybe just kind of get us kicked off here, what did you mean by a gateway paradox in regards to reconciliation?

Stephen

Yeah, well, apart from being a great name for a prog band. I think we kind of stumbled across it in terms of talking about probably one of the most common challenges for, for all businesses when we're talking about software. And actually, I think Hylke spoke about it back in the podcast you've done with him, terms of scaling and, and some of the mistakes that he felt he had made. 

The gateway paradox is the same as a lot of software paradoxes. In terms of, it really depends on what your business needs at the time. You know, and the ideal scenario is always to have the best of everything but in the real world impossible. It comes on, on day one you need to start with doing and making sure the doing gets done. And as a business grows and evolves you can then spend more time and more budget to finesse the processes. And as a business grows and evolves you can then spend more time and more budget to finesse the processes. And start focusing on getting the information that you need to drive better decisions. And I think in terms of how we positioned it, and why we were discussing it was in terms of payment gateways like I mentioned in my introduction is they're a necessity now for almost every business, even service focused businesses who want to take online payments because customers expect it, right? whether it's via portals or pay now buttons on invoices or whatever it is, people expect that ease of payment. 

So you have to have a service provider to facilitate the payment. And the paradox comes from, if you're using them, you have one option, which is from a financial point of view, to bring in a summarized total from the payment gateway provider who takes all the cash for you to pay into a bank. And then we'll tell you yes, that we took a thousand dollars for you and here it is. And the easy way to manage that in the finance system is just to bring it in as a total of a thousand dollars and say we took a thousand dollars card payments yesterday and jobs done from the financial perspective certainly. What you don't get from that though, is the fact that it was 100 transactions of $10 for and what was the whole process that went into that manually. So the paradox, the reference really came from  we have a payment gateway provider to facilitate purchases from the customers. But if we were to reconcile every single transaction individually, that's a pretty backbreaking process that would get in the way of actually shipping the orders and getting on with getting more customers and more orders and doing the business.And to be honest, that's before we even get into some of the complexities that, that brings in terms of the gateway providers fees and everything like that as well. 

So you've got this paradox of wanting to sell more, but the more you sell the more reconciliation you have to do, the more operational processing you have to do. So really looking at the whole process and what you're trying to achieve and what point is the right point to start using the data better and putting more effort and more cost out into it but getting more out of it to better business decisions.

Jake

Yeah, there's definitely a almost a hill that you can have or teetering on of, of when do you want to make that leap to make more products but also have to struggle with these complications that you mentioned. 

So Jurian, I'd love to hear your perspective on this just from your experience as well.

Jurian

Like actually interestingly, enough, I was having a conversation recently with this, with a customer. And we were talking about a sort of financial transformation. And it's basically one-on-one what you just described, Stephen. And sort of hearing you explain this, you could almost argue that this particular process is sort of one of the first symptoms that you'll run into

to sort of show you, hey, I need that financial transformation, right? Because you're going to go to a payment service provider usually when you do that, you start realizing, OK, you know what now that we're a growing business. Now that we need more, more real-time data available in our system. We don't want that lump sum anymore. We want to have that transactional data.

And that almost, almost opens up sort of all the challenges. You then get within that transform- that financial transformation when you go into that next step, because, OK, now we have all that transactional data, but how are we now going to keep track of which individual transaction is already been paid out, which when it's already reconciled? And it's actually a pretty interesting topic because if you look at. I really like the way you describe that as sort of the tipping point, yeah? For me that that sometimes is when sort of the focus shifts from just tilt and go-to-market to hey, now we need to become more strategic, now we need to start becoming a bit more forward-thinking the this process and sort of this, this difficulty with, with, with payment service providers tends to be one of the first things that companies run into as an organization.

Jake

We're talking about this in simplistic terms, but I mean, it gets even more complicated then what you're talking about. You know, Stephen, you kind of brought up that there's also the fee from the gateway company that you're using for to get credit card payments and that sort of thing. So this is all just a very, very complicated thing. What are some of the big issues that you run into with gateway reconciliation and kind of what is gateway reconciliation?

