Organization default
Automatic reconciliation is controlled at the organization level from Settings > Invoices. See Invoice settings for details.- When the org-level Reconciliation toggle is on (the default), new invoices use a virtual account number and inbound payments auto-match to open invoices.
- When it is off, new invoices show your selected checking account details on the PDF and Karat does not auto-match inbound payments. This applies to every invoice; the setting cannot be overridden for a single invoice.
Per-invoice override
When the org-level default is on, senders can turn reconciliation off for a specific invoice from the Payment details step of the invoice creation flow. See Creating and sending an invoice. Turning it off for a single invoice:- Shows the selected checking account’s real account and routing numbers on the invoice PDF (no virtual account is created).
- Disables automatic matching for that invoice: payments still arrive in the selected account, but the invoice won’t be marked paid automatically.
- Disables the option to redirect incoming funds for that invoice.
How automatic reconciliation works
When automatic reconciliation is enabled for a customer:- Unique virtual account number: The customer receives a unique account number for sending payments
- Automatic payment matching: When payments are received to that account number, Karat automatically matches them to open invoices for that customer
- Invoice status updates: Invoices are automatically marked as “paid” when matching payments are received
- Email notifications: You receive email notifications when payments are received or when payment matching needs your attention
Destination account
Each invoice has a destination account that receives the payment once it is matched.- You select the destination account on the Payment details step when creating the invoice. Your primary checking account is selected by default.
- Auto Tax Planning (ATP) accounts are not available as destinations. ATP allocations are managed separately by Auto Tax Planning and not by invoice reconciliation.
- Closed accounts are also excluded from the destination options.
Auto-split incoming funds
When you create an invoice, you can optionally turn on Auto-split incoming funds (also labeled Redirect incoming funds) on the Payment details step to redirect portions of the matched payment to other recipients automatically.- Each split is a recipient, an optional description, and an amount.
- The combined split amounts must be less than or equal to the invoice total. Any remainder stays in the destination account.
- Splits are paid out automatically once the incoming payment is reconciled against the invoice. The virtual account still handles matching the payment to the correct invoice, so reconciliation continues to work the same way.
Enabling automatic reconciliation
Automatic reconciliation is set up for you as part of the invoice creation flow. When you create an invoice for a customer that doesn’t yet have a virtual account number, Karat generates one automatically and displays it on the Payment details step. That same virtual account number is then used on the invoice and PDF payment instructions. You can also enable or view a customer’s virtual account ahead of time:- Go to Banking > Invoices > Customers
- Click on the customer you want to enable reconciliation for
- Click the More menu (three dots)
- Select Enable automatic reconciliation
Payment tracking
When a customer has automatic reconciliation enabled:- Each customer has a unique virtual account number for payment tracking
- Payments sent to this account number are automatically matched to open invoices
- Invoices update to “paid” status when the full amount is received
- Partial payments are tracked and applied to the invoice balance
Supported payment methods
Automatic reconciliation works with all inbound payment methods supported by your virtual account number:- ACH transfers
- Wire transfers
- RTP (Real-Time Payments)
- FedNow instant payments
Email notifications
You’ll receive email notifications in the following scenarios:- Payment received: When a payment is successfully matched to an invoice and the invoice is marked as paid
- Ambiguous payment: When a payment cannot be automatically matched to a specific invoice (for example, if the payment amount doesn’t match any open invoice exactly)
Customer payment clarification emails
When a payment can’t be matched automatically, Karat can also email the customer directly to ask which invoice the payment is for. This is opt-in per invoice and is off by default. To enable it, check Allow customer payment clarification replies on the Review and send step when creating an invoice. You must also leave Send invoice email to customer enabled. Karat only sends a clarification email to the customer when all of the following are true:- Every candidate invoice for the unmatched payment has Allow customer payment clarification replies turned on.
- Every candidate invoice was sent from the same sender email address.
- Each candidate invoice has a sender email on file.
support@trykarat.com, and customer replies are routed to your sender email address.
Viewing customer payment accounts
To view a customer’s payment account information:- Go to Banking > Invoices > Customers
- Click on the customer
- The payment account status will show:
- The virtual account number (if enabled)
- “Not enabled” (if automatic reconciliation hasn’t been set up)