Accountants, CFOs, and finance teams in general, are always curious to know industry benchmarks on the time it takes to complete the month end closing process. Of course, there’s nothing wrong with benchmarking — it’s essential data that helps determine the effectiveness of your methods, your competence, and the probability of your team meeting its goals.
But when it comes to the month end closing process, there is clearly a sense of insecurity at play. And there should be; because most every finance team will acknowledge, if only grudgingly, that their month end closing process suffers from a process problem; almost every finance team deals with obvious inefficiencies: manual data entry, a lack of coordination and communication between departments, documents or papers getting lost (or forgotten) in the mix — the problems are all too familiar and, yet, remain unresolved.
For each of these problems, there are countless Saas companies, and big name ERPs that claim to have solved them; and they are usually aided by small armies of marketers and process improvement experts flooding you with their thought leadership, and their authoritative white papers telling you what your problem is, and why they are the only ones who can solve it. Just like the companies they work for, they end up saying a lot, without really saying much.
Thankfully, you won’t be hearing any of that from us. Let us, then, get down to the issue at hand.
We’ve spent a lot of time with many controllers, and CFOs who, often needlessly, end up spending a prolonged amount of time doing their monthly closes. Out of all these recollections, one particular anecdote sticks out.
This company, a growing firm with over a hundred employees, had as many as seven members in its Finance team, and so it was strange that their month end closing process would take as long as two weeks. (According to some, the industry standard is considered to be five days — obviously, there would be many people who would disagree and have very good reasons to do so.)
Interestingly enough, they knew exactly why their month end closing process was taking so long. The reason was their reliance on other department heads to provide them with financial reporting data that was needed to begin the month end review. And this data was specifically about spending.
Here is what was going on:
The company was ordering a variety of products and services every month — stationary, laptops, coffee, IT equipment, software licenses, server fees etc. If an employee wanted something for use, he would tell his department head about it. The department head — his boss — would then make the purchase using her corporate credit card.
If the purchase was an expensive one, the department head would, on his own time, let either the controller or the Accounts Payable clerk, or someone else in the Finance team, know how much had been spent on it. Such notifications would be made either in person, or via email, and, always, after the fact i.e. after the purchase. Any information about purchases related to inexpensive items, or those items that were below a certain dollar threshold, was deemed not important enough to be conveyed to Finance.
As the month would draw close to an end, the Finance team, gearing up for the month-end close, would remind all department heads to forward all invoices or receipts relating to all of the purchases that they had made in the month. Once these were in its possession, the team was able to start reconciling invoices, receipts. If anything seemed missing or out of place, the team members would scroll their inboxes to ensure if they had missed something out — just to make sure that they had accounted for every purchase that their department heads had informed them about. Sometimes, they would find that the department head either forgot to send them an invoice or receipt, or had lost it. This happened often, but, when it did, someone from Finance would go over to where the department head sat, and put an end to the confusion.
Already, by now, you’ve probably been able to spot several red flags in this workflow. But this workflow — rather, this lack of workflow — suited the company pretty well while it was still small, with a few dozen employees working out of a small office. All in all, it would take the Finance team between two to three days to do their month-end review.
The trouble began when the company quickly swelled in size, and revenue. As the employee count crossed 100, the number of monthly purchases increased to an average of 500. At this scale, reconciling invoices, let alone keeping track of what had been ordered in the month, caused a lot of headache and frustration to the Finance team. With the drastic increase in the number of orders being placed, department heads — overwhelmed with the mounting number of invoices, and receipts — slipped.
Everything else involved in the month-end review, the Accounts Receivable, Payroll etc. took the same time as it did before. But it now took almost 14 days for the Finance team to complete their month-end review. Unsurprisingly, what delayed the process was Accounts Payable — the finance team had to extend more time to the department heads to pass on the invoices and receipts for the month’s transactions. And, unlike earlier, the back-and-forth between Finance and individual departments did not go as smoothly as it did before — now the company had two offices, and the absence of a face-to-face interaction only led to more confusion at the expense of time.
How did they solve the problem?
The Finance team knew that the company needed instant Spend Visibility. They needed a new way of tracking all of the company’s purchases — a way that would give both Finance and the department heads spending data that was available in a realtime and accessible way. For a company that was growing at a startling pace, its financial reporting process was regressively inefficient, and in need of a major transformation.
They soon realized that they needed an agile and user-friendly spend management solution to reduce the time it was taking to do their month end closing process.
Generating real-time and accurate Spend Data is not a best practice, it’s an absolute must. To achieve this, businesses look to spend management software as a solution; but, in most cases, they get badly burnt because software isn’t a magic fix — there are far too many factors and variables that decide whether a software will work for your company or not. At Procurify, we have worked with a highly diverse set of companies, CFOs and Controllers from around the world — through years of trial and error, we have continuously refined our spend management product to fit your specific needs. At the end of the day, any software’s real test is whether or not it is willingly adopted by its end-users. Schedule a free consultation with us today, and we maybe able to help with your needs.