Jurian

If you look at what our payment service providers–if you–if as a company you're accepting, usually we see it with online payments. Yeah? So payments that are accepted via our web store. There are also other scenarios, but usually with online payments. One way that you can do that is to pick your favorite payment method. So let's say PayPal. I don't know if I'm allowed to advertise on the show, Jake, but let's use PayPal as an example.

Jake

We'll allow it.

Jurian

And you build.

Stephen

We'll split the royalties, Jurian!

Jurian

We'll check it after.

You built, you built a direct integration with PayPal. You put a PayPal button on your website.

Customers can pay and you will receive that money on your account. What you see is that when you start moving into multiple markets, not all markets will want to pay with PayPal as good as a product that is. But maybe in, like if you look at in Holland. We have something called "Ideal" which was built by the banks, which everyone wants that when they are paying for an online order and each market has one of those payment methods. So as soon as you are going to go for a strategy where you're trying to sell products online in multiple markets. It makes no sense anymore to start building connections between your website and between your ERP, eh, between your ERP and all those different payment methods. So then those payment service providers come in and they build those connections to all those different payment methods. They take care of the transaction on, in this example, your web store, and they will then pay out the money they collect for debts for that transaction. 

So reconciling here means that usually those, those transactions I just described live in a different platform than your ERP system that usually happens in your web store. Those get synced to your ERP system, and then you need to  figure out hey am I getting all those orders in from my web server to my ERP? And are all those orders actually paid out by my payments, by my payment service provider? And what fees did they charge to provide me that service?

That is very simplistically sort of the concept of the PSP reconciliation.

Jake

Mm hmm. And that's really mostly just for online payments.

Like if I'm if I'm getting cash orders or check orders that's not really something that I'm worried about or as concerned about. Right?

Jurian

Well, you might still be worried or concerned about it. I see it as a slightly separate process from sort of this payment service provider reconciliation.

Stephen

As well, Jake, in terms of like an omni-channel type of thing like. Payment service providers would also be chip & pin or contactless card machines and payments over the phone to someone. And obviously, I think when we are saying PayPal, everyone should think you're buying an online, buying a product online. It could also be paying for services via a portal or a like that kind of thing, which you know, is just huge, certainly in the UK, European and in my trips to the States credit card, is, is the default, you know, payment method normally. It's that or cash mostly. But It's a huge–it's a huge element of the, of the economy. And one of the advantages that these companies bring as well as a compliance perspective for companies of any size. 

You know, so Scarecrow we're quite a small business. I, I wouldn't have infrastructure or budget or anything to try and actually store and manage customer card details. Which is why, same as anything else we can outsource. These companies bring that and manage that whole process for you and that's what they take their fee for. 

So it's a huge industry and a huge part of, uhm from a small local news agent, right through to international corporations. Anyone processing any kind of card or digital payment now will have normally some kind of gateway for it to move through.

Jake

Absolutely. Yeah. That, that makes total sense to me. 

I kind of had two different directions wanted to go here, but I guess the first one, how would a company kind of recognize we've kind of talked about this tipping point and this is kind of the paradox, right? Of are you ready-is your business ready to take that jump and make that move? What are some kind of factors that you guys would call out to help someone identify that, hey, maybe my company is ready to look into some kind, some kind of software that can help with this reconciliation? What are some of those calling cards you would look for in your business to kind of know this is something I need to consider?

Jurian

So I can mention two examples and maybe Stephen you can jump in with some, some additional examples.

I think one of them is when companies see that they're just lacking data that they would really like to have available. If you look at this process, what, what I see a lot is that within the financial system, companies want to get order-level details. So they don't want to see their sales per day, eh, or per week. Sometimes even the CFO says if I want to do my reporting if I want to drive the right strategical decisions I want to see what that one number represents. Like what products were, were sold? What customers were buying those products? So there is a lack of that data, and that's usually a sign to say, OK, you know what? Maybe the way that we are now doing it with our different systems doesn't work.

