Automation: The Key to Reducing Your Financial Close & Reporting Period

Ask any finance person what is it that they like less about their job, chances are that they will tell you it is closing the books at period-end. Why is this the case? For many finance functions, the financial close period (month-end, quarter-end and year-end) is one of their most stressful seasons.

Emotions and tempers fly high. Team members put in long hours just to balance the books.

I have heard cases of teams knocking off after midnight for a couple of days and always ask myself why. Expressions such as “I am working late because it’s month-end, quarter-end or year-end” are starting to sound off like a cliché.

Are Finance teams swamped with work to such an extent that they are unable to complete their tasks within the normal working hours of the day or month? Maybe it’s tradition that must be preserved at all cost?

I am not trying to make myself a saint here. I too am a culprit. I have put in long hours at month-end or any other period-end close more than I can remember, and when I reflect back, most of the tasks that I put in the long hours for were mundane and not worthy of their time allocation.

In my experience, there are two main reasons why Finance teams find themselves working round-the-clock at the end of each financial close period – 1) Complacency and 2) Procrastination.

Complacency is the enemy of progress.

It is a common practice for humans to remain satisfied with the way things are and resist any meaningful change. Fear of the unknown makes us skeptical to embrace change.

What we forget is that not all change is bad. As much there is change associated with negative consequences, there is also a type of change associated with positive results.

Although technology has evolved over the years, it seems as if this new dawn is yet to reach the Finance function. In a number of companies, Finance has been very slow to adopt new enabling technologies in order to drive financial process efficiencies.

Take financial reporting as an example. Company stakeholders are increasingly demanding CFOs to deliver better and easy to understand performance information, more timely and credibly. Despite this need, Finance teams are still heavily reliant on manual extraction processes, and delivering stale information.

Finance people are spending a significant amount of time trying to manually consolidate company financial performance results.

So often Head Office teams patiently wait for subsidiary companies to send through their management packs for Group consolidation purposes and when they do reach the Head Office, they have not balanced and contain errors.

The Head Office team sends the management pack back to the subsidiary for rectification. If the latter is unable to rectify the errors, it automatically becomes the Head Office’s problem. This back-and-forth process results in unnecessary effort and time-wasting rework.

Love it or hate it, Excel is here to stay. Nonetheless, I believe there is a place for Excel and not all financial functions are easily performed with Excel. It is high time CFOs acknowledge the limitations of manual extraction processes and leverage financial consolidation software.

Automating consolidation functions results in reduced cycle times of discrete tasks, more accurate results at a lower cost, and also provides management with improved visibility and control, allowing for improved decision-making.

We Will Correct the Errors Later

Many at times procrastination has resulted in Finance teams working longer hours than they should. Accounting errors identified early in the month are not resolved immediately. Rather, the slogan is “We will correct the errors at month-end”.

When month-end comes, because of other issues at hand, these errors are easily forgotten and left to accumulate. What could have been resolved in one month ends up not getting resolved for another six months or so.

An example of this would be a clearing account that is not reconciled on a monthly basis. The balance is allowed to grow month-on-month until there is no more control and visibility of the account.

When the year-end comes, the external auditors want a precise explanation of the item movements within the account but nobody has a clue of when did the problem start and what exactly went wrong.

The auditors make note of a possible adjustment to the financial statements unless clarity is given.

Because the company is not prepared to write-off the adjustment to the income statement, the CFO reassigns resources to work on the clearing account, resulting in excessive time being spent trying to make sense of the historical items and movements.

It is therefore imperative that as soon as accounting errors are identified, these should be rectified in the same period identified.

Fast-Changing Environment Accelerating the Need for a Faster Close

In today’s fast-changing environment, companies need the ability to make better decisions and at a moment’s notice. Changes are happening must faster than before and because of this quickening pace of business, CFOs will forever be under immense pressure to shorten the time-frame of closing the company’s books and finalizing all financial reporting needs.

Regulators, rating agencies, investors and other stakeholders are increasingly scrutinizing company financial results, at the same time asking to receive this information sooner than later. This leaves little room for financial close and reporting processes that require an overabundance of patience or are lacking in clarity and precision.

Despite dramatic improvements in financial technology over the years, why then are CFOs reluctant to upgrade their company’s current systems? Are they dealing with competing priorities? Is it because they view investment in new financial software as a cost rather than an enabler of business performance?

In order to become effective business partners, the office of Finance needs to abandon its “wait-and-see” approach, become more proactive and invest in tools that help accelerate the financial close process and advance the CFO’s role, making it more and more strategic.

Automation is not meant to oust employees. Instead, automating routine financial processes shortens the period-end close and enables Finance to get involved in high-level tasks such as interpreting and analyzing data, generating insights, managing emerging risks and driving strategy execution.

For example, by investing in e-procurement software instead of relying on a highly manual, paper-driven P2P process, CFOs are able to monitor the company’s cash flow position in real time and take advantage of early-discount opportunities.

As the pace of business change continues to accelerate, Finance has to keep up, take a real-time overview of the entire close process, and address the areas that need improvement.

By incorporating technologies, streamlining processes, and reassigning employees, Finance can build a better-documented, more efficient and accurate financial close.