Month End Close
AP Best Practices to Ensure a Faster Month-End Close
The month-end close is a massive headache for many organizations.
In 2018, the benchmarking not-for-profit APQC shared results from its General Accounting Open Standards Benchmarking Survey with CFO.com. In it, they noted that the bottom 25 percent of organizations need 10 or more calendar days to perform their monthly close process compared to the top 25 percent, which can wrap up their month-end close in about 4.8 days or less. According to the report, the average organization needs around 6 ½ days to close the month’s books.
AP is one of those areas that needs to get closed quickly, but there are plenty of opportunities for teams to get bogged down. Managing vendor invoices, tracking down missing receipts and purchase orders, and gathering approvals can create a real problem.
Making matters worse, it’s becoming increasingly difficult to find and hire accounting talent in an economy that is essentially at full employment.
To address these issues, Blake Oliver, FloQast’s Director of Product Marketing, and Rhonda Greene, Director of the Solutions Consulting Team at AvidXchange, hosted a webinar to show how, with best practices and automation, month-end close doesn’t have to be the time-consuming nightmare it once was.
“We’ve got to close faster, we’ve got to close more accurately, and we’ve got to do it with fewer people than ever,” said Blake. “The good thing is, it’s doable.”
AP Best Practices
Of course, an efficient month-end close starts with the right processes in your accounts payable department. Here are three best practices shared by Greene, which, if followed, can help you have a smoother close process.
Tip #1: Create a month-end schedule
Create a calendar that contains all of the deadlines and due dates involved in the month-end close process. Remind all employees of invoices and any deadlines, assign month-end related tasks to appropriate team members.
Allocate staff to focus on month-end close while others focus on daily IT initiatives, such as getting invoices entered into the system, getting them approved and issuing checks. It’s also a good idea to review vacation schedules to ensure adequate AP staffing. This is important every month, but especially at year-end, so you can have the staff you need to get everything accomplished.
Everything has to keep going with AP, but if you are organized and have a plan, it doesn’t have to be a problem. “Everything will run smoother if you have that daily process in place,” said Greene.
Tip #2: Communicate, communicate, communicate
We may assume everyone in the accounting department knows the month-end schedule, but sometimes, the people who approve invoices, forward them to AP, purchase goods and services, or submit expense reports aren’t fully aware of it.
Make sure your AP department communicates the month-end process and all of the associated timelines to all buyers and approvers. Send an email to let people know the timeline and deadlines of when they must submit invoices and expense reports.
Tip #3: Establish and maintain a clean vendor master file
When is the last time you did a cleanup of your vendor master file? If you’ve never done one, Greene recommended taking the time to go through the list to inactivate duplicate vendors and ensure you have a W-9 for each one.
Once you’ve completed the cleanup, standardize the entry process to ensure any new additions to the vendor master file are clean. For example, if you have an invoice from ABC Incorporated, you may find that one person enters it as ABC, another spells out “Incorporated,” and yet another person enters it as “Inc.” Request a W-9 and set up the vendor exactly the way their name appears on the W-9.
How FloQast helps with the month-end close
Many AP departments use a simple Excel spreadsheet to manage their close. Excel is good for many things, but using it as a living and breathing checklist is not one of them. Enter FloQast. FloQast checklists offer clear visibility to the team and — most importantly — an at-a-glance view for leaders so they can keep a track of team members and outstanding tasks.
First, each step in the checklist includes a description of the procedure and allows you to link to relevant documentation. In a time when it’s becoming increasingly difficult to recruit and retain accounting talent, this documentation of processes is crucial.
Another critical difference is the sign-off function. This is more than just entering initials into a cell in Excel. With FloQast, if a checklist item links to a reconciliation, your staff won’t be able to sign off until that reconciliation ties to the trial balance. You can also add notes or review comments and track all of your communication right inside of the application. No more searching through separate apps and emails — it’s all documented right here.
And of course, there are big-picture benefits for those who oversee the work because they can monitor the status of the close from a high level at any point during the close and see how many checklists are complete and how many reconciliations are done versus reviewed versus tied out. And, of course, all members of the accounting team have their own individual view of what they need to do and how they are progressing toward the close.
In 2017, we surveyed accounting and finance professionals with responsibility for month-end close processes in a hands-on, managerial, or support function. Four out of five respondents indicated they were able to reduce their time to close by three days or more by using close management software. Think about that: What would you do with three more business days on your calendar?