And we need to look at a financial set up where that is supported. The second thing that I think is always obvious but a big flag is just that the company is growing and the team is not managing and there's too much manual work and there is a need for automation right?

The payments are being reconciled, but it's being done by someone going through an Excel file, manually ticking all the boxes, spending hours on it, while there's also still a backlog of plenty of other tasks that they can work on. When you, when you have that type of manual work and you say, you know what, this could easily be automated. That's usually also a flag that hey, that answer probably is out there and it might be the time for you to start and go look for it.

Stephen

The only other occasion where I have been called in to have discussions around about these things is usually after a pretty expensive mistake. Which is what everyone is usually trying to avoid. 

The challenge, I think, in seeing it in terms of the staff normally involved and during these processes aren't necessarily the most vocal or visible in your organization. You know, it's- and I think this is changing for the good. Best times probably to to ask this question is as soon as you start working with payment service providers or payment gateways. And that probably applies across the board as well. Because, what we see is as soon as you start introducing another link in the chain of how you get from A to Z, that's where complications, if not immediately, that's where they'll appear in the future, you know. So if on day one it's ok because you're only doing 10 transactions, the aim is probably to get to 100 and then 1,000 transactions.

So I think there's a really strong argument that at that point is a really good time to look at the question. What is the best way to get that right both for just now and for the future? And try and prevent the complexity ever actually occurring.

Yeah, because you can set up anything, but I think if you put the core, you know, if you look the core system is correct, but you know it's going to have to evolve over time. The challenges come the more you start adding roundabout the side of that which is NetSuite's whole sales' message, right? So, if at that point, if one day what you can look and see is there a way to actually prevent this ever occurring, you know, can we get it right from day one? It means that the business scales–it just scales, you don't have to bring in more people to do more manual tasks and actually start firefighting. You just prevent it.

Jake

So you guys have brought up a lot of topics I kind of want to chase down. But just to kind of segue from this one, what are kind of the risks if you maybe wait to make that jump too long? What are some of the risks if you don't find a good solution to your reconciliation?

How is that going to affect your company moving forward?

Stephen

It's actually quite easy to get sidetracked into purely the kind of financial and operational side of things, as well. In all honesty, from my experience, one of the biggest risks is frustrating good people in your organization. If you look at just the practical element of reconciling, if you have to reconcile every single transaction, by the very nature of the more transactions you do, which is the aim of the business, the more there is to reconcile. And if you do it all manually, it's, it's a really intense, tedious process. There's enough margin for error, I mean the whole reconciliation kind of removes the margins of error. That's obvious, but you can still make errors which the system prevents you from reconciling. You have to go back and work out what was wrong. 

So I think that's a massive, that's a massive risk. That's truly worth considering. You know, how much of my people's valuable time is being used on this? And by used I mean, how much are we paying valuable people to get really angry about working here? Which nobody's looking for that in the whole marketplace. Especially with the changes in culture over the last three years, with the pandemic. You know, there is people looking inwardly about what their job means and what they want to achieve from their career. So don't ask them to do something that's going to drive them away. 

From a more financial side, I look at this as a business owner as well. And this is probably the paradox comes from, you know, it's and it's horses for courses of ultimately the cash ends up in the bank, you know, and from a payment gateway provider perspective, it usually gets that quicker than otherwise, as well. So that's an advantage, you know, so that that probably reduces some of the risk for me. It's not like you're sending out an invoice with millions of dollars and waiting for the million dollars to come in, millions of dollars in the bank. So that makes it easier to worry about. And what do we do with it next? I think that the problem probably comes from that of we're talking purely financial at the moment as well. But as we go back to the example of selling 100 t-shirts at $10, those hundred t-shirts that will have to be taken off the shelves put in a bag or a box or whatever. posted, shipped and marked as completed and then posted to the finance team So I think that's a bigger challenge in terms of you look at the actual end-to-end process, unless it's automated, there's something somewhere is going to have to ware the manual brunt of what that looks like. 

