Every business that takes payments has three records of the same money: its own orders or invoices, the payment provider's transactions and settlements, and the bank statement. Reconciliation is checking that they agree, and explaining exactly where they don't. It's unglamorous, and it's where money quietly goes missing when it isn't done.
This guide covers the whole job: how reconciliation differs from settlement (the two get confused constantly), how to read a payment gateway's settlement report, the matching steps, the mismatches you'll meet, the outbound side for payouts, and a daily routine that keeps the exception list short.
Reconciliation vs settlement
Settlement is money moving. Reconciliation is checking the records of that movement. One happens to you; the other is something you do.
| Compared on | Settlement | Reconciliation |
|---|---|---|
| What it is | Paying out collected money: from banks to your provider, and from your provider to your bank account | Matching your orders, the provider's records and your bank statement, and explaining the differences |
| Who does it | Banks, payment systems and your payment provider | You, or software you run |
| When | On the schedule in your provider agreement, often daily | Ideally every day, for the previous day |
| What it produces | A credit in your bank account, with a settlement report and a reference (UTR) | A matched ledger and a short list of exceptions with owners |
| What can go wrong | Late, short or missing credits | Unmatched payments, unexplained deductions, orders marked wrongly |
There are really two settlements in a card or UPI payment. First, the banks settle with each other: in UPI, NPCI settles the net positions between member banks through RBI's RTGS system in several cycles a day. Then, if you use a payment aggregator, the aggregator settles to you from its escrow account. RBI's 2025 directions require non-bank aggregators to keep merchants' money in an escrow account with a scheduled commercial bank, and to settle to merchants as per the agreement, with the settlement timelines stated transparently. RBI doesn't fix one schedule for everyone: your agreement does.
Reconciliation sits on top of both. It's how you know the settlement you received is the one you were owed.
One day's money, start to finish
A simplified timeline for card and UPI payments collected through an aggregator on a daily settlement schedule:
- Day T, all dayCustomers pay. Each payment is confirmed to you by webhook and recorded against an order.
- Day T, through the dayBanks and payment systems settle between themselves; your aggregator receives the funds into its escrow account.
- Day T + 1 (per your agreement)The aggregator settles the net amount to your bank account, with a settlement report and a UTR.
- Day T + 1, morningYou reconcile: orders to transactions, transactions to the settlement, the settlement to the bank credit.
- Day T + 1, by noonExceptions have owners and due dates; everything else is closed.
Weekends and bank holidays shift settlements but not sales, which is why Monday's settlement often covers three days. Our settlement holidays calendar shows the dates to plan around.
Reading a settlement report
A settlement rarely equals the day's sales, and the settlement report is what explains the gap. Most providers' reports, whatever their layout, contain the same building blocks:
| Line | Amount | What it is |
|---|---|---|
| Gross collections (120 payments) | ₹1,84,500 | Payments captured in the settlement period |
| Less refunds | – ₹6,200 | Refunds processed in the period, often for earlier orders |
| Less chargeback | – ₹2,999 | A disputed card payment taken back |
| Less provider fees | – ₹3,690 | Charges per your agreement (illustrative) |
| Less tax on fees | – ₹664 | As shown on the provider's invoice |
| Net settled | ₹1,70,947 | The amount credited to your bank, with one UTR |
Each line needs its own check. The gross should match the payments you recorded as successful for the period. Refunds and chargebacks should match ones you know about, and may relate to orders from weeks ago. Fees should match your agreed pricing; our guide to MDR charges explains which payment methods carry which charges. And the net should equal the credit in your bank statement, matched on the settlement UTR.
The three-way match
Reconciliation is really two matches chained together, with a third check on the money itself.
| Match | Question it answers | Match on |
|---|---|---|
| Orders to provider transactions | Was every order we marked paid actually paid, and is every payment tied to an order? | Your order reference and the provider's payment ID |
| Provider transactions to settlement lines | Was every successful payment settled once, and only once? | The provider's payment ID |
| Settlements to bank credits | Did the money the provider says it sent actually arrive? | The settlement UTR and amount |
A mismatch at any step needs a reason. Most have ordinary explanations; the ones that don't are why you reconcile.
