Survey results done by a leading software firm:
- A mere 28% of the respondents trust the numbers reported in month-end close
- 90% of the respondents are under pressure to close faster
- About 39% of the respondents are satisfied with the time and quality of their closing process
- Even companies with fully automated closing processes take about a week or more to close their books
Despite technological advances, many companies have accounting departments that still move through their monthly close process at a pace which is unacceptable. Many take several weeks to close their books on a monthly basis, thereby losing much of its relevance when the information is sent over to the management and other stakeholders.
In today’s fast evolving business environment, a quick close is a necessity. In most companies closing speed is even considered a common measure in defining the capabilities of the finance team. This article elaborates more on the bottlenecks in delay of month end close and discusses measures businesses should adopt for a faster and better month end close.
Common causes for delay in month end closing
- Process issues between internal departments, external sources (vendors, bank, lenders), resulting in an inadequate flow of information (data not sent, invoices miscoded, late or incomplete vendor invoices, missing POs) causing a delay in month end closing
- Unclear and changing managements’ perspective about financial reporting and what information they need to run the business
- Outdated processes and systems with many companies relying on employees working manually over simple spreadsheets and calculators. Interlinked processes result in tasks being delayed simply due to a member of the team being sick or on vacation
- Lack of standardization and consistency across similar activities
- Absence of deadlines for critical intermediary processes such as AP entry cut-off and sales closing cut-off dates. For instance, sales teams will often strive to includes orders received in the first week of the current month order to be booked in a lean prior month
Tips for closing the books faster
Get everyone on the same page- It is important for everyone in the organization to understand the importance of closing the books on time. The Finance Head/CFO should brief the staff and external vendors to treat the closing process in a mature and sacrosanct manner. To achieve the goal, have deadlines and set of rules for internal departments and external vendors. Create a monthly closing calendar outlining processing deadlines and requirements. Make sure everyone receives the calendar, understands his/her role and dependencies and adheres to the deadlines.
Use Technology Effectively Internally: Employees lose time when they have to work manually. Creating spreadsheets etc slows down the process. Upgrade to technology, review the closing process and identify all manual activities which can be automated. For example, calculating depreciation or posting recurring monthly or periodic journal entries in the general ledger are ideal tasks that can be automated. Accounting software like QuickBooks has several features which allow the user to automate tasks that take time and are error prone. Tools like Dropbox, and SharePoint, can be implemented for accumulating and sharing data and for reporting.
Implement Technology Outside of The Company: Reach out to vendors and request them to send invoices electronically rather that over paper, facilitate paying invoices electronically. The step would certainly save time and money at both ends and permits accounting resources to be more efficient and work towards closing the month end fast. Automation brings clear benefits to the close process in terms of efficiency, transparency, and speed.
Streamline Accounts Payable Function: Imagine that the AP team receives a large number of invoices on the last date of cut-off. This would throw the month-end close process off track. Therefore, it is important to have clear invoice cut-off dates with vendors. Any invoice received after the invoice cut-off date gets paid in the next AP cycle. Similarly, disbursements can scheduled periodically (weekly for instance) to avoid a month-end spike in payments to be processed.
Companies with multiple locations should avoid paying suppliers and vendors from each location, as this would unnecessarily delay the process. Instead a centralized accounts payable processing and reporting will have the AP team manage the process more efficiently.
Streamline account reconciliation- Every month, the accounting department is required to complete dozens, or possibly hundreds, of account reconciliations. Account reconciliation is perhaps the most time consuming part of the month end close and is also a highly important activity in ensuring the correctness of account balances used for financial statements. A robust and integrated account reconciliation software application will allow the accounting department to streamline the process, automate reconciliations, reduce errors and save time. Many businesses also rely on paper statements or the month end e-statements. This can delay the bank reconciliations. Instead, a weekly/ fortnightly reconciliation of transactions posted during the period is easily possible now as most banks have transactions readily available for download.
Develop a close timeline- Most importantly, if you need to close on time, develop a detailed timeline for the month close. The timeline should act as a roadmap and set clear expectations for all members of the department. It will outline a detailed listing of all significant steps such as accounts reconciliation, adjusting entries, running reports, review of draft financials etc in the closing process will be completed. It is the responsibility of the accounting department to measure the performance parameters and accordingly set realistic timelines which can be achieved.
A systematic integrated and technology driven approach towards month end closing involving all stake-holders can help reduce month end close time substantially. In today’s world, it should be the goal of every business to close its prior month no later than 10th of the subsequent month.
If you are interesting in knowing more about how outsourcing can help your organization in a faster and efficient month end closing process, please email us at email@example.com or call us at 1-646-367-8976. We can also provide a cost-benefit analysis customized for your organization.