The month-end close is critical to your business. The ability to accurately, fast and consistently know your financial status at a specific point in time will determine your profit/loss and help management make key business decisions.
While companies depend on the month-end close to help manage finances, it can be a difficult, stressful and time-consuming process for accounting departments, and unfortunately, it’s not always as accurate as it could be. What’s getting in the way? Accounting needs to have quick access to accurate information from Accounts Payable (AP) process and other departments, and all too often, manual processes get in the way.
This e-book will share best practices for improving your AP processes so that you can have better and faster month-end closes and help make AP a hero in the organization.
What’s Involved in the Month-End Close
The accounting department has to review all of the transactions that occurred during the month to make sure that they all have been appropriately captured, accrued and reconciled for the month-end close. Accounting uses that information to generate a profit/loss statement and report on the financial health of your company at that moment in time. Management can use this critical information to find potential opportunities and issues, as well as help them make more informed decisions. That’s why it’s so important that the information is as accurate and complete as possible. And this all should be done within days, not weeks.
Why Month-End Closes Are So Difficult
There are many factors that make it challenging for accounting to accomplish month-end closes, including:
- They have a hard, fast deadline. When it comes to month-end closes, there is no wiggle room; the close is a firm deadline. Companies take a different amount of time to prepare for the close as they lead up to the deadline. Most companies aim for three days to close the month, and some that have streamlined processes and use AP automation can even do it in a day or two. However, for others it can often take a week before all is said and done.
- The process has to be consistent and standardized. Standardization is key because it’s near impossible to achieve accurate and complete information if the close is handled differently every time. Additionally, many companies rely on the internal knowledge of a few key individuals to know how it should be done, the curveballs to expect and how they should be handled. However, the month-end closing should not depend on individuals but rather rely on the strong process supporting everybody involved.
The Role of AP
Accounts Payable (AP) plays an integral role in the month-end process by providing key information such as expected costs, cash flow and outstanding liabilities that can impact profit/loss. Also, the information needs to be correctly processed within the specified period.
Where Problems Can Arise
Many organizations still rely on manual invoice handling, which makes it difficult to process invoices accurately and on time. Imagine an invoice that arrives on someone’s desk who is on vacation, gets buried under a pile of papers, or is lost or missing. Your company may not even be aware that the invoice exists and it won’t be recognized as an outstanding liability in the month-end closing. Even if you have the invoice on hand, processing it manually is a time-consuming and error-prone process, and given the time it takes, it may not be completed within the month-end deadline.
AP Automation to the Rescue
With AP automation you can process invoices quickly and accurately, which – in addition to improving AP processes and saving money -- also provides tremendous value to the month-end close process. It accomplishes this in many ways, by enabling:
- Faster closes. An automated AP system enables invoices to flow into the organization quickly and automatically, so all transactions are accounted for, even up to the last minute, without requiring AP to manually key anything in. This up-to-date information enables accounting to know what is really going on at any point in time, and it can use that real-time info to close faster.
- Greater visibility. With visibility across all invoices, the AP and accounting departments can see which invoices have been received, which need to be approved, and where they are in the process. Outstanding liabilities are no longer a guessing game, but rather are accurately captured by the system. A centralized invoice receiving process and automated routing capabilities mitigate the problem of lost invoices and, more importantly, the need to hunt for them before routing them to approvers. The visibility means that accounting departments can correctly accrue all the costs, no matter at which state the invoices happen to be in the process. Historical data is readily available and comparison to the previous periods is simple and straightforward.
- Accurate information. Automation reduces errors. By automatically capturing all the details on an invoice, your overall accuracy increases, which is particularly valuable when you have absolutely no time to look for errors. Data entry errors can create a big waste of time. Consider what happens if, for example, someone incorrectly inputs an invoice amount into a different currency, records a credit note as a regular invoice, or mistypes $10,000.00 instead of $1,000.00. The organization could waste a lot of time searching for these errors, which could have been avoided in the first place with automation.
- Smarter automation. Advanced AP automation systems incorporate robotic process automation (RPA) as well as machine learning, where the software learns and takes action based on the data it is fed. Thanks to these technological advances, AP systems have an even greater ability to find mistakes, and they can do that much faster. The days of having to check millions of rows on a spreadsheet for an error are gone. Now, thanks to smart automation, that can be accomplished quickly, accurately, and automatically.
- Better fraud detection. Automation, enhanced by artificial intelligence (AI) capabilities, can detect anomalies to help prevent fraud. This has become a big concern for all organizations – a survey found that 81% of businesses reported fraud in 2019 according to the 2020 AFP [Association for Financial Professionals] Payments Fraud & Control Survey. As the place where invoices get processed for payment, AP is particularly vulnerable to fraud.
- Consistency. In contrast to the “tribal knowledge” of how manual processes are handled, automated tasks process information the same way every time. This consistency allows you to make apples-to-apples comparisons of months and other time periods, so your organization can gain accurate insights and make informed decisions.
- Automated Reports. Open invoices that are waiting for processing, or cross-referencing, or accruals of unapproved invoices, provide the information organizations need at their fingertips to speed up month-end closing.
Best Practices for a Fast, Easy Close
- Reconcile often and automatically, making sure everything is accurate and up-to-date
- Keep manual tasks to a minimum
- Streamline your processes, and reduce transaction flows
- Enable easy access to reports for cross-referencing
- Dependence on process, not individuals
The goal: Every day can be the month-end
When you use automation and have good processes in place, the month-end should be no different than any other day and you should be ready for closing anytime.
AP automation not only provides the visibility and control that enables streamlined and accurate payments, but it also does double duty by enabling the Accounting department to accurately know your organization’s financial situation at any moment in time. And that means faster, more accurate closes, resulting in better reporting and more informed financial decisions.
Learn how you can get started on your AP Automation journey.