Step 1: orders to transactions
Start with your own records. Every order marked paid should have a successful transaction at the provider with the same reference and amount; every successful transaction should belong to an order. The two usual problems are orders marked paid from the browser's return page without a confirmed payment, and paid orders left unpaid because a webhook was missed. Our guide to payment gateway webhooks covers preventing both.
Step 2: transactions to settlement lines
Each successful payment should appear in exactly one settlement. A payment captured late in the evening may fall into the next day's settlement period, so match by payment ID, not by date. Refunds and chargebacks appear as their own lines, linked to the original payment.
Step 3: settlements to bank credits
Finally, the money. Each settlement should arrive as a credit in your bank statement, for the net amount, carrying the settlement UTR in its narration. A short credit, a credit with no settlement report, or a settlement with no credit all go on the exception list.
Why totals mislead
Matching daily totals feels efficient and hides problems. A missing ₹1,200 payment and an unexplained extra ₹1,200 elsewhere cancel out in a total and remain two real problems. Match transaction by transaction, on references, and totals take care of themselves.
Common mismatches, and what they usually mean
Most differences fall into a handful of patterns.
| What you see | Usual cause | What to do |
|---|---|---|
| Settlement lower than sales | Fees, taxes, refunds or chargebacks deducted before settlement | Check each deduction line against your records and agreement |
| Order paid, no settlement yet | Still within the settlement cycle, or a holiday in between | Check the settlement schedule before raising it |
| Payment with no order | A customer paid twice, or paid outside the normal flow | Find the customer by reference; refund or attach to the order |
| Negative line in a settlement | A refund or chargeback taken from the payout | Match it to the original payment |
| Order marked paid, payment failed | The order was updated from the browser, not the provider's notice | Fix the order; change the integration to rely on webhooks |
| Payment failed, then succeeded | A late confirmation after a timeout or pending state | Use the provider's final status; check for a second payment |
| Bank credit with no settlement report | A settlement from another provider or account, or a direct customer transfer | Match by UTR and narration; check other providers |
| Settlement split across two credits | The provider settled in more than one batch | Match the sum of credits to the report |
Refunds, chargebacks and reversals are different lines
Three kinds of money going back look alike in a customer's mind and very different in your books:
| Event | What happened | Where it shows up |
|---|---|---|
| Reversal | A payment failed after the customer was debited, and their bank returned the money | Nowhere in your settlement: the payment never succeeded, so it should never have been marked paid |
| Refund | You returned money for a payment that succeeded | A deduction in a settlement, often days or weeks after the original sale |
| Chargeback | The customer's bank pulled back a disputed payment | A deduction in a settlement, and possibly a credit later if you win the dispute |
Record each as its own event linked to the original payment, rather than editing or deleting the original. That's what lets a refund in October be matched to a sale in September, and what stops a chargeback looking like a missing payment.
Working through one exception
Suppose yesterday's match shows a successful ₹1,200 UPI payment at your provider with no matching order. A methodical close looks like this:
- Look up the payment by its provider payment ID and check the order reference you passed, if any. A missing reference often means the payment started outside your normal checkout, such as from an old payment link.
- Search orders for the same customer, amount and time. A customer who paid, saw an error and paid again will have a paid order and this second payment.
- If it's a duplicate, refund it through your provider, linked to the original payment, and note the reason.
- If it belongs to a real order that wasn't marked paid, mark the order paid and check why: a missed webhook usually.
- Close the exception with the reason, so the weekly review can spot a pattern.
References are everything
Reconciliation becomes automatic when every payment carries a reference you created: your order or invoice number, passed to the provider and returned in its reports. For bank transfers, a unique account number per customer (a virtual account) does the same job. Without references, matching becomes guesswork by name and amount.
Keep the payment system's references too: the UPI reference (RRN) or card RRN for each payment, the ARN for card refunds, and the UTR for each settlement. Our guide to UTR, RRN and transaction IDs explains which is which and how to store them without breaking them (as text, in full, with the rail alongside).
Payments that don't come through a gateway
Not everything flows through a settlement report:
- UPI paid straight to your own bank account, for example through your bank's QR code: there's no settlement report, so you match orders directly to bank credits, on the UPI reference, amount and time.
- Bank transfers by NEFT, RTGS or IMPS: match on the UTR and the payer's details in the narration, or better, on a virtual account number unique to the customer or invoice.
