How to improve your month-end close process

The month-end close process is a dreaded routine for many finance departments. The process is tedious and time consuming—but it’s also crucial to ensure your company runs efficiently. Closing the books each month gives executives the information and perspective they need to understand where the business is right now so they can make sound strategic decisions for the future.

While it’s unlikely that anyone will ever mistake closing the books for fun, it’s also true that the month-end close process doesn’t have to be the stuff of nightmares. Accounts payable automation can help speed up manual tasks and prevent common roadblocks, enabling your team to spend less time on the minutiae of the month-end close process and more time on higher-value initiatives, such as forecasting, analysis and communications.

What is the month-end close process?

The goal of the month-end close process is to give businesses a clear view into how your organization performed that month. This entails taking into account every transaction that month, adjusting and finalizing your balances and producing reports to share key metrics with your management team.

Key tasks include:

  • Recording any unentered invoices

  • Reconciling bank accounts and credit cards

  • Taking into account insurance and mortgage entries

  • Reconciling any discrepancies in inventory levels

  • Comparing your planned budgets to actual monthly expenditures

This data ultimately gives your team, as well as management and investors, the information they need to understand the company’s current financial picture in order to make informed decisions.

Performing the monthly closing process at the same time each month creates a predictable structure for your team and the larger organization. It also serves as a cutoff point for transactions, streamlining your reporting and reducing confusion and errors. There is no set month-end close timeline as it varies by organization, but by taking stock of the required monthly activities for your team in advance, you can block off the necessary time and be prepared.

Why the month-end close process matters

Good decisions require data. Clear, comprehensive and easy-to-understand monthly financial reports can help influence changes in spending behavior in the short term, enabling management teams to optimize expenditures and curb unnecessary spending. They can also have an outsized effect on long-term strategy and planning. The less time management teams spend waiting for or chasing down data, the more time they have to focus on bigger picture initiatives.

Closing the books each month also ensures that your team doesn’t need to scramble in case of an audit; your records will already be prepared. The month-end closing process also helps your team catch any mistakes before they roll over to the next month and alerts you to watch more closely for similar errors in the future.

An overview of the basic month-end close process steps

The month-end close process requires finance teams to take into account and reconcile data from across a variety of systems and platforms. Various members of your organization, both within and outside of the finance function, will play a role. The interdependent nature of the process is part of what makes it so complex. For this reason, it can be helpful to articulate in writing the main components of your closing process, important deadlines and who is responsible for each step.

While every business is different, here are a few key components of the typical month-end close process.

1. Review all incoming cash

Do a comprehensive review of any and all income your company received (or was supposed to receive) during the past month, such as revenue, payments on invoices and any loans. Make sure that all customer invoices have been sent out and paid.

2. Review accounts payable (AP)

Review your accounts payable and note any outstanding invoices. Using software to track spending automatically speeds up this process, though it’s still important to double-check your records.

3. Reconcile accounts

Match your internal financial records with account statements (e.g., from banks and vendors). This prevents reporting errors and ensures your books are accurate. The accruals process provides a more comprehensive picture of fiscal health by enabling your team to take into account not only transactions that have been paid but also outstanding liabilities and unpaid invoices.

4. Review fixed assets and inventory

Track any costs related to fixed assets. These assets add long-term value to your business, but they can also cost your company a significant amount each month. For example, machinery needs to be repaired, and tangible assets like vehicles or computer hardware may depreciate in value. Intangible assets are often amortized.

In addition, businesses with physical inventory should perform monthly inventory counts and write off any losses. This enables you to determine shrinkage caused by damage, theft or internal errors. Accounting for your inventory each month can help you better understand your weak spots and come up with solutions to save money and prevent headaches down the line.

5. Create statements

Produce financial statements, including the general ledger, profit and loss statements and balance sheet. Software can generate these documents automatically, saving time each month. Your financial statements provide your company’s leadership with the data they need to inform both short- and long-term business strategy and make decisions in the best interest of the company.

6. Review

Build in a review process to double-check your work. The reviewer may be someone from management or a supervisor who has relevant experience but can also bring a new perspective to the information at hand.

How long should the month-end close process take?

According to APQC’s 2018 General Accounting Open Standards Benchmarking Survey, the bottom 25% of companies needed 10 or more calendar days to complete their close process. By comparison, the top 25% took 4.8 days or fewer. (The median figure for organizations in the survey was 6.4 days.)

While variation in the month-end close timeline is inevitable given differences in operational resources and business complexity, the difference between five and ten days is significant. Imagine being given five additional days each month—60 days a year!—to focus on priorities outside the monthly close. This might mean more time for forecasting and analysis or the ability to implement new software and improve team communications. Or perhaps your whole team is currently working overtime each month to get the books closed—in which case that extra five days would result in a happier, better rested and more engaged workforce.

How to speed up the month-end close process

Extra time sounds great, but it can be difficult to identify and execute on the steps to make that vision a reality. The obstacles to a faster close include understaffed finance teams, complex accounting standards, slow responses from key stakeholders and incompatible, insufficient legacy software programs. Some team members may be comfortable with their established (read: slow) routines and reluctant to embrace change.

Process improvements can help speed things up to a degree—for example, completing any tasks that aren’t time-sensitive in advance and sticking to a detailed, customized monthly closing checklist that clearly communicates responsibilities and cut-off periods. However, data quality is an even greater roadblock than process problems for many organizations. If your data isn’t clean going into the month-end close process, your team is going to need to do a lot of manual intervention at the end of each month—and that intervention is going to take a lot of time.

Suggested readingAccounts Payable Best Practices

Standardizing data definitions is a good first step to ensuring clean data. APQC found that companies who adopted a standard chart of accounts with clearly defined naming and numbering conventions were able to cut an average of two days off their monthly close process.

In general, focusing on good data governance can help your organization streamline and speed up the close process. Sound data governance means creating systems to increase accountability and ensure data quality and consistency across the board. Creating and communicating these policies takes time and thought. It’s the kind of project that can be easy to put off in favor of more short-term priorities. But the long-term benefits are worth it.

Speed up the AP month-end close process with help from Routable

For companies looking to improve data governance, automation is key. Change is never easy, and it’s normal for the transition to new technology to come with some pushback. However, the benefits of automation are hard to overstate.

Automation reduces or eliminates the need for manual data entry, preventing errors before they happen and ensuring data is clean for analysis and reporting purposes. Rather than spending time creating or updating yet another spreadsheet, your team can devote their efforts to higher-value-add activities within the organization.

Routable helps teams streamline the month-end close process with AP automation—allowing your team to verify invoices without manual data entry, ensuring vendors are paid on time and making sure that reports and data are reliable. Routable does the data entry for you, preventing errors and saving work down the line. The platform also makes it easy to import invoices in whatever way works best for your business, whether that’s forwarding bills through email, uploading them or bulk-processing thousands of payments through API.

The platform integrates with existing accounting software (XeroQuickBooksSage Intacct and NetSuite) to fit into your current processes, rather than create more work for your team. In addition, Routable’s two way, real-time data sync with your existing accounting software creates reliability in data collection. When it comes time for the month-end close process, your AP data will be in tip-top shape, freeing your team to focus on other priorities to close the books and get ready for the month ahead.


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