4 Use Cases & 5 Benefits of Financial Close Automation in 2024
The financial close adjusting and closing financial records at the end of a fiscal period. The process; however, may be bogged down by different obstacles along the way, including, but not limited to, complex regulatory requirements, managing data from multiple systems, and the lengthy nature of the close checklist itself.
The good news is that there are financial close software solutions that can automate the execution and completion of the checklist with efficiency and minimal human intervention. This will allow accountants to focus on more important matters at hand.
In this article, we aim to explain more what financial close automation is, how it works, what it does, and how it can be beneficial to your business.
What is financial close automation?
Financial close automation software enables users to automate the steps financial close checklist, including journal entry tasks, balance sheet certification, cash flow analysis, and intercompany tasks, just to name a few. We have previously talked of eight steps in the financial close process.
How does financial close automation software work?
Accountants can automate their financial close procedure through reusable process steps, sequences, calendars, and other elements across their processes. These processes can be created through drag-and-drop functionality or can be leveraged from extensive catalogs of ready-to-use financial templates.
The applications also offer accountants the ability to orchestrate the processes they have created through context-aware logic, hands-free workflow management, and remediation.
What are the use cases of financial close automation software?
Financial close automation software helps automate the steps in a financial close checklist, including, but not limited to:
1. Automating journal entry
Journal entries are one of the main activities within the period-end close. It is claimed that over 50% of close tasks are journal-related, mostly because of the meticulous verification that should go into fulfilling the accuracy of the entries. That task gets more complicated, and focus-intensive, with the addition of every new source of data. One of the benefits of an automated solution is that it automatically and accurately enters the data into a journal from different ERP and business systems.
2. Coordinating intercompany tasks
The volume of intercompany data or data that is spread amongst different sectors within an enterprise can cause complexities. The reason is that intercompany calculation is a collaborative process, requiring all concerned personnel to have full visibility of their respective balances, the differences between them, and the underlying transactions.
Foreign exchange differences, timing delays, and different company finance systems, for example, are issues that can lead to a messy and complicated back and forth come close to the season. Resolving all these are complex and time-consuming, threatening the timely closing of the books, and postponing reconciliation for yet another period.
Automated software applications offer the ability to automate the matching of uncleared transactions from respective counter-parties, splitting unmatched items, and alerting nominated individuals for preemptive resolutions. Moreover, the software automatically picks up intercompany-related documents and posts them directly into the counter-party books.
Explore intercompany accounting automation in more details.
3. Eliminating balance sheet inefficiencies
Balance sheet reconciliation, or the balancing of the debit versus the credit, can be challenging because it requires error-free capturing of data from various distributed systems, and then manually inputting them into a spreadsheet. Automating the process would create a single storehouse on the cloud, in which every piece of data is accurately, efficiently, and seamlessly imported into the software, visible by all concerned personnel.
Automating balance sheet certification, moreover, saves valuable time by eliminating repetitive manual tasks, ensures the quality of data, and could potentially reduce audit fees. Lastly, automated solutions can manage data warehouses in order to check for data anomalies or duplicates in order to have a single source for the truth.
What are the benefits of automating the financial close?
We’ve seen how a close automation solution specifically works to carry out the execution of steps in a checklist. Here are some of the broader benefits it would bring to a business:
- Increased visibility: Automation will give you increased and real-time visibility into the R2R process, enabling you to gain true visibility over potential bottlenecks and areas of high risk.
- Time savings: Eliminating manual processes and adopting automation will save businesses time without compromising on quality. Finance teams will be saved from doing repetitive tasks, for the software would do that for them. They will, instead, be freed to focus on value-adding initiatives.
- Employee satisfaction: Working in an environment where procedures and processes that relate to them are fully functional, transparent, and streamlined will result in less stress and more productivity for the employees.
- Enhanced compliance: Automated R2R technology enables businesses to create and present a full audit trail, as well as ensuring that they are meeting reporting obligations and are filling in the data fields.
- Fewer errors: Leveraging RPA to input data into the spreadsheets as they appear on the system will reduce human-induced errors and protects brand reputation, as embarrassments and gaffes will be avoided.
To explore benefits in detail, read our in-depth article about the pros and cons of financial close software.
For more on financial close
To explore more about the automation of financial close, read:
And if you believe your business’s accounting department would benefit from a financial close automation software solution, we have a data-driven list of vendors prepared for you.
And we can help you find the right tool for your business:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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