- Cash and cheques: record them with your own reference at the time, or they'll be the hardest lines to explain.
Reconciling payouts
Money going out needs the same discipline. Every payout you send (vendor payments, salaries, refunds by bank transfer) should match a debit in your bank or payout account statement, on its UTR. The two exceptions to watch are payouts that failed or were returned, which come back as credits that must be matched to the original payout, and payouts still pending, which shouldn't be resent until they're final. Our guide to payouts stuck in pending explains how to handle those.
A daily routine that works
Reconciliation done daily takes minutes; done monthly, it takes days and still misses things.
- Pull yesterday's provider transactions, settlement reports and bank statement automatically.
- Match orders to transactions on your references; flag orders paid without a payment and payments without an order.
- Match transactions to settlement lines; check refunds, chargebacks and fees line by line.
- Match settlements to bank credits on UTR and amount; flag short or missing credits.
- Match payouts to bank debits, and returned payouts to their originals.
- Give every exception an owner and a date, and close it with a reason.
- Review the exception list weekly for patterns, such as one provider or method that keeps causing trouble.
What to measure
Four numbers tell you whether reconciliation is under control:
- Match rate: the share of transactions matched automatically. It should be high and steady; a drop usually means a format change or a broken reference.
- Exception age: how long the oldest open exception has been open. Old exceptions are where money is lost.
- Exceptions by cause: missed webhooks, fee differences, late settlements. The biggest category is the next thing to fix.
- Settlement timeliness: whether each settlement arrived on the date your agreement says.
Spreadsheet or software?
A spreadsheet works while one person can match a day's payments in a few minutes, using exported reports and the references above. It stops working when volume grows, when there's more than one provider or bank account, or when exceptions start rolling from one day to the next. The signs it's time to automate:
- Reconciliation takes more than an hour a day, or is done weekly because daily is too slow.
- Exceptions are found by customers before your team finds them.
- You can't say, on any given morning, which of yesterday's settlements have arrived.
- Reports from different providers need manual reformatting before they can be compared.
Whichever tool you use, the method is the same: match on references, transaction by transaction, and work the exceptions every day.
With more than one provider
Each provider has its own report format, fee structure and settlement calendar. Normalise them into one format keyed on your references before matching, so the routine above works the same whichever provider a payment went through. A reconciliation layer that does this across providers, keeping payments, refunds, disputes and settlements on one record, is described on our reconciliation capability page.
Frequently asked questions
What is the difference between settlement and reconciliation?
Settlement is the movement of money: your payment provider paying collected funds into your bank account on an agreed schedule. Reconciliation is checking the records: matching your orders, the provider's transactions and settlements, and your bank statement, and explaining any differences.
Why is my settlement amount lower than my sales?
Settlements are usually net of the provider's fees and the tax on them, refunds and chargebacks, and they may cover a different period from your sales day. The settlement report lists each deduction, so check it line by line.
How often should I reconcile payments?
Daily. A daily routine takes minutes and catches problems while they're easy to trace; monthly reconciliation takes days and leaves exceptions too old to resolve.
What is payment gateway reconciliation?
Matching your orders to the gateway's transactions, the transactions to its settlement reports, and the settlements to the credits in your bank account, on references rather than totals.
What does T + 1 settlement mean?
That payments collected on one day (T) are settled to your bank account the next day. It's a schedule agreed with your payment provider, not a single rule RBI sets for everyone, and weekends and bank holidays can push it later. Check the timeline in your agreement.
What should I match a settlement to in my bank statement?
The settlement's net amount and its UTR, which normally appears in the narration of the bank credit. If one settlement arrives as several credits, match the sum.
Go deeper
Official sources
- RBI — Reserve Bank of India (Regulation of Payment Aggregators) Directions, 2025 (15 Sep 2025)Escrow account with a scheduled commercial bank for non-bank aggregators; settlement to merchants as per the agreement, with transparent timelines (16).
- NPCI — UPI Consolidated Circular, Version 1.0, NPCI/UPI/CC/01 (18 Sep 2026)Net settlement between member banks through RTGS in daily settlement cycles (29, Annexure E).
Last reviewed . Examples, amounts and screens marked illustrative are not LILPE figures.