And NetSuite is, in my experience, one of if not the only solution that gives you that end-to-end sales order through to dispatch and invoicing process, which leaves the only the only final bet to do once you go over this amazing customer and order data is do the manual reconciliation of all the transactions. So if you can automate that final step, then you've got the perfect solution. You get the customer actually does the work for you by placing the order and making the payment.

You get the cash in the bank, the warehouse team get the automatic, you know, the automatic notification to dispatch the stuff. And by doing that, it closes off the transaction. It's just that last bit of putting the two together.

And ZonePayments, obviously, as the, conveniently sponsors of the podcast, has the solution to do that!

Jake

That's kind of the direction I want to go next is just kind of like, you know, let's, let's talk about some solutions. And obviously we have a lot of apps that have a lot of great tools that relate to this. But even just generally speaking, like what sort of tools should someone be looking to? I know we've mentioned automation a lot, so that may be just the simple answer, but Jurian, why don't you take it from there? What eh, what are some of the solutions out there to help with this reconciliation gateway paradox?

Jurian

So yeah, well, I mean, we've been, we've been solving it for our customers for, for quite some time. So I guess you can, you can put them in a few different buckets, right? Many customers can decide to just build their own full integration. So build an integration from their ERP to their payment service provider. Complicated takes, takes quite, takes quite some time. We've built a solution actually with our bank reconciliation tool, which acts as a middleman within NetSuite.

It can import the data from those payment service providers and then automated reconciliation for you.

So we will match that to transactions in NetSuite. We will make sure that the commission fees are getting processed. That's really purely focusing on the reconciliation part. And then there's also some sort of all-inclusive solutions. 

So I know that there are some PSP providers on the market that have those all-inclusive solutions for NetSuite. And we're developing one with Zone as well right? With ZonePayments, we're going to introduce. That's a tool that will support that down the line for multiple payment service providers that will both automate the reconciliation part, but also much more because now we're sort of focusing on one piece here eh, the reconciliation.

But luckily there's more processes that you can automate within this as well. Like one of my all time favorites, we have the reconciliation in order. Now we want to refund the order. And then a lot of the times it immediately turns into manual work. Again, we're back into logging into the back-end of that provider and processing that refund. And I think there we're going to launch some really cool stuff that will automate even more processes than just a reconciliation feature.

Jake

Absolutely. Thanks for teasing a little bit of that, too there, Jurian, I love it.

What, how how does using-really just automating. How does automating these processes, how is that going to affect these finance teams' workload? I mean, obviously, you would think with automation, it would be lighter. But I guess even beyond that, what is that going to open up for them to do?

Jurian

Like I think it's two things like that maybe tie in a little bit also with the answer to Stephen. So it's taking away the manual work, obviously keeping people happy. Like one of the things that I also think is quite an important part of this and that will bring the finance team a lot of joy is it gives you real-time checks and balances. So like reconciliation for a large part is also just making sure everything is going correctly and sort of towards the PSP provider that is, hey, are they actually paying out these amounts? Are they taking the commissions amounts they promised? But also from, from an order perspective, if all of a sudden you're receiving money and you cannot put a transaction towards, it might indicate that there is an issue with your order flow. And if, if you are a finance person and you find that out after six months, it's like, oh, our financial reporting actually wasn't correct the past six months, which can lead to some joyous moments. So yes, it's takes away manual work. And also just give us peace of mind that you have a constant check that those data streams are going correctly. 

Jake

Yeah, I can only imagine that going the opposite direction to have just you find something that was wrong and it's not a positive that, that is terrifying. So just the fact that you can be caught up on your reconciliation, too, I think is a really interesting point. 

Go ahead, Stephen. What were you going to say?

Stephen

You know, I think the more Jurian talks, you know, the clearer it becomes in terms of just how complex a process this is. It's something I always speak to my own team about it. 

