The steps mentioned above seem fairly straightforward, right? And yet, organizations find it difficult to close efficiently and on time in most cases. Since month-end financial close involves multiple tasks and stakeholders, it presents some complex challenges for the organization.
Disorganization and time-consuming manual financial close processes
In most accounting teams, there are no fixed rules to follow while closing for a financial period. The entire financial close process is conducted simply on the basis of institutional memory rather than standard operating procedures (SOPs). As a result, this becomes a highly disorganized effort with multiple people doing things the way they think is best.
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The lack of structure and defined protocols is further aggravated by the heavily manual way of doing things. Accountants and R2R analysts often:
- Create a list of closing tasks manually and follow up with people from different functional teams (for example, account receivables or accounts payable) for marking those tasks ‘complete’
- Store their work papers for each GL account in their respective systems and share them over emails when someone asks for them
- Sit with a calculator to match all transactions one-by-one and look for errors and omissions
- Check previous transactions to investigate an error or omission by searching for a specific GL account, vendor or amount
These are just some (of many) instances where accountants and R2R analysts rely on their eyes and archaic communication systems to get the the job done. Result? The financial closing gets delayed by 7 to 10 working days and is still not accurate since the manual tasks leave a lot of room for errors.
Rush to close at the end of every financial period
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Throughout the financial period (a month, quarter or year) the finance team waits until the end of the period for the information like:
- Purchase orders (POs)
- Expense reports
- Invoices
- Sub-ledger and General Ledger data
- Bank transactions
Consequently, they cannot perform the close tasks until the very end of the period. Even if they attempt to consolidate the close information the CSV data will not be incrementally consumed. Hence, each CSV file retrieve will require:
While this effort might marginally shorten the month-end close timeline, it ends up being resource-heavy and leaves a lot of room for errors (owing to the manual data handling).
With the bulk of work pushed towards the end of the period, the team is never able to achieve day zero close.
Disparate systems and inefficient collaboration
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Organizations majorly rely on their ERPs and CSV files to record transactions, reconcile them, find anomalies manually, fix them, and prepare financial reports. In some cases where the accounting team has recognized the need for automation, they end up investing in tools for a specific function like record transactions, account reconciliation or an enterprise accounting software.
While this may seem like a good solution, it’s a temporary one. Different members using different tools will first lead to lack of visibility in the team and secondly cause gaps in the data as information won’t flow seamlessly from one tool to another. As a result, some tasks might get automated but people end up doing more things manually to compensate for the inefficiencies.
Additionally, teams still use emails as their primary communication channel where they raise concerns about missing documents, assign GL accounts for R2R analysts to work on, follow up with the A/R and A/P managers for information, and more. This slows them down considerably and the management has no visibility into the financial close bottlenecks.
Source: https://tholansonnha.com
Category: Finance
