The clearing house standard: Aspirational model for accounting firms and retailers

Accounting firms, especially those that serve the retail industry, should adopt a “clearing house mentality” to help them more accurately keep their clients’ books and save them money

Retail business owners who also invest in stocks, bonds, exchange-traded funds (ETFs), and mutual funds expect their trades to be executed and settled quickly and accurately. Yet, these same entrepreneurs are largely left on their own when it comes to ensuring that the payments they receive from online and in-store sales accurately sync up with the deposits made into their bank accounts.

There’s a reason for this discrepancy. The investment industry is strictly regulated, with clearly defined requirements, workflows, and safeguards that mandate how trades must be executed, fulfilled, paid for, settled, and documented. Unfortunately, no such requirements exist in the retail and e-commerce world. That means it’s up to business owners — or, more accurately, their bookkeepers or accounting firms — to employ their own processes for reconciling accounts.

Yet, even in the absence of such overriding standards, accounting professionals can still aspire to give their retail clients a reconciliation experience that mirrors the investment industry standard. How? By emulating a clearing house mentality.

Clearing houses: The nerve center of execution & settlement

In the financial world, traders don’t deal directly with each other; instead, both sides of the transaction rely on clearing houses, government-registered entities that serve as intermediaries between buyers and sellers of securities.

Clearing houses ensure that the transaction requirements are met, either making sure the trade is executed at the right price, paid for, and delivered; or by ensuring payment is received and validated before releasing the securities. Close coordination among clearing houses provides an extremely efficient transaction management system with multiple levels of validation, protection, and problem resolution.

If only similar efficiency existed in the retail world.

A decade or so ago, account reconciliation in the retail industry was relatively easy. Most sales occurred on location, with customers paying by cash, check, or credit card. Today, thanks in part to the changes brought about by the global COVID-19 pandemic, retailers have a seemingly limitless variety of Internet-based e-commerce and digital payment vendors from which to choose. Business owners may sign up with several different platforms, without considering that each generates its own proprietary reports, which often do not necessarily comply with generally accepted accounting principles (GAAP).


Accounting professionals can still aspire to give their retail clients a reconciliation experience that mirrors the investment industry standard by emulating a clearing house mentality.


A few e-commerce platforms may deposit net payments from sales directly into retailers’ bank accounts; however, in most cases, sales platforms allow multiple payment options with each credit card and online payment company making their own separate deposits, following their own schedule.

Then, retail businesses’ bookkeepers and accounting firms have to log on to each payment company’s portal to download these payment reports, reconcile them with their clients’ sales records, and then make sure they match up with deposits made to businesses’ bank accounts. They must also account for and book fees, commissions, and loans usually removed before the deposits are made.

And if this system wasn’t complicated enough, many retailers’ own business practices often make matters worse.

For example, when a restaurant closes at night, managers are supposed to add tips to open credit card authorizations and then close and submit them immediately. In reality, many wait until the next day to do this. If they wait too long, these authorizations may expire, essentially giving diners a free meal. Other businesses allow weeks or months to elapse before reconciling their accounts, often discovering that their books are woefully out of balance.

A retailer that hasn’t done consistent profit & loss reporting, for example, may discover — once it tries to reconcile its accounts — that they may have booked thousands of dollars in online sales over that period that were never posted to the retailer’s bank account. At that point, it may be difficult to get that revenue back.

Adopting a clearing house mentality

Daily reconciliation is tedious and time-consuming work, of course, but it’s completely necessary, especially if you’re in the retail industry. Without it, retailers and their accounting firms can’t know exactly where they stand, financially. More importantly, they may be unable to identify and resolve missing or incorrect payment situations, which, unfortunately, have been occurring more frequently, particularly among newer startup payment companies that are more interested in signing up new customers than delivering reliable financial data.

In the absence of any retail industry settlement regulations like those among security traders, accounting firms should aspire to adopt a kind of clearing house mentality. This means making a commitment to downloading and reconciling sales and deposit numbers every day.

Accounting automation platforms can help simplify this process. But in order to succeed, accounting firms need to educate their clients about their roles in making sure the clearing house model works. This means emphasizing the importance of choosing reliable payment vendors, closing open credit card authorizations quickly, and convincing cost-conscious retailers that paying for daily — rather than weekly or monthly — account reconciliation is in their best interests.

If clients need convincing, ask them to use their own investment experience as an analogy. If they understand how efficient daily reconciliation can benefit their bottom lines as business owners in the same way that clearing houses benefit them as investors, they’ll be more likely to get on board.