You know, the example I've been getting so far of the 100 t-shirts at 10 dollars, that's not what we're talking about. No, I'm not aware of anyone who can afford NetSuite selling 100 t-shirts at 10 dollars, you know, we're talking about quite even small businesses. In terms of the world, we are talking about big businesses. They'll be selling on their own website. They'll be selling usually on Amazon, probably eBay, or other online marketplaces. I was listening today to the Masters of Scale podcast, and the guys at Gopuff seem pretty big in the states to roll these online marketplaces, delivery services, courier services, et cetera. And it gets so complex so quickly and quite often now with high-volume of low-value, the complexities that come in as Jurian, mentioned refunds.

And again, in the online retail space, that's a really complex thing in terms of people buying multiple versions of one item on purpose, knowing that they're going to be sending 60-70% of that order back.And so the financial implications of that and operational processes of that. The other kind of things that we haven't even touched on as well. Is that, although I said, you know that the cash comes in the bank quicker, which is great, it comes in the bank on a disbursement schedule, from the gateway provider. So if you select to have that daily, it means you have a lot more work to do if you select that to be every, third, fifth, seventh day it means that there's payments coming in a week after the payment has been received. So you receive on it different date from the payment date. And if someone's paid $10 you're getting $9.72 of that because the PSP has taken a fee for it. So suddenly if you multiply that out to taking thousands, into hundreds of thousands of orders, with returns. Payments being made on different days and received in different amounts and you're having to manage that whole thing. Things like the fees for your literal cash can become almost impossible to track, especially if you're doing it manually. 

And so it can be easy for, you know, payment gateway providers to accidentally take too much, for example, or usually payment schedules and you'll get more one month than you meant to get less the next month and it balances out, but becomes really complex quickly.

Jake

One thing I'm kind of hearing, just as we continue talking about this, is It is so complicated. And if it's complicated and you don't have a system that supports you with this, that means someone on your team is struggling with this complexity. And I think as we've talked about, there's there's so much room for error. And obviously the human element is there's a lot of room for error. And so it really does kind of to surmise all of this, it it really is important that you have a system in place, whatever that may be. To make sure that you're reconciling all of this correctly. Because it really can be a detriment to not, not just your business, but also your team. 

And so that's so important.

Stephen

Yeah. We came up with what was supposedly well, we found it in a self-congratulatory manner, quite funny for Fast Four about a year ago. There's a really famous Steve Jobs quote, we don't hire the best people to tell them what to do. We hire the best people for them to tell us what to do. And we were like, well, we don't hire the best people to make them fill out spreadsheets. You know, what's the point in going and recruiting really clever staff. Like, there's your laptop there's Excel. See you next week. We'll give you more Excel spreadsheets. That's not what e're in it for. People weren't meant to do that. So it's getting, getting them looking at the data, potting trends...What else customers buy. And what else does this mean? What can we do with the cash that we've received rather than literally click, click, click, error, fix, click and move on.

I'm really passionate about that side of things as well as the cash side of things.

Jurian

Yeah. I love how much passion we can show for a topic like bank reconciliations. No, but if you dive into it, actually it's so complex and so interesting. Yeah.

Stephen

I hear myself sometimes getting excited about that automated reconciliation, CSV imports!

Jurian

Cause it is, it is exciting, Stephen, its not you it is exciting.

Jake

Yeah, it is. It is Jurian and Stephen, thank you both so much for joining us today. And we've had a great conversation about all the complexities of reconciliation and just how important it is to really be something that you solve for and really pay attention to in your company and in your business. 

So it's great to hearing both of your perspectives.

Jurian

Yeah. Well, thank you, Jake. 

Like, I really enjoyed participating in the conversation and, you know, I really enjoyed the podcast so far. 

So super happy to be part of it.

Stephen

Yeah, likewise. Thanks for having us, it was a great conversation.

Jake

And now we want to hear from you.

What is keeping you from a reconciliation solution for your business? Let us know by emailing hello@zoneandco.com and if you enjoyed today's conversation, be sure to subscribe to Finance in the Clouds wherever you get your podcasts and we will see you next time. 

Bye!